The Information

Elon Musk’s Very Loud IPO Quiet Period

Good morning! When Elon Musk tweeted details about SpaceX’s agreement with Anthropic late last month, saying the business deal was less durable than advertised, many investors and commentators seized on the fact that the details weren’t in the company’s initial public offering prospectus filed with regulators. They were right to point that out, of course. Details of that nature—for instance, that SpaceX was guaranteed 180 days of revenue—should have been in the prospectus from the start. (SpaceX later updated its document to include the additional information.) But for me the incident brought up a history of embarrassing—or worse—episodes from 30 years of IPO history. Several years ago, I wrote a book about the evolution of IPOs and learned that such occasional blunders had become lore among the bankers, lawyers and advisers who have spent their careers keeping companies out of trouble with shareholders and the Securities and Exchange Commission alike. If that had been the end of it, Musk’s tweet might have simply joined a list of eyebrow-raising disclosures from WeWork, Facebook and Google, to name just three such instances. But even before filing the prospectus, SpaceX and Musk were challenging the unwritten rules of IPOs: Limit public appearances and be conservative about the information you provide investors. That’s an approach that has held sway since at least the 1980s, when Goldman Sachs bankers began to use the IPO prospectus as a marketing document and changed the face of public debuts. "Generally speaking, company management, and their underwriters and lawyers, are very cautious about their disclosures during their IPO process because there are strict rules surrounding communications with the public before and during an IPO,” said Renée Jones, a professor at Boston College Law School and a former director of the SEC’s Division of Corporation Finance. SpaceX’s behavior in the runup to its debut, by contrast, has defied that typical conservatism, industry watchers say. And if history is any guide, other companies—including AI juggernauts OpenAI and Anthropic, which are hot on SpaceX’s heels—may follow suit. Take the SpaceX prospectus. On page 1, it says SpaceX executives have “formed the most ambitious, vertically integrated innovation engine on (and off) Earth.” Ten pages later, it describes the company’s total addressable market as the largest “in human history,” listing it as $28.5 Trillion—with a capital T. These are just two of many claims SpaceX makes in the document that in the past most companies would have avoided. Jay Ritter, a professor at the University of Florida who has been covering IPOs and collecting data on them for decades, acknowledged that he “can’t think of any other situations where such grandiose statements would be made.” Then there are the interviews. On June 4, SpaceX ran a livestream, which anyone could watch on X, of a JPMorgan Chase event featuring CEO Jamie Dimon interviewing Musk, beaming in by video, in front of hundreds of wealthy clients assembled in the bank’s New York headquarters. “I have never seen anything like that,” said one person who has worked on dozens of IPOs and who asked for anonymity to speak freely. This week, Gavin Baker, a former Fidelity portfolio manager now at Atreides Management, posted a video of an interview he did with SpaceX Chief Financial Officer Bret Johnsen. The website SpaceX has set up for the IPO linked to the interview. That’s not to mention the surprise appearance from Nicki Minaj during the Starship launch video, two days after SpaceX had filed the prospectus publicly, or the many photos of space in the company’s prospectus. The display rivaled the dozens of pages of promotional shots in WeWork’s 2019 aborted IPO prospectus, heavily scrutinized by Wall Street. The SEC typically discourages public events touting an IPO in the runup to the offering, imposing a quiet period between the time when a prospectus is publicly filed and when it becomes effective, right before the IPO takes place. As a result, management teams generally avoid public interviews, opting instead for prerecorded videos. They’re even cautious about what they tell institutional investors during the IPO road show, where they have more freedom to provide high-level financial targets. As an example of how disclosure can go awry, when Google was about to go public in 2004, Playboy magazine published an interview it had conducted months earlier with the founders. Lawyers and bankers flew into a panic, worried that the SEC would force the company to delay its offering. In the end, to appease the SEC, the company printed the entire text of the interview in an amended prospectus. Of course, that was 22 years ago, but companies seem to have gone out of their way to respect the required quiet period ever since. To be sure, the current SEC has already signaled that it doesn’t intend to rein in SpaceX. In February, Musk appeared on Dwarkesh Patel’s podcast. When asked about the IPO, Musk said he had to “be careful about saying things about companies that might go public,” before he went on to talk about how SpaceX would bring data centers to space. One comment below the transcript on Dwarkesh’s site put it directly: “This is Elon talking his book to hype the SpaceX IPO.” Another person chimed in, “And it’s working.” Talk like that may run up against the rules around communicating with the public about an IPO, known as gun-jumping. Those rules prohibit companies from prematurely boosting interest in an IPO. The SEC’s communications with the company are not yet public, so we don’t know if they have weighed in, but the offering has continued. But there’s more to why SpaceX appears to have shed those IPO chains. Ritter noted that a lot of what has kept management and companies in check over the years has been their lawyers and bankers. Under SEC rules that govern IPOs, companies and their advisers can face liability for shareholder lawsuits alleging they made misleading statements. In practice, banks and law firms don’t often get drawn into these lawsuits, and the underwriting agreement usually includes an indemnification clause that returns the risk to the company, but advisers tend to remain cautious anyway. Even here, SpaceX has broken the mold. The company says its bylaws place restrictions on shareholder legal actions, and it also has some requirements forcing such matters into arbitration. In other words, shareholders won’t have the normal protections that hold company management teams accountable for materially misleading statements. Added up, Musk’s and SpaceX’s actions have likely cleared the way for other mega-IPOs, like those from OpenAI and Anthropic, to push similar boundaries. And as we know, Musk has a history of setting a new standard that others follow in short order. When he got a trillion-dollar pay package from Tesla, for example, many other executives quickly followed with monster-size equity-based comp packages of their own. New From Our Reporters Exclusive Goldman, JPMorgan Explore Trading Compute Futures as AI Financing Hedge By Yueqi Yang and Dakin Campbell How Nasdaq Turned Its Index Into a Listings Weapon By Cory Weinberg Exclusive Revolut Targets at Least $750 Million Share Sale Amid Strong Demand By Katie Roof What We’re Reading DoubleLine, Oaktree Brace for Potential AI Pain Blackstone Looks to Sell $2 Billion of Stakes in Private Investment Funds The Unwritten Rules of Wall Street Style, According to Lloyd Blankfein

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