When you were a kid, did you ever dream of growing up to be someone’s exit liquidity? Probably not.
But every time you buy shares in a company IPO, that’s exactly what you become. Whether being an early investor’s exit liquidity is good or bad is hard to say in the short run. In the long run, you will certainly find out.
The main reason I’ve been investing a greater percentage of my capital in private companies over the past 20 years is because private companies are staying private for longer. More of the gains are accruing to private investors at the expense of future public investors.
SpaceX, for example, was founded on March 14, 2002. It’s finally going to IPO 24 years later on June 12, 2026. Microsoft was private for 11 years, Google for 6 years, and Facebook for 8 years before they went public. Those who bought their IPOs and held on have done well. I’m not sure the same will happen for SpaceX.
So one of the most common questions I get from newsletter readers lately is: Will you be investing in the SpaceX IPO?
My answer is NO, for several reasons.
Don’t Want To Be Exit Liquidity For Large IPOs
History is not kind to large IPOs ($1+ billion). Take a look at this chart highlighting the share price performance of select large IPOs by time period post-listing. Notice the final column, Year 1 Max Drawdown.
History is not on the side of large IPO investors, and that’s if you buy shares at the IPO price.
The downside gets worse if you buy a large IPO that gaps up and then you chase it. A recent example is the Figma IPO (FIG) on July 31, 2025 at $33 a share. It gapped up and ran to a high of around $122. Today the share price is around $22. That is rough.
Don’t Want To Be Part Of The Retail Frenzy
Morgan Stanley priced the Figma shares properly for the time. Retail frenzy was the main reason the share price spiked on day one.
I’ve been investing in public equities since 1996 and helped over 100 companies IPO during my days at Goldman Sachs and Credit Suisse. My experience is simple. More retail participation creates more volatility, because retail investors are classic paper hands and short-term holders.
So with SpaceX raising $75 billion, the largest IPO in history, and allocating 30% of the deal to retail, roughly $22.5 billion of shares, I see that as a net negative, not a net positive.
The volatility is going to be wild. If you’re participating in the IPO, you’d better watch your position carefully the first day and the first week. Maybe take the day off to be a manic day trader, one of the worst things you can do for your investments.
Don’t Want To Be Exit Liquidity At Outrageous Valuations
At the $135-per-share price SpaceX (SPCX) is targeting, valuing the company at roughly $1.77 trillion, its price-to-sales ratio will be more than 90-to-1. I think that’s the highest P/S ratio in IPO history. Even IPOs that came to market at half that multiple went on to underperform the market over the following three years.
Do you really want to be exit liquidity for a company trading at such an extreme valuation when the S&P 500 is also sitting at elevated levels? I don’t.
Here’s a look back at all the companies that traded above 10x sales at the dot-com peak and what happened next.
- Cisco: ~25x sales, P/E above 200. Declined -90%. Finally broke its 2000 peak in December 2025, 25 years and 8 months later.
- Intel: ~13x sales. Declined -82%. Finally broke its 2000 peak in May 2026, almost exactly 26 years later.
- Microsoft: ~25x sales. Declined -65%. Took 16 years and 8 months to make a new high (October 2016).
- Qualcomm: ~30x sales. Declined -88%. Took roughly 20 years to break even.
- Sun Microsystems: ~10x sales. Declined -97%. Acquired by Oracle in 2009.
- JDSU: ~50x sales. Declined -99%. Stripped for parts.
- Yahoo: ~50x sales. Declined -97%. Didn’t want to sell to Microsoft for $44 billion, and ultimately sold to Verizon for a tenth of that.
- Nortel: ~15x sales. Bankrupt in 2009.
- Amazon: ~30x sales at the peak. Declined -97%. Obviously a huge winner now, but not before a lot of pain.
Investing at reasonable valuations matter. Buying at nosebleed levels at IPO is the greater fool theory in action, especially when the company isn’t profitable. I had a front row seat to 1999 mania sitting on the GS sales / trading floor at 1 New York Plaza. Plenty of investors lost their shirts within a year.
The better move is to wait for the hype to die down, then buy if you believe in the business and its growth trajectory. Retail has a fantastic way of bidding hot IPOs up to irresponsible levels, only for the price to course correct once management reports its first couple of quarters.
You’ll Own SpaceX Anyway, So Why Chase It?
Here’s the kicker. At a $1.77 trillion valuation, SpaceX debuts as a top-10 US company. Index funds will be forced to buy it, which means you’ll be forced to buy it too, automatically, through your S&P 500 and total market funds.
You don’t need to chase the IPO to own SpaceX. Wait a few quarters and the market hands you a position at whatever the real clearing price turns out to be. Let the index do the work.
And remember, most retail investors won’t get IPO shares at $135 anyway. You’ll get a tiny allocation, if any.
For almost everyone, “buying the SpaceX IPO” really means buying SPCX on the open the first morning, after it’s already gapped up (or down). That’s not buying the IPO. That’s volunteering to be the exit liquidity.
Already Own Shares In SpaceX Through Venture Capital
Finally, I don’t want to be exit liquidity for SpaceX because I already own funds that will likely sell part or all of their SpaceX holdings at IPO or after the lockup expires.
A traditional venture capital growth fund I invested in back in 2022 had about 10% of its fund in SpaceX as of 1Q2026. I expect them to eventually sell the entire holding, because they’re required to return capital to LPs.
I also own a significant amount of the Fundrise Innovation Fund, VCX, which had about a 5% SpaceX position as of 1Q2026. VCX is not required to sell anything that goes public, since it’s a permanent capital fund.
All told, I have a large enough position in SpaceX that buying more would not be prudent from a risk/reward and asset allocation perspective. And even if I owned none of it through venture funds, I still wouldn’t be buying the IPO for the above reasons.
What I’d Actually Do Instead
To be fair, here’s the case for buying. Starlink is a real cash flow machine now, Starship could open up an entirely new market, and there’s no comparable competitor. If you believe SpaceX becomes the AWS of space, $135 might look cheap in ten years.
I’m not saying SpaceX is a bad company. I’m saying I don’t want to pay any price for a great company. Price is what protects you when the story stumbles.
So what would I do? I’d wait. Let the lockup expire, let the first earnings reports land, let the frenzy burn off. If the business is as good as the bulls say, it’s still great at $110 as it is at $135. And if it isn’t, I’ll be glad I let someone else find out first.
If you just have to own shares, then buy with your throw away money you can 100% afford to lose.
But as a long-time Tesla shareholder, I sure hope SpaceX buys Tesla at a 50% premium!
Reader Questions And Suggestions
Readers, are you OK with being exit liquidity for a hot and expensive IPO? What’s your strategy for buying IPOs? Are you buying the SpaceX IPO, and why? What price do you think it trades at after day one? And do you think these mega IPOs will suck liquidity out of the public markets and trigger a correction?
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