Transcript of The SpaceX IPO Is Coming. Here's Everything You Need To Know About IPO Risks and Rewards

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I'm Nicole Lapin. The only financial expert you don't need a dictionary to understand.

It's time for some Money Rehab.

The biggest IPO in history is coming, and this is not a drill. Elon Musk's rocket company has filed with the SEC. The roadshow is reportedly launching the week of June 8th, and the company is targeting a valuation of up to $1.75 trillion, aiming to raise $75 billion in a single public offering. So exactly how historic is this? Well, right now the record holder is Alibaba, which raised $22 billion in 2014. So if SpaceX goes as planned, that would be 3x larger. Some analysts are projecting that the scale and the single deal could exceed the total proceeds of every US IPO in 2024 and 2025 combined. SpaceX CFO Brett Johnson has reportedly told the team of banks working on this deal that retail investors like you and me will be a bigger part of this IPO than any other in history. Elon himself wants to reserve up to 30% of the offering for retail. The industry norm is 5 to 10%. Whether that's genuine appreciation for his supporters or a brilliant marketing move is conversation for another day. But the fact that you're even being invited to the table is a really big deal. But how should we treat this IPO and also IPOs in general?

Because the machine behind a public offering is complicated, it's political, and in the opinion of some very smart people, it's a system that is rigged. But at the same time, IPOs do democratize access to companies that are making insiders rich. And if you're thinking about participating in the SpaceX IPO or any other IPO for that matter, You do need to understand the game before you start playing. By the way, if you don't wanna wait until the IPO to invest in some of the buzziest private companies out there, clients of my firm, Private Wealth Collective, do get an allocation to the SpaceX IPO. I'm gonna explain exactly what that means later, but if you're interested in getting access to more investments, you can always book a free intro call using the link in the show notes. Okay, so we do know what happens at the end of the IPO. You ring the bell and then retail investors can buy the stock. Right, but what happens before that is where the cracks of the foundation really do show. To IPO, first the company has to hire an underwriter. These are typically investment banks like Goldman Sachs, Morgan Stanley, JP Morgan, who are tasked with managing the IPO process itself.

Their job is basically to do due diligence on the company, to help determine its valuation, and to really build the buzz. They do take a fee, typically 3 to 7% of the total money raised. So on a $75 billion deal like SpaceX, that fee could be well into the billions. Then the company files a registration statement with the Securities and Exchange Commission, or the SEC. This is the company's full financial disclosure to the public. It includes revenue, profits, losses, who owns what, and how the money raised will be used. This is a public document. When SpaceX files its prospectus, you could read it— you should, by the way— or at least have AI give you a summary. And that's honestly what I'm gonna do, if I'm being real. Next, the roadshow. This sounds way more fun than it actually is. This is where the company and its bankers go on tour and pitch institutional investors. These are the big pension funds, the mutual funds, the hedge funds out there. The roadshow usually runs about 10 to 14 days, and the goal is to gage demand and to build what's called the book. It's a list of investors who want in and at what price.

The night before the IPO officially launches, the company and its underwriters set a final IPO price based on the demand. That price is what institutional investors pay. Remember that it is important. Then the next morning, the stock begins trading on the exchange, either the New York Stock Exchange or the Nasdaq. The NYSE is the older, more traditional exchange. Companies like Walmart, Coca-Cola, Pfizer are listed on the New York Stock Exchange. The Nasdaq is home to major tech names like Apple, Microsoft, Meta, Google. It's not a totally clean categorization. The NYSE has some tech names like Uber and Dell, but generally tech is listed on the NASDAQ. Both are totally legit exchanges. The choice usually comes down to the company's profile and the fees and the services each exchange offers. SpaceX has not confirmed its exchange yet, but given its tech-forward profile, NASDAQ would be a natural fit. Now we know the major point of all of this IPO rigmarole is to raise money. Going public is What's one of the most powerful ways to raise a massive amount of money? That's— and again, SpaceX wants $75 billion. That kind of fundraising is nearly impossible in the private market.

