What's The Big Deal?
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What's The Big Deal?
SpaceX to File for Biggest IPO of All-Time ($1.75 Trillion Valuation)
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Elon Musk's SpaceX is reportedly preparing to file its U.S. IPO prospectus as early as this week, targeting a public listing this June.
According to new reports from the Information, advisors now predict the company could try to raise a record-breaking $75 billion, far above the $50 billion previously touted.
This would more than double the previous $29 billion record set by Saudi Aramco in 2019.
To put this figure into perspective, this single listing would surpass the total proceeds raised by every other U.S. IPO this year combined
At a projected valuation of $1.75 trillion, SpaceX would instantly become the 7th largest public company in the world.
While the final valuation and offering size won't be locked in until weeks before the June debut, the structure of the deal is already raising eyebrows.
In a significant departure from Wall Street norms, SpaceX is expected to bypass the standard six-month lockup period.
Additionally, while banks typically limit individual investors to 10% of an IPO, the retail and ultra-high-net-worth investor portion for SpaceX could remarkably exceed 20%.
In this episode of the ‘What’s The Big Deal?’ podcast, Deborah Taylor and Graham Smith discuss the unprecedented valuation, why the usual rules don't apply for Elon, and what this means for investors and capital markets.
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Intro
SPEAKER_00Big deal is an understatement for this week.
SPEAKER_01Does that mean IPOs are getting bigger?
SPEAKER_00How do we think about valuing a company like SpaceX or any company that's looking to list?
SPEAKER_01We have never seen a company grow at that rate, particularly one that's already got reasonable scale.
SPEAKER_00I don't know off the top of my head what OpenAI and Android are looking to raise, but say they're all in the range of SpaceX and they all want to raise about 50 billion on the open market. That's like the entirety of the proceeds of 2025 across three IPOs. This week is a it's a it's a mega it's a mega deal, not even just a big deal. We're talking, obviously, the the IPO market has been talked about a lot this year. A few big ones coming down the pipe, but today the one we want to talk about, at least to start off with, I'm sure more to come, is the SpaceX IPO that's rumored for about June this year. At close to$2 trillion. I think they're talking one and a half to$1.75 trillion for this IPO. So big deal is an understatement for this week.
SPEAKER_01Fantastic, I totally agree. I think we're gonna have an absolute blast today talking about the SpaceX IPO. Um, it's a fantastic case study, not only because of the scale of the deal, as you mentioned, almost two trillion dollar valuation that's being touted, uh, because but also because of the cosmic timing. They're scheduling the IPO to coincide with the alignments of Venus and Jupiter. So um a very interesting case study for us to explore today.
SPEAKER_00And in terms of I think that adds at least what a hundred billion to the valuation, probably.
SPEAKER_01Absolutely. Yeah, and maybe a little pressure on the timing as well, but maybe we'll come on to that topic. In terms of what we're gonna cover, we'll start off talking about the state of the IPO markets at the moment. We'll also also talk about how we price an IPO and specifically whether or not we think SpaceX's IPO valuation is achievable. We're also going to explore um why SpaceX is going to be doing an IPO. And finally, of course, the big question that we'd love to ask is who are the real winners in this deal? So, Graham, please do kick us off with a bit of context and background about the state of the IPO markets.
Are IPOs Getting Bigger?
