By Greg Bensinger
SAN FRANCISCO, June 3 (Reuters) – Beware the ghosts of IPOs past.
SpaceX and Anthropic are preparing for what may be the biggest public-market launches in U.S. history, with OpenAI rumored to be close behind.
That will put the companies’ chiefs in the sights of the buttoned-down world of Wall Street, even as they sell moonshots in the form of rockets and artificial intelligence software that occasionally makes up answers.
The lead-up to an IPO is a high-stakes series of conversations and presentations where potential investors press company executives for a glimpse inside their books to gauge whether they will grow and make money – while the CEOs and their lieutenants must present themselves as trustworthy. As the trillion-dollar IPOs draw near, they would do well to avoid the pitfalls that have dogged other market debuts.
As we have seen in past IPO periods, even billionaires, it seems, can be seduced by Playboy magazine.
During the lead-up to Google’s blockbuster 2004 IPO, co-founders Sergey Brin and Larry Page broke with protocol by giving an interview to Playboy magazine. The timing was not ideal, because it occurred during the Securities and Exchange Commission’s so-called quiet period before an IPO, when company executives are meant to refrain from making public statements. Google, now Alphabet, was forced to include the entire article in its 2004 IPO filing, called an S-1, thus cementing it as an infamous cautionary tale.
“IPOs are meant to be carefully choreographed and you want to get attention for your great business and story,” said Scott Bisang, a founding partner of Collected Strategies who previously advised Lyft and others on their IPO processes. “But sometimes executives go off script and that’s when things can get unpredictable.”
Salesforce CEO Marc Benioff committed his own quiet-period infraction when he let a New York Times reporter trail him for a day while he talked about his company’s potential and even acknowledged the interview was in violation of SEC rules. The business software firm was forced to delay its 2004 IPO by a month.
ROADSHOW RISKS AND IMAGE PITFALLS
The marquee event of selling an IPO is called the roadshow, where company executives pitch their business to prospective investors. It 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 likely have to explain its continued losses from artificial intelligence unit xAI and the strategy of its outspoken CEO.
“Investors want to be able to see these executives and get a feel for them; how they present themselves,” said Elizabeth Blankespoor, a University of Washington business school professor who has studied roadshows. “This is a chance for companies to package themselves, so image certainly matters.”
But occasionally, companies present the wrong image. In the lead-up to the hotly anticipated 2012 IPO of what was then called Facebook – since renamed Meta Platforms – CEO Mark Zuckerberg showed up to meetings in a hooded sweatshirt and sneakers, rather than a suit. This caused some to question the maturity of the then 27-year-old CEO who was seeking billions of dollars.
“He’s actually showing investors that he doesn’t care that much,” said one analyst at the time. “He’s got to show them the respect that they deserve because he’s asking them for their money.” 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.
Indeed, few recent hot IPOs have outpaced the market.
For SpaceX, the uninhibited nature of CEO Elon Musk, especially in his posts on X, presents risks amid the formality of the IPO process, said University of Notre Dame finance professor Timothy Loughran. “He’s well-known for expressing himself on his social media site and he’ll have to be very careful,” he said. “It’s an open question whether he can restrain himself.”
It was not immediately known whether Musk would join the SpaceX roadshow, though he met with investors as part of the IPO of Tesla in 2010, back when he often traveled without bodyguards. Tesla’s IPO success – the shares revved about 40% on the first trading day – has SpaceX investors hoping for another big payday.
SpaceX did not respond to a request for comment on Musk’s roadshow plans.
Anthropic and OpenAI’s chatbots, famous for their persistent hallucinations, may be a subject of curiosity among Wall Street investors who favor hard numbers and confident financial projections, said Loughran.
REGULATORY FILING MISSTEPS
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.
Co-working space company WeWork in 2019 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.
Sometimes even a company’s name can serve as a punchline.
Such was the case with BATS, the online stock exchange operator that staged its 2012 IPO on its own platform to show it could compete with the likes of the Nasdaq and the New York Stock Exchange. Instead, the company, whose full name was Better Alternative Trading System, suffered a computer glitch that disrupted trading in multiple stocks, including its own. The newly trading shares plunged within seconds from $16 to as little as a penny, before the company took the extremely unusual decision to unwind the IPO.
(Reporting by Greg Bensinger in San Francisco; Editing by Peter Henderson and Matthew Lewis)
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