Success or failure of these mega-IPOs is critical but, ironically, many of the incumbents backing these companies are raising capital themselves at the same time. Can public markets support both?
There is a smart piece by Emily Zheng at Pitchbook, Eggs in one basket, that effectively says the outlook for the US venture capital industry, i.e., whether it grows to $2 trillion in assets by 2030 depends on “how a small number of highly anticipated mega-IPOs perform”.
She adds, “SpaceX, OpenAI, and Anthropic together could raise as much in IPO proceeds as all US VC-backed IPOs combined have over the past decade.
“Successful listings would restore LP confidence, reinvigorate the IPO market, and restart capital recycling through VC. Poor outcomes would extend the freeze.
“We have not seen a moment as critical or consequential for VC in recent history.”
The three could conceivably be collectively valued at about $4 trillion and raise somewhere around $200bn, with SpaceX listing as soon as next week. Both Anthropic and OpenAI have also raised about $187bn in private funding this year, primarily from listed companies ahead of their expected IPOs with the former confidentially filing this week to float potentially later this year.
The bullish case is that OpenAI, Anthropic and SpaceX represent winner-take-most businesses with growth rates unavailable elsewhere in public markets. The question is whether public investors will be willing to pay venture-style valuations once those companies are listed and subject to quarterly scrutiny?
The average post-IPO stock returned 20 percentage points less than the broader market over the three years after its first trading day, the Economist said using professor Jay Ritter’s data.
Firms valued at over 40 times their revenue underperformed by 58 percentage points. SpaceX, with a valuation of $1.75trn, would begin trading at about 94-times its revenue.
At the same time, already-listed firms are themselves issuing shares to take advantage of whatever liquidity and interest there is. This week, Alphabet, which owns about $260bn of stock in SpaceX and Anthropic, said it would raise $80bn, including issuing $10bn of shares to conglomerate Berkshire Hathaway at a ~10% discount to public markets. This is on top of the $85bn of fresh debt it took on and $174bn in free cashflow in the past year.
The irony, therefore, is many of the corporations underwriting the private AI market are now returning to public investors for additional capital of their own to both invest in more startups and develop their own infrastructure.
Alphabet wants to spend $190bn on artificial intelligence infrastructure this year and “significantly” more next year, the FT reports, all while backing hundreds of entrepreneurs through its various corporate venture capital units, such as CapitalG and GV, and through its balance sheet.
It is this race to invest that will prove fascinating. Venture investors need mega-IPOs to succeed. At the same time incumbents, which have in many cases backed the startups now seeking to IPO, are raising funding for their own AI investments. The question is whether public markets are willing for fund both sides of the equation — the incumbents building the infrastructure and the startups trying to disrupt them? Next week will tell us more.
Join the debate about the future of corporate venture capital at the GCV Summit in London.
James Mawson
James Mawson is founder and chief executive of Global Venturing.