SPEAKER_00So the IPO market does seem to be recovering a little bit after after a dip in volumes. But in terms of in terms of last year, the IPO market raised just over$170 billion. And that was about a 40% increase from the year before. So it does feel like the IPO market is is relatively healthy. And of course, we've got a few big deals coming down the year. So I think what's happening is these companies that are they're prepped for IPOs are just kind of seeing this increase in activity and thinking now now is probably the time. I think the the backdrop though, and the interesting thing to think about in terms of if you're an investor in one of these IPOs, how much value you might expect to achieve through participating in the actual IPO is a lot of companies that are IPOing have been held privately a lot longer than they used to. So again, I could just pull up another stat here. This comes from Morningstar. So in 2005, sorry, in 2025 rather, the the median age of company, i.e. how long it's been since the company was founded until when it was listed, if the company's chosen gone public, has gone from seven years to almost 11 years old. So that means we've got about a four-year increase in the length of time companies are held privately. I think it's due to a few reasons, right? You have you have this huge backlog of private equity and private capital. That has allowed companies to continue operating in the private realm just a lot longer than they had previously. And if you think about, if you think about just the amount of dry powder in the private equity market, I think we're well over a trillion dollars. Again, we think about the private equity and private credit stuff we've been talking about the last few weeks. Of course, it's not just the private equity dry powder you've got to look at. It's the private equity dry powder, the private credit dry powder, all the bank balance sheet availability. There's just a ton of private capital available to keep sustaining these companies longer before the IPO. And what that means is ultimately you're creating a lot more value in the private phase of the company, and you're potentially leaving less on the table for participants in the IPO to take advantage of post-listing. And that I think is one of the things we're gonna we're gonna spend a bit of time talking about today in respect of SpaceX.
SPEAKER_01Yeah, and Graham, what does that mean for the scale of the IPOs? Because I know we've often heard the news headlines talking about unicorns, one billion dollar IPOs. Um, does that mean IPOs are getting bigger?
SPEAKER_00In general, in general, it does, and I think it's also helpful to look at the the split of sponsor-backed IPOs compared to non-sponsor backed IPOs, where in 2005 sponsor-backed IPOs only represented 16% of deal volume, but 65% of proceeds. So I think what we're seeing is we've got this smaller absolute number of companies, but they're just much bigger. They're backed by financial sponsors, they're backed by all this private equity dry powder. So when we see these companies being listed, they're just huge. Again, SpaceX, we'll talk a lot about the valuation today. One one and three quarter trillion dollars. I mean, that's just uh that's massive.
SPEAKER_01Absolutely, but as you said, there's other really huge deals waiting in the wings. We've got Anthropic and OpenAI also planning IPOs, well rumoured to be planning IPOs for later this year. Um and there is potentially a risk, isn't there, that this creates oversupply of IPOs. I mean, they are competing for the same capital, and they are technically also competitors for SpaceX. So I wonder how that could impact the dynamics. Maybe we can come back to that uh later on. Um, but yeah, definitely I think there is a sense that um you know the private markets yet again are influencing what's happening in the public market arena.
SPEAKER_00100%, 100%. Now, why don't we talk? Obviously, we're we're here to we're here to try to educate people a little bit, so why don't we talk a little bit about some of the technical nuts and bolts that goes into an IPO? And I think on my mind, the first the first thing that always comes to mind is just it's just valuation, right? Valuation is a core part of corporate finance, whether we're talking about a listing or some kind of MA activity. How do we think about valuing a company like SpaceX or any company that's looking to list?
IPO Valuation
SPEAKER_01Great question, uh Graeme. As you say, all finance deals are sort of underpinned, if you like, by the company valuation. Um, but there are some specific nuances, or let's be honest, challenges when it comes to valuing an IPO company. I think the first challenge is the importance of comps. What I mean by that is that when we're valuing a company, um, we look around and look at comparable companies and we look to see what multiple of their earnings or revenues that they trade on. And we use that to value the IPO company, and that becomes so much more important during an IPO because we're really looking to see how the market prices valuation of this type of company. So comps take on real significance when it comes to value an IPO business. The second thing is the actual multiples that we use are slightly different. I know when we're valuing companies for many deals, we'll look at multiples of earnings. And although that does have some relevance for IPOs, we're talking about companies that often, when they're IPO in, they're not yet at their full scale. And as the companies scale up, their margins and therefore their earnings are going to change quite significantly. So their earnings today aren't really a good predictor of their earnings and cash flows in the future. So we put much more reliance on revenue multiples. That's EV to revenue as a multiple. And these can be really quite high multiples. And for example, if you look at the um the public markets at the moment, lots of mature companies will trade, um, even if they're relatively high growth, on multiples of maybe two or three times their revenue. But when it comes to IPOs, we can see double-digit multiples of revenues. We've had, for example, Facebook in 2012 IPOing on about 25 times its revenue, and Cloudfair more recently IPO'd on about 30 times its revenue. Now that reflects the fact that the market expects these businesses to grow very rapidly post-IPO. So we do see higher multiples, but let's come back to the point on what SpaceX is likely to be valued on. But um I suspect that the valuation there will be quite stretching.
