Hannah Erin Lang at The Wall Street Journal wrote about investors trying to get a piece of hot private companies like SpaceX and OpenAI before they go public, and the vehicles that promise to get them there. She asked me whether clients should.
The question I get more often than you would think: can I get in on SpaceX or OpenAI before the IPO? My answer: technically yes. Practically, you probably should not.
Here is what most people miss. When Amazon and Apple went public, each had a market cap under $2 billion. SpaceX was valued at $1.25 trillion while still private. The growth that used to happen after an IPO has already happened. You are not early anymore. You are just paying early.
The structures used to reach these shares, special purpose vehicles, layered funds, ETFs with small private-market sleeves, come with fees that are often not clearly disclosed. Management fees. Upfront commissions. A cut of any gains. Sometimes a fund that owns a fund that owns a stake that may or may not be direct equity. Those charges eat into the return before you see a dollar, and you often cannot sell when you want to.
I told the Journal the two questions to ask before buying: what are you actually getting, and what are you actually paying to get it? Most people cannot answer both. My honest take is to wait until after the IPO and see where the chips fall. Then decide with transparent financials, real liquidity and no hidden layers.
Read the full article at Wall Street Journal →
