When I first started investing, access to exciting growth companies was largely reserved for institutions and wealthy investors. Retail investors were often invited in only after much of the value creation had already happened.
That is why the proposed SpaceX IPO is generating so much excitement.
If the deal proceeds at the valuations currently being discussed, it could become the largest IPO in history. For many investors, it would also represent a rare opportunity to buy into one of the most ambitious companies ever created.
Yet the decision facing investors is not simply whether SpaceX is a great company. The more important question is whether it is a great investment at the price being offered.
The space economy has already rewarded investors
One reason interest in SpaceX is so high is that space-related investments have been among the market's strongest performers over the past year.
UK investors have seen substantial gains from businesses exposed to satellite communications, launch services and space infrastructure. Filtronic, for example, has benefited enormously from its growing relationship with SpaceX's Starlink network, while Seraphim Space Investment Trust has enjoyed a strong recovery as investor appetite for the sector has returned. Seraphim was also one of the opportunities made available to retail investors via RetailBook, allowing individuals to take part on the same terms as institutions.
The success of these investments reflects a broader trend. Space is increasingly becoming a commercial industry rather than a government-funded scientific endeavour. Satellite broadband, earth observation, defence applications and direct-to-device communications are all creating large new markets.
SpaceX sits at the centre of many of these developments.
Investors should remember, however, that a great company does not automatically make a great investment. Ultimately, returns depend not only on the quality of the business, but also on the price paid for the shares.
What makes SpaceX special?
Unlike many IPO candidates, SpaceX has already transformed multiple industries.
Its Falcon rockets dominate commercial launch services. Starlink has become the world's largest low-earth-orbit satellite network. Meanwhile, its Starship programme aims to dramatically reduce the cost of accessing space.
For many investors, however, the real attraction is Starlink.
Starlink has moved from being an experimental project to a major global communications network, serving millions of customers and creating recurring subscription revenues. Much of the investment case rests on the belief that Starlink can continue growing for many years.
Much of the excitement surrounding SpaceX relates not to where the company is today, but where it could be in ten or twenty years' time. Investors are buying into a vision of global communications networks, reusable rockets, deep-space exploration and potentially entirely new industries. Whether those ambitions are ultimately realised remains one of the key questions for investors.
The bull case
Investors considering participation will naturally focus on the positives.
SpaceX has:
- A powerful technology lead.
- Strong brand recognition.
- Significant barriers to entry.
- Exposure to several long-term growth themes.
- A founder with a track record of building world-changing businesses.
Few companies can realistically claim to be reshaping both communications and space transportation simultaneously.
The bear case
Equally, investors should not ignore the risks.
Some institutional investors have raised concerns about governance, voting rights and shareholder protections. The proposed structure appears likely to leave Elon Musk with effective control long after listing.
Investors should also consider the governance record of the company's leadership. Elon Musk was charged by the US Securities and Exchange Commission in 2018 over his "funding secured" tweets relating to a potential Tesla privatisation. The matter was settled without Musk admitting or denying the SEC's allegations, but resulted in a $20 million penalty, his resignation as Tesla chairman for three years and enhanced governance controls around company communications.
Questions have also been raised about valuation. At the figures currently being discussed, investors are being asked to pay for a great deal of future success in advance.
Even exceptional companies can prove disappointing investments if purchased at overly optimistic prices.
It is also worth remembering that IPOs can serve multiple purposes. While they provide companies with access to fresh capital, they can also create liquidity for existing shareholders and help address historic financing obligations. Investors should understand how the proceeds will be used and what that means for future growth.
Recent decisions by major index providers to apply their standard eligibility rules, rather than fast-track inclusion, also serve as a reminder that enthusiasm for the business does not automatically translate into enthusiasm for the governance structure. Investors should recognise that even among professional investors there remains considerable debate about valuation, voting rights and shareholder protections.
A useful question to ask yourself
Rather than asking:
"Will SpaceX succeed?"
investors may be better asking:
"How much future success is already reflected in the IPO price?"
Those are not the same question.
Most investors would probably agree that SpaceX is one of the most remarkable businesses of our generation.
The debate is whether the proposed valuation leaves enough room for attractive long-term returns.
Access and suitability are different things
One of the most positive developments surrounding the SpaceX IPO is that UK retail investors may have an opportunity to participate alongside institutions, in this case through Winterflood's WRAP (Winterflood Retail Access Platform). As a director of ShareSoc, which has long campaigned for individual investors to have fair access to investment opportunities, I regard this as a genuinely welcome development.
However, access alone does not make an investment suitable. The right question is not whether investors should be allowed to buy SpaceX shares, but whether SpaceX shares are appropriate for their own objectives, risk tolerance and portfolio.
Retail investors should absolutely be allowed to participate. Whether they should participate is a separate question.
Does it fit your risk profile?
Every investor will reach a different conclusion.
For some, SpaceX may represent exactly the kind of high-growth, long-duration opportunity they seek.
Others may be uncomfortable with the governance structure, the valuation, or the concentration of influence around a single individual.
Neither position is inherently right or wrong.
The key is understanding what you are buying, why you are buying it, and how it fits within your overall portfolio.
As with any IPO, enthusiasm alone is not an investment thesis.
The SpaceX IPO may become one of the defining market events of the decade. It could prove to be an extraordinary investment, or it could become an example of investors paying too much for a remarkable business.
As ever, diversification remains important. Even investors who are enthusiastic about SpaceX should consider how any investment fits within a broader portfolio and avoid allowing excitement to override sound investment discipline.
This article represents the personal views of the author and is provided for information purposes only. It does not constitute investment advice or a recommendation to buy or sell any security. Investors should conduct their own research and, where appropriate, seek independent financial advice.