SPEAKER_00The multiple discussion here, I think it's just really interesting because in the in the private world where I used to do all my investing, you look at some high growth companies that you value on a revenue multiple basis, and the multiples we're talking about are three times revenue, five times revenue, at a crazy level, maybe ten times revenue. And same thing on the on the EV to eBITA side, a really high growth business might trade for some kind of high teens multiple with a leverage multiple that approaches, I don't know, seven, eight times, something like that. These these multiples just blow all those out of the water. Uh so you do you do have to take a step back and just say how how realistic are these multiples? And is the growth that we're being asked to buy into in any way, shape, or form realistic?
SpaceX's Valuation
SPEAKER_01It's a good point, Graham, because I actually had a look at how those IPOs had performed after the after they'd launched. So, for example, Facebook, it had a pretty abysmal IPO, to be honest. Um, but Cloudflare, which was still a very punchy multiple, actually performed very well post-IPO. So that just shows you how much judgment is involved in estimating the growth that you know that is likely to be achieved by these companies. Um but even beyond that, the other challenges around valuing the companies is around the fact they are really unique businesses. So it's easy to say find a comparable company, but the reality is if they're disrupting an industry with a whole new business model, well, how on earth do you find similar companies to use for your for your benchmarking process? And we rely quite heavily on some of the parts valuation for this, which um our listeners are familiar with this, some of the parts is where you basically break down a company into its segments, it's different operations, and you value each operation as if it's an individual business and then put it back together, and that's the value of the whole company. Now, when it comes to IPOs, we often use something called reverse some of the parts, where we say, well, actually, maybe there are other companies in the market that do a little bit of what this company does, and we know what that company trades on as a whole, and we know what multiple, maybe the other parts of the business should trade on. So we can back out a multiple that can then be applied to our very unique IPO business. So some of the parts of valuation is really important when it comes to IPO. And then the very final challenge is really the importance of knowing the capital structure. That's how much debt and cash the IPO company will have after the IPO. And that obviously requires knowledge of the proceeds of the IPO and how those IPO proceeds will be deployed. Are they going to be used to pay down debt? Are they going to be used to fund growth in the business? Because it's only then you can work out, based on the valuation of the company, what the equity is worth. And that is going to drive the IPO pricing. Now, the IPO pricing itself is actually not that complicated in terms of the mechanics, because you start off by saying, well, what's the company worth in the market when it trades? Um, but you then need to offer people participating in the IPO a discount, what we refer to as the IPO discount, because effectively they're taking on the risk of price discovery. They're basically no, they don't actually know what it's going to trade at in the market, so they're taking on that risk. We have to offer them an incentive to participate in the IPO, and that's what the discount aims to achieve. And that's the mechanics of pricing an IPO. But the reality is that when you're offering shares to investors as part of an IPO, you are also thinking about the appetite, the market sentiment, because really you care about investor demand. So effectively, when you're pricing an IPO, you're kind of walking a tightrope between what the valuation is telling you and also what the market appetite is for that IPO as well. So there's all of these different um sort of nuances, if you like, when it comes to IPO valuation. And then beyond that is of course that the market is a moving feast. It's volatile, particularly volatile at the moment, I would say, and that can disrupt the pricing. It changes what people will be expecting to pay at different points in time. And that has been a real issue for some IPOs, where they've had to delay an IPO because although it's priced and there's appetite, suddenly there's a change in the markets, and they have to basically just put it on hold for a little while. Which obviously, if you're trying to time your IPO to align with the planets, um, then that could be a bit of a headache for Elon Musk, let's be honest. So that's how you price an IPO in general, but let's really get down to the nitty-gritty. And Graham, I know that you've been looking at how SpaceX might be valued. So can you tell us a little bit about that?
