Who Gets the Shares?

The Allocation Decision Most Biotechs Underestimate

Fundraising share allocation is one of the most overlooked drivers of a biotech company's long-term valuation. Who ends up holding your stock shapes how that stock behaves for years afterward. A well-constructed base, whether built at an IPO, a follow-on, a registered direct, or a PIPE, will support your stock through key milestones, reduce volatility around clinical readouts, and position the company to raise capital on favorable terms when the next window opens. Get it wrong, and your shareholder base may amplify volatility, forcing the company's next raise from a point of weakness.

In biotech financings of every kind, enormous energy goes into marketing: crafting the narrative, refining the pitch, securing the right meetings. But one of the most consequential decisions of the entire process often receives far less strategic attention: who actually gets the shares. Allocation is not a clerical step at the end of the book-building process. Done thoughtfully, it shapes a company’s institutional ownership for years. The right shareholder base, anchored by high-quality, long-duration investors with genuine conviction and alignment with the company’s long-term strategy, creates a foundation of ongoing support.

At Kendall Investor Relations, helping biotechs think through their shareholder base composition, grounded in data collection, analysis, and many years of experience, is a core part of what we do. The principles below reflect what we have learned working through that process across a range of financing environments.

Prioritize Investors Who Believe in the Long-Term Story

Not all institutional demand is equal. An oversubscribed book is obviously a good problem to have, but the quality of that demand matters enormously. The goal is to identify and prioritize investors who genuinely understand and believe in the broader long-term opportunity: meaning the company’s scientific platform and broader pipeline, not just the lead asset or the primary upcoming milestone. This requires knowing your company’s target investor universe well before the marketing process begins: each fund's track record in the therapeutic area, typical holding period, and history of follow-on participation or liquidation out of the stock are all relevant inputs, and IR counsel can play a meaningful role in building that picture.

It also requires awareness of the allocation process. Banks manage relationships with institutional clients, some of whom generate more fee revenue than others, and there can be pressure to favor those clients. We have encountered situations where companies completed a raise only to discover that several of the largest allocations went to accounts with deep bank relationships that were clearly not the ideal shareholders. The best approach is to set allocation priorities early, well before the deal closes, so the banking syndicate understands the company’s philosophy from the outset.

Finally, take into account that every investor has an exit strategy. Investors will trim or exit a position when their own criteria are met, regardless of where the company is in its lifecycle. That is precisely why selecting for durable conviction from the outset matters: the goal is to build a base that stays engaged through multiple milestones, not just the next big one.

Do the Work Before the Book Closes

Management should approach the allocation conversation as active participants, not passive approvers: arriving at the final discussion with a clear, data-informed view of which accounts deserve priority and why. That analysis should examine each prospective investor’s behavior in prior offerings, both IPOs and follow-ons: Did they hold or flip? Did they add in the aftermarket? Did they participate in follow-on financings? These are knowable facts and more predictive of future behavior than a fund’s stated philosophy or the level of excitement for the company expressed in a roadshow meeting.

Equally important is sizing allocations to the investor. A 3% allocation of a $200 million offering is $6 million: significant for a $500 million fund, inconsequential for a $10 billion one. A position too small to actively manage is unlikely to generate lasting shareholder engagement.

On a publicly marketed deal, none of this happens in a calm room with time to think. Final orders often don't firm up until right after market close on pricing day, leaving management and the banking syndicate to settle on allocations that same evening. Funds you expected to anchor the deal sometimes step back or come in smaller, while others you didn't count on place large orders. Much of the allocation analysis can be done in advance, but not all of it: having a team ready to analyze new information quickly and rigorously allows management to make wise decisions under pressure, rather than defaulting to the bank's judgment.

Build a Diversified Base of Meaningful Core Shareholders

A well-constructed shareholder base includes multiple high-quality institutional holders with meaningful positions. As a general framework, core allocations might fall within 3%–10% of the offering, with select priority investors potentially receiving up to 10%–15% where concentration risk remains acceptable.

The optimal degree of investor concentration in an offering is an area of genuine debate. Some investors and advisors argue that concentrating a large portion of the offering with a single highly supportive, deeply knowledgeable shareholder can be beneficial. RA Capital has written extensively in support of this view as part of their "Series I" IPO framework (racap.com/series-i), which is worth reading for any management team preparing for a major financing.

There is often tension between large allocations and a more diversified base. The tiering above is the framework to address this issue: a small number of true anchors sized to matter, surrounded by a wider group of smaller but still meaningful core holdings, sized relative to each fund rather than to a fixed dollar threshold.

At Kendall IR, we believe a broader coalition of high-quality shareholders produces a more resilient ownership base over time and mitigates risk. A well-diversified institutional base is less vulnerable to portfolio shifts, personnel changes (including board transitions), or evolving conviction or alignment with company strategy. When a highly concentrated investor reduces a large position in a thinly traded stock, even for reasons unrelated to the company, the selling pressure can be outsized and prolonged. Also, the optics of such selling can have a broader negative impact. Building depth across multiple committed shareholders is, in our view, a form of structural risk management.

An Opportunity to Expand the Base

Companies often feel a natural pull toward rewarding existing holders with allocations, whether that means existing long-time private-market investors at the IPO or current shareholders in a follow-on. However, every financing is also an opportunity to establish new relationships with investors who can become long-term holders and participate in future capital raises. Indeed, some of the highest-quality long-only funds do not invest in private companies at all, and others may have simply passed earlier. Each new offering is a fresh chance to bring them in. A shareholder base that mirrors the last cap table, or a follow-on that simply tops up the same names, is a missed opportunity.

This is another reason why ongoing investor marketing should be a key focus for management. Investors who passed earlier may simply have had timing or valuation constraints, not a lack of interest in the company. Keeping prioritized investors engaged and informed between raises means they are ready to act when the next window opens.

Make Allocations Meaningful

Spreading allocations too thin is one of the most common mistakes in book-building. A token position that barely registers in a fund’s portfolio is unlikely to generate active shareholder engagement, and a position that feels disproportionately small relative to an investor’s order can prompt them to exit rather than hold an inconsequential stake. Give priority investors allocations large enough to matter and accept that some accounts will be disappointed. Managing that reality well, through thoughtful prioritization and clear communication, is part of the job.

Be Selective About Shorter-Term Investors

Some frameworks and banks treat a 5%–10% sleeve for shorter-term investors as a standard component of a well-structured book, on the theory that hedge funds support liquidity and price discovery after the deal is priced. We disagree with this as a default. In a sector where a binary event, a Phase 2 readout or an FDA decision, can move a stock dramatically, allocating to accounts without durable conviction introduces selling pressure at exactly the wrong moment. In our experience, the liquidity long-term investors rely on does not depend on seeding the book with shorter-term accounts. If they are included at all, the allocation should be modest.

The Bottom Line

The companies that get allocation right treat it as an integral part of the financing strategy. Kendall Investor Relations helps clients navigate every stage of that process, from identifying and targeting the right investors to advocating for optimal allocation and preparing management for the conversations that follow, including the difficult ones. Building the right shareholder base is not just about closing a deal. It is about setting the foundation for continued value creation over the coming years.

Companies that emerge from a financing with the strongest shareholder bases approach allocation with the same strategic rigor they bring to pricing, narrative, and investor targeting. They know which accounts they want before marketing ends, they advocate for those accounts with their banking syndicate, and they think about their shareholder base not just on day one, but regularly as a public company.