SpaceX and AI Firms Confront Challenges in IPO Process

Beware the Ghosts of IPOs Past

As SpaceX and Anthropic prepare for what could be the largest public-market launches in US history, with OpenAI rumored to be close behind, their CEOs are about to enter the high-stakes world of Wall Street. The lead-up to an IPO involves a series of conversations and presentations where potential investors press company executives for a glimpse into their financials. CEOs and their lieutenants must present themselves as trustworthy and avoid the pitfalls that have dogged other market debuts.

During past IPO periods, even billionaires have fallen prey to unwise public statements. In 2004, Google co-founders Sergey Brin and Larry Page broke with protocol by giving an interview to Playboy magazine during the Securities and Exchange Commission's quiet period. The interview was forced to be included in Google's S-1 filing, cementing it as an infamous cautionary tale. Similarly, Salesforce CEO Marc Benioff committed a quiet-period infraction when he let a New York Times reporter trail him for a day, delaying his company's 2004 IPO by a month.

The Roadshow Risks and Image Pitfalls

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The marquee event of selling an IPO is the roadshow, where company executives pitch their business to prospective investors. This is a particular hazard because, for some, it marks the first time their executives are out in public, facing tough questioning. SpaceX is expected to begin meeting with potential investors as soon as Thursday, where it will have to explain its continued losses from artificial intelligence unit xAI and the strategy of its outspoken CEO. Investors want to see these executives and get a feel for them; how they present themselves is crucial.

However, companies have occasionally presented the wrong image. In 2012, Facebook CEO Mark Zuckerberg showed up to meetings in a hooded sweatshirt and sneakers, rather than a suit, causing some to question the maturity of the then 27-year-old CEO. Facebook dropped about 20% in the first few days of trading, though investors have since rallied behind the stock, making it one of the world's most valuable companies.

For SpaceX, the uninhibited nature of CEO Elon Musk presents risks amid the formality of the IPO process. "He's well-known for expressing himself on his social media site and he'll have to be very careful," said University of Notre Dame finance professor Timothy Loughran. "It's an open question whether he can restrain himself."

Regulatory Filing Missteps

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Other hazards lurk in the S-1 filings themselves. Groupon drew criticism during its 2011 IPO for its whole-cloth invention of a new financial metric that excluded a rather critical expense for the e-commerce coupon firm: marketing. The company had to rework its S-1 to better explain the so-called adjusted consolidated segment operating income, one of several amendments including accounting for a quiet-period breach.

In 2019, WeWork disclosed huge losses in its S-1 and revealed then-CEO Adam Neumann had purchased the trademark for the word "We" and was charging his own company to use it. Just before its scheduled roadshow, WeWork withdrew its IPO as its valuation plunged and investor interest waned.