SPEAKER_00Yeah, let's talk about let's talk about SpaceX in some detail. And I also think this is a really a really interesting opportunity to look back at some of the stuff we've been talking about in previous episodes, talking about AI and finance. And we we actually got uh we got AI. Actually, Debs, which which AI agent or which AI service did we use?
SPEAKER_01It's a great question, Greg. So we used NDX, which has a plugin for Excel, to generate an IPO model for SpaceX. And yeah, I know that last week in your discussion with Matan, you talked about uh AI at the moment being as good as a bad junior analyst. So we've put it to the test, haven't we? Um, tell us a little bit about this in the model.
SPEAKER_00Yeah, and by the way, we're gonna paste a link to this model. Look for that in the in the comments in the description if you want to go through it as well. And there are some things this model this model does well. So, in terms of outlining the valuation history, in terms of looking at the comp set. I mean, the comp set here is pretty tricky. As Debs, Debs, as you mentioned, we don't have a ton of directly comparable companies to a company like SpaceX. In particular, we don't have we don't have really many other companies doing something like Starlink. There are a few other satellite internet providers, but not many. Then we have the launch services, we have the government contracts mixed with the AI business. It's a pretty, in some ways, it's kind of a weird combination of stuff, so it's tricky to really really do some fundamental analysis on what we think it should be worth. But as a first pass model, this does, this does an okay job. So I think the first thing we want to we want to walk people through is just the the private valuation where SpaceX has been has been marked given the the investment that's been made by private investments thus far. And we'll look at how that compares to the the proposed valuation in the IPO. Alright, so if we go back in history in 2015, we have SpaceX valued at 12 billion, that's from their their Series F. We have another series of private transactions taking us all the way to the end of 2025, so not that long ago. And the mark on the company at the end of 2025 was$800 billion. So just think to start off with the valuation that we're being asked to subscribe to as potential IPO investors is more than double that valuation that really just closed a few months ago. The other thing to bear in mind is that$800 billion, this was before the combination with XAI. So XAI was contributed into the group in I want to say early 2026. And at that point, Elon just kind of decided, he kind of guided the market that the company should be marked at a valuation of one and a quarter trillion dollars. Now, baked into that increase, it's not all just XAI. I think I think what he said was XAI, we're carrying at a valuation of$250 billion. We'll get into that in a second. And the rest is a is a markup on the rest of the SpaceX business. So I think with with any with any business that's owned by Elon Musk, you sometimes you have to take a sec back and kind of ask yourself, like, how how realistic are these multiples? How much are they are they just tied to this whole Elon Musk aura and marketing machine? And I do think there's a big aspect of that in this IPO in particular. So if you want to get into the nuts and bolts of the sum-of-the-parts valuation for SpaceX, if you download the model, I'm looking at the we have this business valuation tab where this AI agent has done an okay job in terms of pulling together some comps, but they're pretty limited. We have a few a few businesses that do satellite communications, AST Space Mobile via SAT and Global Star. We've got a collection of businesses that do defense and launch services, but a lot of these are big conglomerates. We've got Lockheed Martin, we've got Boeing in here, so it's a it's hard to make a direct comparison between those businesses and the SpaceX launch business. And then we've got we've got this one uh business direct-to-sell Iridium communications. Um, and the multiples for these businesses are all over the place. So for the mature businesses, kind of as you expect, if we're thinking about these on a revenue multiple, which for mature business, I would argue you don't tend to look at on a revenue basis anyway, we're kind of in the in the low single digits. We're like two, two, three times revenue. This model's kind of funny though. This is where when we talk about AI being as good as a bad analyst, this is where I'd say, okay, it's taking this median, this median multiple of high growth companies and saying, all right, we've got a 77 times revenue multiple that we're using as a median calculation, literally between three multiples. And if I if I just audit a cell in this formula, we're taking the median of a 500 times revenue multiple of 77 and 5 times. I think you're hard pressed to make any kind of logical argument that the median of those three numbers is in any way the right the right one to use. Down below, if I look at the sum of the parts valuation for for this model, we've got the we've got the actual kind of multiple assumptions uh baked in. Um so we say Starlink, Starlink Consumer Business, 30 times revenue, Star Shield eight times revenue, launch services five times revenue, this other direct to sell 35 times revenue, and then basically we have to back in based on the based on the implied enterprise valuation. We back into what we think XAI is worth. And we've got this plug of 250 billion because this is what this is effectively what Elon has said. If we look at this on a forward revenue multiple basis, we're saying XAI is valued at 71 times revenue. If we look at it on a trailing multiple basis, I think we've said XAI revenue in 2025 was$500 million, not$500 billion. So we're at a 500 times revenue multiple implied on XAI. So if we look at some of the other really successful high-growth businesses that have listed in recent years, like Cloudflare probably being the best example of that, Debs, that was that was what, 30, 30 times revenue?