But there are other perks of going public too, like liquidity for early shareholders. Founders, employees, early investors have often waited years to cash out on their equity. An IPO creates a liquid market where those shares can finally be converted to cash. IPOs also help with credibility and currency. Being a public company comes with a layer of prestige, but also accountability. Public companies can also use their stock as currency for acquisitions, for employee compensation, for partnerships. SpaceX is going to benefit from all three buckets of those perks. They want cash to build data centers in space. They want to fund Starship development. They want to expand Starlink, their satellite internet service, which is a major part of the business. After an IPO winter, there are a lot of big IPOs anticipated in the next few years, not just SpaceX. OpenAI, Anthropic, Databricks, Stripe are all reportedly planning IPOs. And so it's an important time for tech employees to really understand what happens to their equity in an IPO process. Employees might get equity in the form of stock options, which represents the right to buy shares at a fixed strike price. Or in RSUs. RSUs are restricted stock units.

They vest over time and then they convert to shares. When your company is private, those equity stakes exist mostly on paper. An IPO is theoretically the moment they become real money. But you can't just cash in immediately after the IPO if you're an employee. There is a lockup period. The lockup period is a contractual agreement, typically 90 to 180 days, that prevents insiders like employees, founders, and early investors from selling their shares right after the IPO, because if everyone who owns shares rushed to sell on day one, the price would absolutely crater. The lockup period gives the public market time to find the stock's true value before insiders flood it with supply. Most IPOs have a 180-day lockup period. So if SpaceX lists in July, let's say, employees likely can't sell until January at the earliest. And there's some nuance here. By the time the lockup expires, the stock price could be higher, lower, or completely different from where it opened. So to SpaceX employees, you're going to want to have a plan before that window actually arrives, not just the day of. Before I get back to the retail investor side, just 3 quick things I am absolutely begging you to familiarize yourself with if you're sitting on employee equity ahead of any IPO.

Number 1, figure out what you owe in taxes before you sell anything. Depending on how your equity is structured and when you exercise, the tax bill can be significant, and it can hit before you've actually sold a single share. Number 2, once the lockup expires, you'll be subject to blackout periods around quarterly earnings releases, which can limit when you actually are allowed to trade. Number 3, think very carefully about concentration risk. If the majority of your net worth is in one company's stock, selling a meaningful portion after the lockup, even if it means paying taxes, might be the right financial move for you. All right, retail investors, us. Are IPOs the solution to democratizing wealth, or will the system work against you? You remember our friend Bill Gurley? He shared his thoughts on Money Rehab. Bill is one of the most respected venture capitalists in Silicon Valley. He's been an outspoken critic, though, of the traditional IPO process for years. Here's what he said on the show.

I mean, Automated trading was implemented in the late '50s and match supply and demand is understood by any first-year comp sci student or first-year finance student. And yet that's not how they allocate. It's not how they determine prices, not how they allocate shares. So regardless of the Figma IPO or any IPO that traded up or down, the right and fair thing to do on an initial offering is to let price win, you know, and to allocate shares based on whoever's willing to pay the highest price. It's how every stock opens for trading every single day. Like, these techniques are known, and it's how a direct listing works. And ironically, it's how an initial coin offering works. So that's how, you know, anyone in the crypto world would, would match supply and demand. And we've just gotten used to that not being the case in the public markets. And, and these stocks are all mispriced because You're— and here's another huge irony. The next morning, I think it's like an hour to open, they're opening it the way you do a direct listing. That next day they do match supply and demand. And the reason there's a gap is because they didn't do it the night before.

It's really sad. I'm surprised. I'm personally surprised that more people aren't astonished at it. And I'm surprised that people aren't embarrassed by it. The long-term clients of the investment bank get a free one-day pop, and then they give some of that money back through overpriced trading. So they, they, the money flows back to the investment bank.

