Retail vs. Institutional Financings
Have you ever tried eating at a high-class, celebrity-bustling restaurant and found that even after you’ve made a reservation, the likes of Justin Bieber or Kim Kardashian are escorted to the first available table? That’s preferential treatment at its finest. Retail and institutional financings are similar: Retail investors are newbies and institutional investors receive preferential treatment. Is it fair? Meh. But does it happen? You bet.
What is Retail Financing?
It’s hard for retail investors to gain access to financings. In order for big businesses or companies to get large-sum financings done, they need large orders and large amounts of cash. Retail investors don’t have this competitive advantage, as they’re typically classified as investors with small purchasing power given they are managing their own finances versus a large corporation.
When retail investors want to finance, they typically have higher trade and commission fees in contrast to institutional investors. Oftentimes, it is difficult for big companies to obtain access to many retail investors because retail investors need to go to brokerages and brokerages charge fees. And, as you can probably guess, most businesses want the least amount of fees as possible.
Example of a Retail Investor
If you’re reading this, then chances are you’re a retail investor. A retail investor is a newbie investor that likely doesn’t have as much cash as institutional investors, therefore, making it more difficult to get in on large-cap financings.
What is Institutional Financing?
Unlike retail investors and retail financings, institutions drive the demand of companies because the companies know that institutional dollars are worth something. When an institution gets involved in a company, they have the ability to drive the terms of the financing and will likely ask for additional benefits including:
- Bigger discounts
- Warrant certificates
- Anything they can get from the company because the institution realizes that their dollars are worth more than the retail investor
Companies realize that they only need around 10-20 institutions to generate more financings because institutions have more money than retail investors. Not only do companies not have access to as many retail investors, but it would require upwards of 1,000 retail investors to secure the financings that the company needs.
Long-story-short, institutions drive the terms and size of the financings needed to get the job done.
Example of Institutional Investor
An institutional investor is any company that invests its client’s dollars. Institutional investors are not newbies—they have more experience and more money, allowing them to get in on financings from large-cap companies.
What to Look For to Make Money
Here at FinancingsNow, we provide you with unrivaled access to financings through our team of small-cap experts. We will only bring you opportunities in the small-cap space that our expert backers would also invest in. We want companies in the small-cap space to look at FinancingsNow as an institution: they can pitch us and leverage our team of retail investors/subscribers — and when they do, YOU will have the opportunity to make money.
A Popularity Contest
SPACs have been all the rage—especially in 2019 and in 2020. In 2019, SPACs raised over $13B for small companies. In the first half of 2020 (as mentioned above), SPACs have already raised over $10.5B. The reason why SPACs have gained increased popularity is due to underwriters coming from hotshot players like Goldman Sachs.
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