SPEAKER_0130 times trading revenue as well. Yeah.
SPEAKER_0030 times trailing revenue, and now we're looking at 500 times on XAI. If we look at, if we look at the total, the total valuation, you said 2026 estimated revenue for SpaceX, the combined, the combined entity, this is again looking looking to the end of this year, is$28.5 billion. And then if we take the the implied or the the touted IPO valuation of$1.75 trillion, we're at 61 times revenue again on a forward basis. So I don't know, Debs, it just it just feels like the valuation here is the pun intended, sky high, space high, like whatever we want our pun to be.
SPEAKER_01Yeah.
SPEAKER_00And people are just being asked to buy into a lot because it's Elon at the helm and he's saying, hey, I'm gonna like colonize Mars and I don't know where we're gonna get all this growth. It just seems crazy.
SPEAKER_01Yeah, I mean, Graham, I completely agree. I mean, that effectively, if you back out of the target valuation of$1.75 trillion, uh, the multiple that's required for that, we are talking a forward multiple of 60 times and a trading multiple of 100 times revenue. And you know, for context, I believe that you know, if I I run the numbers, using some pretty simple assumptions, we're talking you need a decade's worth of annualized 40% revenue growth. So growing each year at 40% per annum, and that just about gets you kind of in the ballpark of the valuation they're aiming for. We have never seen a company grow at that rate, particularly one that's already got reasonable scale. And as we mentioned, this is a company that's already quite large. It's not starting off from a really small base. So potentially it needs to be at a point where it's generating, you know, uh sort of quite a big chunk of the US's gross domestic product to actually get to the evaluation. So I have to say I'm already doubting whether or not this is achievable as a valuation.
SPEAKER_00So given the modern wonders of the internet, we actually just did a really quick, really quick search to find out what the Tesla revenue kegger's been. And this was a Tesla listed at a at a market cap of about 2 billion and delivered that revenue kegger over, say, the first five years. We're being asked to believe that literally the largest IPO in history, right? This would be the biggest listing ever, right? At just side of$2 trillion, so a thousand times the size of Tesla. And we're being asked to believe that's gonna be a 40-something percent revenue keger for the next 10 years. Like if you're if you're an IPO investor and you're you're really excited about SpaceX, I really think you gotta take a step back and just say, hey, is this even remotely within the realm of possibility?
Elon Musk's Influence (Tesla IPO Success)
SPEAKER_01So the only thing I would say, Graeme, is that let's not underestimate Elon Musk. I mean, the Tesla IPO was absolutely phenomenal. It was an IPO that took place in the shadow of the global financial crisis where auto companies, particularly because of what happened to GM Motors, um, they were completely unloved. And so they pivoted the IPO to basically marketing it as a tech company, and it was a huge success. So I would say there is the power of Elon Musk behind it, but I just do not believe the numbers. I really don't.
SPEAKER_00Fair. I kind of, in some ways, I kind of hate that I that I own a Tesla. Uh it just kind of feeds into the whole Elon Musk. I hate that too, Greta. I know, I know. But in my defense, I really like it. Yeah. Alright, so regardless of the the crazy valuation that we're being talked about here, I mean we haven't SpaceX hasn't actually come to market yet, so when they approach the market, do we do we walk down from one and three quarters to one and a half or something even more reasonable? We shall see. Regardless of the valuation, why, Debs, why is SpaceX wanting to IPO right now or at all?
Why Is SpaceX Going Public Now?
