Episode #92: The $1.75 Trillion Bet: What WeWork Taught Us About the SpaceX IPO

On this episode of the Stewart Squared podcast, host Stewart Alsop speaks with his father Stewart Alsop II about the SpaceX IPO and whether such a massive public offering could actually fail. Stewart Alsop II published his analysis just fifteen minutes before recording at sallsop.substack.com, questioning the logic behind the $1.75 trillion valuation and $75 billion raise, especially given that the company loses nearly $5 billion annually. The conversation ranges from the mechanics of IPOs and the SEC approval process to the only recent failed IPO (WeWork), SPACs versus traditional public offerings, the iron triangle of regulators and business interests, and comparisons between political figures' investment track records. Stewart Alsop II draws on his experience living through decades of Bay Area politics and business while analyzing whether institutions will actually buy into what he describes as a bet on Elon Musk rather than traditional fundamentals.

Timestamps

00:00 Stewart introduces the episode topic returning to SpaceX IPO discussion and what he learned writing his article about IPO failures
05:00 Discussion of how IPO conspiracy works between SEC regulators bankers and entrepreneurs creating iron triangle relationships that rarely result in failures
10:00 WeWork becomes example of rare IPO failure when institutions refused to buy shares despite SEC approval and banker support
15:00 Examination of Trump's public transparency about money-making versus traditional banana republic secrecy and oligarch networks
20:00 Debate over World Liberty Financial investments and whether Trump family portfolio signals SpaceX IPO success potential
25:00 Heated disagreement about Nancy Pelosi's husband's stock trading and conspiracy theories before ending the episode

Key Insights

1. An IPO can fail after the S-1 filing is published, though it has only happened once in recent memory with WeWork. When Adam Neumann pushed bankers to file WeWork's S-1, institutional investors reviewed the disclosed information and refused to buy the stock, preventing the company from going public through the traditional IPO process. This demonstrates that while the SEC, bankers, and company founders may all approve of an offering, the ultimate gatekeepers are the institutional investors who actually purchase the shares.
2. The SpaceX IPO represents an unusual situation where the company seeks a valuation of approximately 1.75 trillion dollars while only raising 75 billion dollars, representing roughly 2% of the company. This creates a challenging situation for potential investors because the upside is limited—for investors to make significant returns, SpaceX would need to become worth more than Apple, Google, or NVIDIA, all of which have twenty-year histories as public companies. This raises serious questions about the rational investment case for institutional buyers.
3. Investment bankers have strong financial incentives to push IPOs through to completion, as they receive approximately 6% of the proceeds. In the SpaceX case, this would amount to 6% of 75 billion dollars. This creates a structural problem in the IPO process where bankers may not adequately filter out questionable offerings, relying instead on the SEC approval process and institutional investor appetite to serve as quality controls.
4. Elon Musk has consolidated multiple companies into SpaceX before proposing to go public, including X AI and the company formerly known as Twitter, in addition to the core SpaceX rocket business and Starlink. While SpaceX itself generates about 4.5 billion in revenue and Starlink generates 11.5 billion in revenue growing at 50% annually, the company is currently losing almost 5 billion dollars per year. This makes the offering a bet on much more than just the space business, and Musk will control 85% of voting shares.
5. SPACs, or Special Purpose Acquisition Companies, represent an alternative path to going public that bypasses the traditional IPO process. These shell companies go public at 10 dollars per share without having an actual operating business, then search for a private company to merge with. WeWork eventually went public through a SPAC after its traditional IPO failed, though the company later went bankrupt. Most SPACs, approximately 95%, trade below their original value, making them generally problematic investment vehicles.
6. Elon Musk has successfully transformed two major industries through Tesla and SpaceX, which distinguishes him from other entrepreneurs like Adam Neumann who had not proven themselves before WeWork. Tesla proved the viability of electric cars, challenged dealer rules to sell directly to customers, built charging networks, and manufactured batteries at unprecedented scale. Similarly, SpaceX developed the reusable Falcon 9 rocket and built Starlink into a business three times larger than the rocket business itself, though Musk nearly went bankrupt three times in the process.
7. The traditional IPO process involves an iron triangle between the SEC regulators, investment bankers, and company founders, with institutional investors serving as the final check on whether an offering succeeds. Approximately 98% of IPO shares are purchased by institutions rather than individual investors. The SEC requires companies to publish an S-1 disclosure document revealing all company details, and if this document passes SEC review, bankers then attempt to sell shares to institutional investors who make the ultimate decision about whether to participate.