Whenever you had been a child, did you ever dream of rising as much as be somebody’s exit liquidity? In all probability not.
However each time you purchase shares in an organization IPO, that is precisely what you turn into. Whether or not being an early investor’s exit liquidity is nice or unhealthy is tough to say within the quick run. In the long term, you’ll definitely discover out.
The principle cause I have been investing a better proportion of my capital in personal corporations over the previous 20 years is as a result of personal corporations are staying personal for longer. Extra of the positive factors are accruing to non-public buyers on the expense of future public buyers.
SpaceX, for instance, was based on March 14, 2002. It is lastly going to IPO 24 years in a while June 12, 2026. Microsoft was personal for 11 years, Google for six years, and Fb for 8 years earlier than they went public. Those that purchased their IPOs and held on have performed properly. I am undecided the identical will occur for SpaceX.
So one of the crucial widespread questions I get from newsletter readers recently is: Will you be investing within the SpaceX IPO?
My reply is NO, for a number of causes.
Do not Need To Be Exit Liquidity For Massive IPOs
Historical past will not be type to giant IPOs ($1+ billion). Check out this chart highlighting the share value efficiency of choose giant IPOs by time interval post-listing. Discover the ultimate column, 12 months 1 Max Drawdown.
Historical past will not be on the aspect of enormous IPO buyers, and that is for those who purchase shares on the IPO value.
The draw back will get worse for those who purchase a big IPO that gaps up and then you definitely chase it. A current instance is the Figma IPO (FIG) on July 31, 2025 at $33 a share. It gapped up and ran to a excessive of round $122. At this time the share value is round $22. That’s tough.
Do not Need To Be Half Of The Retail Frenzy
Morgan Stanley priced the Figma shares correctly for the time. Retail frenzy was the primary cause the share value spiked on day one.
I have been investing in public equities since 1996 and helped over 100 corporations IPO throughout my days at Goldman Sachs and Credit score Suisse. My expertise is straightforward. Extra retail participation creates extra volatility, as a result of retail buyers are traditional paper fingers and short-term holders.
So with SpaceX elevating $75 billion, the most important IPO in historical past, and allocating 30% of the deal to retail, roughly $22.5 billion of shares, I see that as a internet unfavorable, not a internet constructive.
The volatility goes to be wild. In case you’re collaborating within the IPO, you’d higher watch your place fastidiously the primary day and the primary week. Perhaps take the day without work to be a manic day trader, one of many worst issues you are able to do on your investments.
Do not Need To Be Exit Liquidity At Outrageous Valuations
On the $135-per-share value SpaceX (SPCX) is focusing on, valuing the corporate at roughly $1.77 trillion, its price-to-sales ratio might be greater than 90-to-1. I believe that is the best P/S ratio in IPO historical past. Even IPOs that got here to market at half that a number of went on to underperform the market over the next three years.
Do you actually need to be exit liquidity for a corporation buying and selling at such an excessive valuation when the S&P 500 can also be sitting at elevated ranges? I do not.
Here is a glance again in any respect the businesses that traded above 10x gross sales on the dot-com peak and what occurred subsequent.
- Cisco: ~25x gross sales, P/E above 200. Declined -90%. Lastly broke its 2000 peak in December 2025, 25 years and eight months later.
- Intel: ~13x gross sales. Declined -82%. Lastly broke its 2000 peak in Could 2026, nearly precisely 26 years later.
- Microsoft: ~25x gross sales. Declined -65%. Took 16 years and eight months to make a brand new excessive (October 2016).
- Qualcomm: ~30x gross sales. Declined -88%. Took roughly 20 years to interrupt even.
- Solar Microsystems: ~10x gross sales. Declined -97%. Acquired by Oracle in 2009.
- JDSU: ~50x gross sales. Declined -99%. Stripped for elements.
- Yahoo: ~50x gross sales. Declined -97%. Did not need to promote to Microsoft for $44 billion, and in the end bought to Verizon for a tenth of that.
- Nortel: ~15x gross sales. Bankrupt in 2009.
- Amazon: ~30x gross sales on the peak. Declined -97%. Clearly an enormous winner now, however not earlier than lots of ache.
Investing at cheap valuations matter. Shopping for at nosebleed ranges at IPO is the better idiot concept in motion, particularly when the corporate is not worthwhile. I had a entrance row seat to 1999 mania sitting on the GS gross sales / buying and selling ground at 1 New York Plaza. Loads of buyers misplaced their shirts inside a 12 months.
The higher transfer is to attend for the hype to die down, then purchase for those who imagine within the enterprise and its development trajectory. Retail has a improbable means of bidding scorching IPOs as much as irresponsible ranges, just for the worth to course right as soon as administration studies its first couple of quarters.
You may Personal SpaceX Anyway, So Why Chase It?
Here is the kicker. At a $1.77 trillion valuation, SpaceX debuts as a top-10 US firm. Index funds might be pressured to purchase it, which implies you may be pressured to purchase it too, robotically, by way of your S&P 500 and complete market funds.
You need not chase the IPO to personal SpaceX. Wait a couple of quarters and the market fingers you a place at no matter the true clearing value seems to be. Let the index do the work.
And bear in mind, most retail buyers will not get IPO shares at $135 anyway. You’ll get a tiny allocation, if any.
For nearly everybody, “shopping for the SpaceX IPO” actually means shopping for SPCX on the open the primary morning, after it is already gapped up (or down). That is not shopping for the IPO. That is volunteering to be the exit liquidity.
Already Personal Shares In SpaceX By way of Enterprise Capital
Lastly, I do not need to be exit liquidity for SpaceX as a result of I already personal funds that can seemingly promote half or all of their SpaceX holdings at IPO or after the lockup expires.
A conventional enterprise capital development fund I invested in again in 2022 had about 10% of its fund in SpaceX as of 1Q2026. I count on them to ultimately promote the whole holding, as a result of they’re required to return capital to LPs.
I additionally personal a big quantity of the Fundrise Innovation Fund, VCX, which had a few 5% SpaceX place as of 1Q2026. VCX will not be required to promote something that goes public, since it is a everlasting capital fund.
All advised, I’ve a big sufficient place in SpaceX that purchasing extra wouldn’t be prudent from a danger/reward and asset allocation perspective. And even when I owned none of it by way of enterprise funds, I nonetheless would not be shopping for the IPO for the above causes.
What I would Really Do As an alternative
To be truthful, this is the case for getting. Starlink is an actual money circulate machine now, Starship may open up a completely new market, and there isn’t any comparable competitor. In case you imagine SpaceX turns into the AWS of area, $135 would possibly look low-cost in ten years.
I am not saying SpaceX is a foul firm. I am saying I do not need to pay any value for an awesome firm. Value is what protects you when the story stumbles.
So what would I do? I would wait. Let the lockup expire, let the primary earnings studies land, let the frenzy burn off. If the enterprise is pretty much as good because the bulls say, it is nonetheless nice at $110 as it’s at $135. And if it is not, I will be glad I let another person discover out first.
In case you simply need to personal shares, then purchase along with your throw away cash you may 100% afford to lose.
However as a long-time Tesla shareholder, I certain hope SpaceX buys Tesla at a 50% premium!
Reader Questions And Ideas
Readers, are you OK with being exit liquidity for a scorching and costly IPO? What’s your technique for getting IPOs? Are you shopping for the SpaceX IPO, and why? What value do you suppose it trades at after day one? And do you suppose these mega IPOs will suck liquidity out of the general public markets and set off a correction?
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