SPEAKER_01Yeah, and that's a really important question. You know, when there's an IPO, you should always ask, what is the rationale? And there's usually a whole host of reasons. I mean, companies IPO because they need to raise capital to fund growth, they need to provide an exit for their investors from previous fundraising, sometimes it's to do with brand or trust building in the market, and sometimes it's even to you know obtain an acquisition currency so they can use their own equity to buy other businesses. Um, in the case of SpaceX, it's very definitely motivated by the need for additional funding. You mentioned XAI that merged with SpaceX just in February of this year, and that is a business which is consuming about what it's burning through about a billion dollars of cash per month. And they have big plans to develop a space-based data centre, and they will need very deep pockets for that. So I think they've already mentioned that they're looking to raise about$50 billion as part of the IPO, so that's going to be a big motivation for doing this. But then, secondly, there is going to be the motivation that they need to get an exit for their existing investor base. You mentioned some of the earlier fundraising rounds. These investors are sitting on huge paper gains and they want to start to crystallise that. Um, so they will be looking for an exit. However, they can't all rush for the exit at the IPO. Usually the bankers will advise the company to only include around 10 to 15% of the existing shareholder base in the IPO because otherwise it's really not a good signal for the market if you've got all of the existing investors leaving, because it suggests they're not really confident in future growth. So there will be some exit for the existing shareholders, and that exit will probably be quite rewarding for them. Um, for those that don't exit at that point or they don't fully exit, um, they're usually locked up for a fair period after the IPO. It's usually between six and eighteen months that there's a lock-up period that prevents them from selling, and it's usually staggered. So, you know, there'll be different sort of exits at different phases per post-IPO, but that's really important to know about as well, because again, that could create an overhang in the markets. Um, you know, when those trade when those shares eventually get sold, um, that will affect how the how the shares trade. So um there will be some exits, but not everyone will be will be uh rushing for the door um at the IPO point. Um, and in terms of kind of what we need to know about in terms of the IPO process, I mean it's not a quick process doing an IPO. Um, we know that it's been planned for a while. Usually IPOs take can well, usually around 12 months, to be honest. There's a whole process they have to follow. There has to be the appointment of the advisory bankers, and it's not just one bank, particularly for an IPO of this scale, you've got a number of different banks that are going to be involved in the advisory process. Um, and I know there's been some headlines as to who's been appointed as the banks already, and all of them will want a share of the fees, and there's some quite you know rich fees involved in uh being involved in an IPA, usually it's around 5% of the IPO proceeds. Um, the work that the bankers have to do, well, they have to do some due diligence to check the operational financial health of the company, and they help to draft the prospectus, which, although I don't know if anyone's ever looked at prospectus, it looks incredibly dry, it's a legal document, but it's technically a marketing document to allow investors to understand what they're investing in. And that prospectus it gets included in something called an S1, which is the first or is it a really important filing with the SEC when a company's about to IPO? And I strongly recommend anyone who's thinking about investing in an IPO or even the SpaceX IPO, you look at the S1 when it becomes available because it's the first time that a private company kind of reveals its financials to the public market, and it's a really good thing to look through, get an understanding of what this company does, how its financials are looking, and that's I think a really useful bit of information when you're looking at an IPO. Um, the next step is that the company has to apply for a listing on an exchange, and we know SpaceX is looking to uh list on the Nasdaq. Um its choice over listing is usually going to be based a little bit on the geography, but also the fact that the NASDAQ has a really strong reputation for tech companies, and obviously that's where SpaceX wants to be, you know, to have its base is on the Nasdaq. Um, there is also behind the scenes, we know that there's been discussions around uh the rules for the indices, um, and the NASDAQ has agreed to, or at least is considering changing its rules. Usually it won't allow a company to be included as a constituent in the index uh for up to a year after it's listed. Um, but SpaceX is looking for fast entry, they want to be admitted to the Nasdaq 100 within 15 days of its IPO, which is extraordinary because normally they have to wait so they can prove that their price level is kind of reflects a fair market. Um they're looking for super fast entry, and the reason for that is obvious, because which is because once you have been admitted to an index, then all passive funds have to own your shares. So that gives them automatically a little boost to the share price performance after the IPO.
