SpaceX, led by Elon Musk, is on the verge of becoming a public company, potentially marking one of the largest initial public offerings (IPOs) ever. Yet, according to recent research, the historic nature of this offering may not translate into substantial gains for new investors.
SpaceX, known for its advancements in rocket and satellite technology, has confidentially filed for an IPO as of April 1, 2026. The company aims to raise up to US$75 billion, positioning its value at an astounding $1.75 trillion.
Besides SpaceX, the IPO landscape is buzzing with anticipation as Artificial Intelligence giants OpenAI and Anthropic are also set to launch their IPOs soon. These developments spell significant financial activity on Wall Street, with banks poised to earn considerable fees from managing these deals. Early investors and company executives stand to gain substantially, while everyday investors grapple with the question: Are these IPOs a promising investment?
Traditionally, an IPO offered a chance for the general public to invest in rapidly growing companies, sharing in their success as they expanded. However, the timing of IPOs has shifted, often occurring much later in a company’s development, after significant private growth.
Transformation of IPOs
Historically, IPOs allowed young, resource-limited companies to access public funds necessary for growth. Investors provided capital in exchange for a share in the company’s future success. Iconic companies like Amazon and Apple went public early, with their major growth phases occurring after their public debut.
However, this pattern has evolved. The number of public companies has decreased since the late 1990s, while private funding from venture capital and private equity has surged. Our research indicates that the average age of companies going public has increased from four years in the early 2000s to nearly a decade by 2025.
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Insights from Almost 1,000 IPOs
Our study concentrated on what is referred to as “cheap stock.” These are stock options given to executives before an IPO at prices significantly lower than the eventual IPO price, offering them substantial immediate value.
For instance, if a CEO holds options to buy shares at $2, and the IPO price is $20, they can potentially make large gains by exercising these options post-IPO. Our analysis of nearly 1,000 IPOs from 2007 to 2022 shows that the IPO price averaged 5.7 times higher than the exercise price of options granted the previous year.
This disparity is significant for future shareholders, as a large portion of value is allocated to insiders pre-IPO, affecting public investors’ returns.
Motivations Behind Going Public
Our findings reveal that companies with substantial venture capital backing exhibit greater discrepancies between option and IPO prices. This suggests a motivation to provide liquidity to early investors, using the IPO as an opportunity for insiders to profit.
While this practice does not necessarily indicate wrongdoing, it highlights that IPOs frequently align with insiders’ exit strategies rather than new growth prospects for public investors.
Post-IPO Dynamics
The implications extend beyond the IPO event itself. Companies with more cheap stock options tend to invest less in capital expenditures and R&D, potentially hindering their growth. Executives with valuable options may favor stability over risk-taking, leading to slower growth rates.
As our research indicates, these companies often experience lower long-term stock returns, impacting new investors expecting significant post-IPO growth and sustained performance.
Ultimately, the trend suggests that much of the value growth now occurs while companies remain private, leaving public investors with limited opportunities for similar expansion.