Bill's central argument is this: underwriters deliberately underprice IPO shares. This creates a massive first-day pop, a surge in the price when trading opens. It sounds like it's a great thing. But it's actually not. When shares are priced at, let's say, $33 a share and trade at $115 on day one, that 250% gap goes straight into the pockets of institutional investors who bought at the IPO price and then sold into the frenzy. By the way, that isn't a hypothetical example. Those are Figma's numbers. Figma went public at $33 a share and it closed its first day of trading at $115 per share. That is the biggest first-day drop of any billion-dollar-plus IPO in US history. The offering was oversubscribed by 30 times. Bloomberg reported that the company and its early shareholders effectively handed over more than $3.5 billion in value to investors who got IPO allocations. The story is the opposite for retail investors, though. At the same time I'm recording this, Figma is down 77% since its IPO highs. That means that retail investors, regular investors who got in after that big pop, they lost a vast majority of the money invested. This is why Bill Gurley says the system is rigged, and I absolutely see what he means, which is why I have been building something to try and level the playing field.

An IPO isn't the wealth democratization tool that it used to be, so I created a new tool, my firm Private Wealth Collective. If you want access to private companies like an institutional investor, we can definitely help you with that. If you're wondering about investing in an IPO, our fiduciaries can help you make the right decision for you. And if you're an employee at a company going public, yep, we can absolutely help capitalize on that moment as well. Intro calls with our fiduciaries are absolutely free, so there's no reason not to give us a call and just see how we can help. Again, the link to book a call is in the show notes. In the meantime, if you're thinking about investing on IPO day, not just for SpaceX but for any company going public, I'm going to give you a framework. First, understand that the IPO price and the price you'll pay are different things. Retail investors, unless specifically allocated shares in the offering, buy at the market open. That price has already baked in all the institutional excitement. You're not getting in at $33, as in the Figma example. You're getting in at whatever the market thinks the stock is worth after institutional investors have already made their moves.

Second, use Claude or ChatGPT or whatever your favorite AI tool is these days to peruse the registration statements from the SEC. I mentioned this earlier, it's called the S-1. I know it sounds really dry and honestly, it's not not dry, but it is super, super helpful. And with the AI shortcut, I promise you're not going to be bored to tears. The prospectus is going to tell you the company's actual revenue, actual profit or loss, actual growth trajectory, and a full list of risk factors. SpaceX, for example, is reportedly generating around $15 to $16 billion in revenue with roughly $8 billion in profit. By any measure, a real and formidable business, but a $1.75 trillion valuation puts it at over 100 times earnings. That is pricing in an extraordinary amount of future growth. So just know what you're paying for. Third, watch the lockup expiration. One of the single most reliable patterns in IPO investing is that stock prices often drop when the lockup period ends. That's when insiders flood the market with shares and the supply-demand balance shifts sharply. Figma stock dropped more than 40% in the weeks following its debut before the lockup period even expired.

The lockup period is disclosed in the prospectus, so put it in your calendar. SpaceX may be a genuinely extraordinary company, the largest IPO in history going up against a volatile market with a Musk brand that is in equal parts magnet and lightning rod. It will be a spectacle, no doubt. But of course, keep listening to Money Rehab so you know what the red flags are and the green flags are. For today's tip you can take straight to the bank, I'm gonna talk about paperwork just one last time before the SpaceX prospectus drops in Late May. Try to schedule a calendar reminder to check out the use of proceeds section and the risk factors section. Most retail investors skip both. The use of proceeds section tells you exactly what the company plans to do with your money. If the answer is mostly paying down existing debt or providing liquidity to early investors, that is a yellowish flag. It is a much better sign to see capital being deployed back into the business. The risk factors section is where companies are legally required to be brutally honest about what could go wrong. And for SpaceX, those risks include Elon's concentrated control, government contract dependency, and competition from emerging launch providers.

There are so many tools to make this information easily accessible, and if you use them, you'll have an edge.