SPEAKER_00Uh once the listing's got Elon written all over it, doesn't it? Just fast track, fast tracking. Just change the rules. Rewrite the move just for me. Yeah.
Investment Bank's Roles in IPO
SPEAKER_01Absolutely. Um, and then once the listing's been agreed, then there's a marketing and book building exercise. So basically, the company goes out and meets with investors. It's a little bit like Shark Tank, where the investors get an opportunity to hear the narrative about the company, but also an opportunity to grill the management team and see whether they trust them with their money. I think that's going to be really interesting because obviously that would be Elon Musk being involved in that process. Um, and it's also an opportunity to then start taking orders. That's the book building process where they take the orders from the investors and they finally get enough information to price the IPO because they see what the demand is at you know within the price range that they're considering for the IPO. Once the IPO has launched, um the banker's job is not done, they then have a responsibility in the aftermarket to make sure there's a nice stable price. It's one of the rare exceptions that banks are actually allowed to intervene and sort of stabilise a price, and that's because we want to see a nice stable you know trading in them in for those shares after the IPO. So they basically kind of get involved making sure there's adequate supply and demand for the shares to stabilize that price, and then finally that's when their job is done and they've finished that IPO work and they have earned their fees, I believe.
SPEAKER_00And just Debs, on that, how is it's an interesting point to think about where you say, okay, this is the first time that, or not the first time, but the only instance where banks are really allowed to get involved in the market and and in some ways manipulate the market a little bit. So, how how do they actually do that?
SPEAKER_01Yeah, it's an interesting question. And so effectively they have a couple of mechanisms uh to do that. So they what they effectively do during the IPO is they sell more shares than they've actually been allotted by the company. Um, so they're effectively short selling, and that means that if the share price rises after the IPO, they need more shares, and they have something called a green shoe option where they can go back to the company and ask for up to another 15% of those shares, and then they use those to fill the short positions, and that's basically creating more demand in the market to stop the price from going up and up. If the share price falls, then they have a short position in a falling share price, and that means they can go into the market and buy up the shares, creating more demand, that then stops the price from falling. So effectively, they use the mechanics of supply and demand uh to stabilize the share price.
SPEAKER_00Oh, it's interesting. So, yeah, if anyone's ever heard of the green the green shoe in an IPO, this is this is exactly what that provision does. Do you know why it's called a green shoe provision?
SPEAKER_01Um, I think it's to do with the first time it was used, but don't quite mean that. Yeah, you're right.
SPEAKER_00I like I asked the question, but I had I looked up just a quick as a quick history lesson because it's it's one of those things I feel like I probably knew when I got my analyst training uh 20 20 years ago, uh but I I couldn't remember what it was. And yeah, it was the I believe the Green Shoe Manufacturing Company, something like that. The first company to use this provision, and it just persisted.
SPEAKER_01Yeah.
SPEAKER_00So yeah, quick history lesson.
SpaceX's Fastrack IPO
SPEAKER_01Excellent. Um, another thing I'll just add on the IPO process is that you might have heard of SPACs, special purpose acquisition companies. These were widely used for IPOs around sort of the late uh teens, early 2020s, um, as a way of doing a really quick IPO. As I mentioned, a normal IPO takes about a year. Um, a SPAC accelerates the process by effectively listing a shell company that's an empty company on an exchange, and that shell company is loaded up with cash and then it goes and buys a private company. So effectively that private company becomes public through an MA deal but with no one else, it's just into a shell company. Um, and that is a useful mechanism if you need to accelerate the process and also if you need a bit more certainty over the valuation. Um and I think neither of those apply in this situation with SpaceX. They don't need it to be quick, in fact, they're trying to you know time it with the planetary alignment, uh, but also they are looking for a really ambitious valuation, and so for that they need to go through the kind of the the marketing, the book building, they need to be able to sell the story, as it were, to investors. So um that's probably the reason they've not gone through a SPAC IPO this time.
