The sheer size of the potential offerings from major firms is likely to suck the air out of the room for other public offerings, market watchers say
The market for initial public offerings has been depressed for the last four years — but ironically, the expected mega- IPO s of SpaceX, OpenAI and Anthropic later this year could make it harder for other companies waiting in the wings to head to Wall Street, some market watchers say.
The massive valuations of the companies, the attention being paid to the businesses and the amount of money they are likely to raise in their offerings could effectively suck all the oxygen out of the room for other potential IPO candidates, the market experts said. Should their stocks perform poorly after their offerings — as has been the case with many recently public companies — other companies could be dissuaded from heading to Wall Street or investors from buying other newly listed stocks, they said. “Even with a strong market, these companies would cast such a shadow over everything” that if you’re a modest-sized, less well-known startup, “it’d be really tough to go out and go public,” said Kyle Stanford, director of U.S. venture-capital research at PitchBook, an industry-research firm. In a report last week, Stanford noted that the valuations and the amounts the three companies — San Francisco-based OpenAI and Anthropic, and Hawthorne-based SpaceX — are expected to raise are unprecedented. To date, the largest U.S. IPO has been Facebook’s in 2012. In that offering, the company now known as Meta raised $16 billion and had an initial market capitalization of $65 billion. By contrast, Anthropic — the smallest of the big three expected to go public this year — is likely to raise about $25 billion in its offering and have an initial market capitalization of about $500 billion, Stanford said in his report. And SpaceX, the biggest of the three, is likely to raise about $50 billion and be valued at around $1.5 trillion. Together, the three companies could raise around $110 billion in their offerings. By comparison, the 254 operating companies that went public at a price of at least $5 per share between 2022 and 2025 collectively garnered $78.4 billion, according to data compiled by University of Florida finance professor Jay Ritter. The 311 such companies that completed IPOs in 2021 together raised $119.4 billion, a record amount for any one year, according to Ritter’s data. Because the market has never seen IPOs of this size before, it’s unclear how the three offerings could affect the public-offering market, the market watchers said. “I think it really is hard to conceptualize just how much money they are going to raise and really what the actual impact is going to be for companies also looking to raise capital,” said Avery Marquez, director of investment strategies at Renaissance Capital, which offers research on pre-IPO companies. But there’s reason to think the sheer size of the SpaceX, OpenAI and Anthropic offerings could make going public more difficult for other companies. Those three companies’ prospective IPOs are already dominating investor and media attention to the detriment of other potential offerings, Stanford said. They’re almost certainly going to attract even more attention once the big three actually file for their offerings and start going on their so-called roadshows, in which their management teams will likely travel around and give presentations to prospective investors, Marquez said. “It’s going to be difficult for any other company to run a roadshow when I think everybody is going to be so intensely focused on these huge companies,” she said. Because of the amount of money they’re poised to raise, the big three companies are also likely to occupy the time and attention of many of the top investment banks, Stanford said. The time those banks and their teams spend marketing the shares of those three companies will come at the expense of other startups looking to go public, he said. At best, other companies looking to go public are likely to be stuck with second or third-tier investment banks or the third- or fourth-string bankers at the top banks, he said.Without strong backing from the investment banks, companies other than the big three could struggle to attract the kinds of big institutional investors that make large investments in newly listed shares, he said. Ex // Top Stories Where every culture is beautiful: Carnaval season commences Thirteen competitors will perform for a chance to headline the Mission parade and festival San Francisco just got a preview of what flying taxis will look like Joby Aviation conducted a series of test flights with its new-style aircraft last week — and if all goes well, local residents could be hailing them by late next year Oakland’s favorite brunch spot is coming to SF Grand Lake Kitchen, an East Bay mainstay, has opened its third outpost for elevated comfort food — in The City And such investors might be hard to attract anyway. Many are likely to want to invest in the big three, because they are the leaders in their respective markets, the market experts said. But many investors tend to limit how much of their capital they allocate to riskier stocks or investments. Big investments in OpenAI or SpaceX or Anthropic could leave them with less to invest in other offerings — or at least less appetite to do so. “There’s a certain amount of money each year that’s made and put into these asset classes and ... at a very large scale, it’s close to zero sum,” said Tomasz Tunguz, a general partner at Theory Ventures, a San Francisco venture-capital firm. But things could get even worse for the broader IPO market if the big three companies’ shares perform poorly after going public, the market watchers said. Companies contemplating heading to Wall Street tend to be influenced by the performance of those that immediately preceded them, the market experts said. When newly public companies see their stocks rise, it encourages other companies to prepare for their own IPOs. When newly listed shares do poorly, it can prompt other companies to pause their own offerings. Given the size and prominence of the big three, poor performance could have an even bigger effect than in the past, the market watchers said. Marquez said she’s more worried about the three companies performing poorly post-IPO than just their sheer size. There’s a concern that if “they go out and they don’t do well ... suddenly, investors don’t want to look at any IPOs for the rest of the year,” she said. Not everyone is worried about the potential impact of the big three IPOs on the broader public-offering market. While those companies’ offerings might be large for IPOs, the amount of money they would be raising is small compared to the overall size of the public markets, Ritter said. U.S. companies repurchase about $1 trillion worth of stock each year, and about $1 trillion worth of stock changes hands every day, he said. The combined market capitalization of U.S.-listed companies is around $60 trillion, he said. “The U.S. market is so big that the ability to absorb a $50 billion SpaceX offering is a tiny rounding error,” Ritter said. Investors don’t seem to have any set limit on the amounts they’re willing to invest in IPOs, Marquz said, noting that the amounts have varied greatly over time. When the market is hot, such as it was in 2020 and 2021, investors are willing to put lots of money in new listings, she noted. But investors tend to focus on individual companies or sectors, rather than IPOs as a whole, Ritter said. A good market for biotechnology companies will encourage other biotechnology companies to go public — but it won’t necessarily mean that a restaurant company will have a successful IPO, he said. Poor performance by one or more of the big three may or may not discourage other offerings, he said. More likely to be a factor in the relative health of the IPO market is the state of the broader stock market and how it’s being affected by macroeconomic or geopolitical factors, he said. “Everything else the same, when the stock market drops, the IPO market does tend to suffer,” Ritter said. If you have a tip about tech, startups or the venture industry, contact Troy Wolverton at twolverton@sfexaminer.com or via text or Signal at 515-5594.
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