Dangerous Exit Liquidity: Why I am Passing On The SpaceX IPO

Whenever you had been a child, did you ever dream of rising as much as be somebody’s exit liquidity? Most likely not.

However each time you purchase shares in an organization IPO, that is precisely what you turn out to be. Whether or not being an early investor’s exit liquidity is nice or unhealthy is tough to say within the brief run. In the long term, you’ll actually discover out.

The principle motive I have been investing a larger proportion of my capital in non-public firms over the previous 20 years is as a result of non-public firms are staying non-public for longer. Extra of the positive factors are accruing to personal buyers on the expense of future public buyers.

SpaceX, for instance, was based on March 14, 2002. IT‘s lastly going to IPO 24 years in a while June 12, 2026. Microsoft was non-public 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 carried out nicely. I am undecided the identical will occur for SpaceX.

So probably the most frequent questions I get from e-newsletter readers currently 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 shouldn’t be variety 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, Yr 1 Max Drawdown.

The draw back will get worse if you happen to purchase a big IPO that gaps up and then you definately chase IT. A more moderen 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. As we speak the share value is round $22. That’s tough.

Do not Need To Be Half Of The Retail Frenzy

In the end, Morgan Stanley priced the Figma shares fairly on the time. Retail frenzy was the primary motive the share value spiked on day one.

I have been investing in public equities since 1996 and helped over 100 firms IPO throughout my days at Goldman Sachs and Credit score Suisse. My expertise is easy. Extra retail participation creates extra volatility, as a result of retail buyers are traditional paper arms and short-term holders.

So with SpaceX elevating $75 billion, the biggest IPO in historical past, and allocating 30% of the deal to retail, roughly $22.5 billion of shares, I see that as a internet unfavourable, not a internet constructive.

The volatility goes to be wild. If you may get SpaceX at its IPO value, there may be doubtless a larger than 60% likelihood the shares will commerce up in the course of the frenzy. Nonetheless, if you happen to’re collaborating within the IPO, you’d higher watch your place rigorously the primary day and the primary week. Perhaps even take the time off to be a manic day dealer, one of many worst issues you are able to do in your returns.

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 will likely be greater than 90-to-1. I feel 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 with much more mega IPOs behind? I do not.

This is a glance again in any respect the businesses that traded above 10x gross sales on the dot-com peak and what occurred subsequent.

• 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.
• JDSU: ~50x gross sales. Declined -99%. Stripped for components.
• Qualcomm: ~30x gross sales. Declined -88%. Took roughly 20 years to interrupt even.
• Amazon: ~30x gross sales on the peak. Declined -97%. Clearly an enormous winner now, however not earlier than quite a lot of ache.
• Microsoft: ~25x gross sales. Declined -65%. Took 16 years and eight months to make a brand new excessive (October 2016).
• 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, virtually precisely 26 years later.

• Solar Microsystems: ~10x gross sales. Declined -97%. Acquired by Oracle in 2009.

Investing at cheap valuations matter. Shopping for at nosebleed ranges at IPO is the larger idiot principle 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 if you happen to imagine within the enterprise and its development trajectory. Do not let investing FOMO override your self-discipline. Retail has a implausible approach of bidding sizzling IPOs as much as irresponsible ranges, just for the value to course right as soon as administration experiences its first couple of quarters.

IT” class=”wp-block-heading”>You will Finally Personal SpaceX Anyway, So Why Chase IT?

This is the kicker. At a $1.77 trillion valuation, SpaceX debuts as a top-10 US firm. Index funds will finally be compelled to purchase IT, which implies you will be compelled to purchase IT too, robotically, by your S&P 500, NASDAQ, and complete market funds.

You needn’t chase the IPO to personal SpaceX. Wait a number of quarters and the market arms you a place at no matter the actual 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 will 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‘s 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 means of Enterprise Capital

Lastly, I do not need to be exit liquidity for SpaceX as a result of I already personal funds that can doubtless 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 anticipate them to finally promote the whole holding, as a result of they’re required to return capital to LPs.

I additionally personal a major quantity of the Fundrise Innovation Fund, VCX, which had a couple of 5% SpaceX place as of 1Q2026. VCX shouldn’t be required to promote something that goes public, since IT‘s a everlasting capital fund.

All informed, 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 enterprise funds, I nonetheless would not be shopping for the IPO for the above causes.

What I might Truly Do As an alternative

To be truthful, here is the case for getting and making millionaires wealthy as a substitute of poor. Starlink is an actual money move machine now, Starship might open up a completely new market, and there isn’t any comparable competitor. For those who imagine SpaceX turns into the AWS of house, $135 may look low-cost in ten years.

I am not saying SpaceX is a nasty firm. I am saying I do not need to pay any value for an amazing firm. Worth is what protects you when the story stumbles.

So what would I do? I might wait. Let the lockup expire, let the primary earnings experiences land, let the frenzy burn off. If the enterprise is pretty much as good because the bulls say, IT‘ll be simply as nice at $110 as at $135. And if IT is not, I will be glad I let another person discover out first.

For those who simply should personal shares, then purchase with throwaway cash you’ll be able to 100% afford to lose.

However as a long-time Tesla shareholder, I positive hope SpaceX buys Tesla at a 50% premium.

Reader Questions And Solutions

Readers, are you OK with being exit liquidity for a sizzling 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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