SPEAKER_00It'll be interesting to see how this all how this all plays out. And it it sounds like it's not gonna be that much time. I always say we have they have plenty of time, but as far as IPOs go, as far as huge IPOs go, still still pretty quick. And it sounds like we'll have we'll have some kind of clarity on where we are, perhaps by June. Do they do they meet that timetable? I guess I guess that remains to be seen.
SPEAKER_01Yeah, it's it's a good point, Greg.
SPEAKER_00Yeah, and I'm sure I'm sure we're gonna talk about this deal again as we as we get a little bit later into the year, also as we get a bit more clarity on some of the other ones that are coming down the pipe. I mean, of course, the three big ones everyone's talking about this year are SpaceX, Anthropic, and OpenAI. And actually, I was just thinking, if if you look at the if you look at the funds raised in IPOs last year in total, I want to say it was like 170 billion dollars. I don't know off the top of my head what OpenAI and Anthropic are looking to raise, but say say they're all in the range of SpaceX and they all want to raise about 50 billion on the open market, that's like the entire IPO proceeds of 2025, which was across, I want to say 1300 IPOs, acknowledging big disparities in terms of size, a few big ones and a lot of little ones, but that's like the entirety of the proceeds of 2025 across three IPOs. Yeah that's just that's wild.
IPO Winners
SPEAKER_01It is wild, and I have to say, um I think it makes me very, very um sort of bearish about how this IPO could play out for SpaceX because you as I said I mentioned earlier, you're competing for the same capital and in the same space, it's basically AI. So um before we kind of I think touch on whether or not we think this is gonna be a successful deal, um Graeme, the big question we always like to ask on this podcast is who the real winners are gonna be in the deal. Um, and I really want to get under the hood of here, who's gonna be the big winner here? Is it gonna be Elon Musk or someone else?
Key Takeaways
SPEAKER_00What do you think? I mean, look, I think if we if if we get anywhere close to the valuation that he's talking about, then he of course is gonna be the big winner. And actually, it's it's you it's interesting to just take a step back and think is part of the valuation here Elon just wanting to be the world's first trillionaire? Like that that could be part of it. I mean, the guy's ego is just insane. Uh so if you think about who who's really gonna win here, let's let's look at this in the context of not just SpaceX, but most companies that are listing being private for a longer period of time, having more time to raise capital in the private markets, build a lot more value while they're private. So realistically, the big winners here, unless there's something we just don't know about, and SpaceX is gonna do all kinds of crazy stuff and hit that 10-year, you know, 40-50% revenue keg or whatever they need to hit to really justify this valuation. The people that are gonna win here are Elon as the as the biggest shareholder, and then all the early investors, really early employees in SpaceX. Like they're if they're not able to, uh to your point before, sell everything immediately, they'll they're gonna build a ton of paper value and they'll be able to offload shares as really as time goes by. I mean, who knows where the valuation trades for SpaceX after after it lists, if it starts at$2 trillion and then trades down, I don't really know. But if we get anywhere close to that level, all these guys are gonna be pretty big winners. And I think the only way you're gonna be a winner as an IPO participant is if you really believe that something, something huge is coming that is not really baked into any of the numbers we've seen so far. And is that a space data center? Is that colonizing Mars? I don't know, but I think you have to believe, you have to be a believer in that kind of stuff to justify participating in this IPO, I think. So, key takeaway for me is we're living in crazy times and it seems like they're only getting crazier. Did you did you ever watch Austin Powers back in the day?
SPEAKER_01Of course, I loved it.
SPEAKER_00Yeah, I kind of feel like we're in that world, it's like it's literally Dr. Evil right now. What's it worth like$100 trillion? Like, sure, like that's that's the world we're living in now. So it just uh it makes me think everything's going crazy.
SPEAKER_01Great. So Elon Musk and Austin Powers separated at birth. Not real.
SPEAKER_00Exactly.
SPEAKER_01So that's it for today's episode of What's the Big Deal. We hope you enjoyed our deep dive into the SpaceX IPO. Uh, please do follow us and uh leave us a rating and subscribe if you're watching us on YouTube.
SPEAKER_00All right, take care, devs. I'll talk to you next week.
SPEAKER_01Thanks, Graham.