Comment by gizajob
4 hours ago
It’s because this IPO is backed by those who grew up through the boom and bust of the dotcom era, so they know now to do all their growth in secret behind the scenes and then dump onto the market when there’s nothing more in that tank. Rather than letting the public have any major growth out of their baby, and only letting the price discovery phase work one way.
Right but why would VCs want this? Wouldn't VCs value the liquidity of being able to flexibly enter and exit positions? I really wish there were a simple explanation of why companies don't want to IPO as early as they used to but there isn't. The closest I've found when talking to CEOs has been they don't want shareholders putting pressure on them for quarterly results and diluting the company's focus, especially when it's still growing and doesn't have a mature business.
This mad dash to build companies worth TRILLIONS and with trillions of dollars in capex commitments based on the best of all possible worlds coming true for their products comes from this generation of CEOs. Nobody is saying “ok we’ve reached a new threshold in AI let’s see if we can expand slowly so it improves over the next 20 years”. They’re saying “we are on the verge of AGI and Superintelligence so we need hundreds and hundreds of billions of dollars to be spent to make it happen NOW”.
Then they'll turn around and say there's a decent chance ASI will kill us all, so better we build it before China does.
4 replies →
> Wouldn't VCs value the liquidity of being able to flexibly enter and exit positions?
Everyone's eager to get a slice of these pre-IPO companies, and the marginal utility of having it be more liquid on the public markets probably doesn't outweigh the legal requirements behind going public. It's not like VCs are stuck holding the bag until an IPO these days. I'm not sure why that changed, but it's probably not healthy.
> Everyone's eager to get a slice of these pre-IPO companies
I know plenty of companies that are failing on VC dime, whose investors can't sell their equity. I disagree that everyone wants a slice of these companies. It's not clear to me whether it's a net win for VCs to hold onto illiquid investments for so long (meaning I can see both the upsides and the downsides.)
"Right but why would VCs want this? Wouldn't VCs value the liquidity of being able to flexibly enter and exit positions? I really wish there were a simple explanation of why companies don't want to IPO as early as they used to but there isn't."
To me it's pretty clear. The earlier investors take out all the possible upside and then dump it on the retail market. The retail investor will be less and less able to buy stock that will grow 10x and more. It's hard to imagine SpaceX, OpenAI or Anthropic will multiply in value after the IPO. They are priced in a way that they have to execute perfectly for a long time to justify even their current price.
Just another step for the super wealthy to keep profits for themselves instead of letting the broader population to benefit.
Have we considered that many of them are rather dumb.
https://youtu.be/roe3SgezmmU
VCs just want returns on the money, and they don't need to use the stock market for that as much anymore.
I agree with you and the parent comment, but to be fair to VC, they're also assuming risk. For example, if Wework had IPO'd earlier the public would've been holding the bag instead of private investors.
If they had IPO’d earlier there probably would have been better oversight of the excesses.
I mean "oversight" just means shareholders would lose money. The losers would be members of the public rather than funds invested by KSA.
I agree but not sure WeWork is a good example. That smelled like pump and dump scheme from the beginning. They pretended to be tech company, while actually being landlord middlemen. Plenty of people predicted that downfall.
WeWork collapsed because of their S-1 was on fire. If they had gone public earlier, it would have still been on fire. The reason they lasted that long is because Masayoshi Son didn't do anything that resembled due diligence, but the market would have always done it.
Kind of agree but their risk is actually spreading through the entire system, as today shows.
Don’t sovereign wealth funds and pension funds also invest in VCs? So even if it’s “private” people are holding the bag?
Also, I think comparing WeWork to AI labs is not valid.
These labs have increasingly become of public interest and are shaping economies around the world, WeWork was just not at that level.
VC money is weird. It can come from private individuals, from loans with extremely low interest, from private funds...
The thing is normally it's money that's intended to be burned in the search of a unicorn, cheap money, so there's no real "risk" there.
What risk is VC assuming in late stage? The only way a business fails at that point really is fraud or management failure.
The common perception is that OAI/Anthropic are pumping up their hype before they unload on retail in their IPOs
The problem is that the US can't even sell treasuries at 5½% and they're safe as houses. Also houses are not selling.
That’s actually not why. It’s because of regulations put into place after Enron collapsed that made it harder and more expensive to go public.
Those regulators in 18 months time: “We had no idea that crash was going to happen. Nobody saw it coming.”
Companies used to *need* to go public in order to either raise capital or because they were going to have to start publicly reporting anyways due to the number of shareholders.
The JOBS Act and proliferation of double-vesting trigger RSUs effectively negated these forcing functions and 'going public' went from a necessary growing pain to a burden and distraction.
It goes both ways. There are a lot of software companies that VCs poured money into that have turned out to be worth a fraction of the valuations.
Yeah, I have similar thoughts. If SpaceX's IPO has been a dumpster fire, and share price dropped to the third of its initial value, it would still have been massively overvalued, and made Musk much richer than if they went with a more realistic market cap, and let the market carry them upwards.
Why is it still afloat then?
What if it's just because the numbers aren't that great at the moment?