Six is unique. Three companies with the

largest IPOs in the history of the

world. The total proceeds being raised

are big. Although as a percentage of US

market cap in the same ballpark as

during 99 and 2000 and 2021, there are

very good reasons to be really excited

about AI. But what's the right price?

There haven't been all that many

companies with significant revenue and

really high price to sales ratios, but

on average they have underperformed.

And I've got that concern about SpaceX.

A lot of money has flowed into venture

capital and private equity. Prices have

gotten bit up. When you buy high,

expected returns are lower. And I don't

see any reason to think that a free

lunch is sitting there. Welcome to Other

People's Money. I'm Maxi and I'm joined

today by Jay Ritterder, director of the

IPO initiative at the University of

Florida's Warrington College of

Business. Jay, thank you so much for

joining the show today.

>> My pleasure. People call you Mr. IPO and

we are in the midst of what feels like a

historic run of IPOs with the potential

for three IPOs of trillion plus dollar

valuation companies. Of course, we in

the media love to talk about these big

nominal numbers, but there's many ways

you can slice it. You can look at it

relative to the overall market cap, the

total issuance, combining even more IPOs

than just these three, and then of

course there's inflation. So, how

historic is this period that we're in

given your research? It

>> it is historic uh even after adjusting

for inflation. uh in nominal terms uh

until uh this month uh the world's

largest IPO had been that of Saudi

Aramco in 2019

raising about $29 billion in

inflationadjusted terms that the biggest

IPO ever was actually back in 1987 when

Japan privatized NT uh Nepon Telegraph

and Telephone the government-owned

telecom company. Uh in inflationadjusted

terms, that was about a $45 billion

deal. Uh and and so the SpaceX IPO was

approximately twice as big. Uh so uh

that uh definitely uh whether nominal or

inflation adjusted uh blows away the

previous records. And uh if it wasn't

for SpaceX, it's very likely that

Anthropic and Open AI uh might be the uh

first or second biggest IPO ever. As it

is the case, they'll probably be the

second third biggest ever. So, Japan

1987,

uh I know the market, the NIK peaked in

1989 and entered a very long bare

market. We just actually in the last few

years crossed back over that peak from

1989 in the Nikkay. When you look out at

the market environment, so many people

are questioning whether uh these types

of big IPOs tend to signal market tops.

Do they tend to mark market turning

points?

>> Yes. And like most market predictors, uh

you know, there's about 51% accuracy for

for the predictions. Um so so uh you

know lots has been written and

deservedly so about how the valuations

of US equity markets uh my my preferred

measure is the Schiller uh cape ratio uh

are at at very lofty levels. Uh but uh

in 1996 when uh Bob Schiller uh made his

famous irrational exuberance comment

which uh was presented uh at a Federal

Reserve Board meeting and a couple of

days later Alan Greenspan used the same

term. Uh that was uh late 1996 more than

three years uh before that the US market

peaked at a much higher level. So as

with all predictors uh uh while on

average it it might be correct uh

calling the market peaks and troughs is

really difficult. I guess another

question people have is are these

valuations fair. So you've done a lot of

looking at how IPOs are valued. I think

maybe we should just get into how IPOs

come together, how the price is

determined normally and then we can look

at this new wave of IPOs. on average uh

IPOs underperform after a first day jump

uh during the next three years or so. Uh

but uh that's an equally weighted

average. uh that the evidence is that

bigger companies and and my preferred

measure is inflationadjusted sales uh

that that companies that go public where

they've got annual revenue of at least

$und00 million on average they don't

underperform. institutional investors

are dominating those IPOs and typically

they're valuing the company relative to

other similar companies and on average

they get it right. Now obviously some

companies are going to underperform and

others are going to outperform. So if we

just look at uh revenue uh all three of

these mega IPOs are way over that 100

million mark. Uh I I've also cut the

numbers for billiondoll revenue

companies and and the the pattern is is

similar there that the market largely

gets it right. But we can slice uh the

data other ways as well. In particular,

what about companies going public at

really high price to sales ratios?

and with SpaceX that they went public at

a price to sales ratio of over 90. Uh

there haven't been all that many

companies with significant revenue and

really high price to sales ratios, but

on average they have underperformed.

Uh and and I've got that concern about

SpaceX. uh when you've got a a a company

that's already demonstrated that they've

got uh goods and services that people

are willing to buy, uh they've got

substantial revenue, but uh the the

company is being valued uh at such a

high ratio. A lot of things have to go

right for the revenue to grow and the

company to become very profitable in in

the future.

uh sometimes it happens but on average

historically it it hasn't happened and

with SpaceX

uh uh they've got uh you know a a

worldass uh rocket launching business uh

their Starlink satellite business is

very profitable very successful when

they get Starship uh lowering launch

costs even more that's going to allow

them to lower the price that that

Starlink internet service is available

at, that market can potentially expand

enormously

and uh have very attractive profit

margins. But when the valuation is in

the vicinity of $2 trillion,

uh, a lot has to go right, you know, to

to justify a valuation like that, uh, at

at a price earnings ratio of 20, the

company has to have future annual after

tax profits of hundred billion dollars a

year. Only a handful of companies in the

world have achieved that. A lot has to

go right. Uh it it could um with uh

SpaceX, anthropic, open AI, uh private

and public markets wouldn't be willing

to give them such high valuations if it

weren't for the case that uh in certain

verticals uh narrowly defined industries

in in tech companies like Meta

Platforms, Apple,

uh Alphabet, Micros Microsoft, Nvidia

have demonstrated that either due to

network effects or or doing or or due to

really complicated technology

uh that's really expensive.

uh a company might own a vertical and

and if the total addressable market is

big enough, you you can justify big

upfront costs uh because there are going

to be huge

profits in the future without

competition eroding those profits. Uh

tech is not the restaurant business

where where profits uh are going to be

limited by competition. if you own a

space, uh, it it can be very profitable.

>> On top of the the profit side, another

interesting thing about SpaceX was

they're acquiring another company for

$60 billion sort of around the IPO, this

acquisition of Cursor, because so much

of their addressable market is actually

not even in some of those businesses

that you listed. It's in these other

businesses that are actually much more

nent for SpaceX in terms of their AI

business. How common is it to have a

company where the TAM and the revenue

are so disconnected? Right? They they

even said in the S1 that that a lot of

the TAM was from these these businesses

that are not even generating the

revenues and profits that you're talking

about. In the prospectus, there's

discussion of total addressable market

of uh like $29 trillion.

Um and and a lot of that from the AI

infrastructure area uh you know data

centers in space uh and uh uh SpaceX is

actually spending a lot of money on data

centers on Earth. Now data centers on

Earth are much more of a competitive

business. It's a growing area but I I

don't see enormous profit margins there.

Uh I I'm not an expert on the

technology, but everything I I've read

is for data centers in space. Maybe

that'll become a big source of revenue

and profits, but the technological

hurdles are are pretty substantial. Uh

so that that's much more speculative. Uh

with Starship and Starlink, uh it's much

more dependable.

uh wi with uh the acquisition of cursor

um that's a big acquisition

uh but uh you know Grock w was uh

largely and also ran maybe this will

will be the important acquisition that

that that makes them a serious player

when Facebook went public in 2012

uh controversial Mark Zuckerberg went

out and bought Instagram program right

before the IPO and Mark Zuckerberg

didn't even ask the board to approve it.

Uh at the time it was very controversial

as as it's turned out great investment.

So there is uh history for a major tech

company buying another company for what

seems like a lot of money relative to

the the valuation of the of the existing

business. Um but that was in the social

media space, right? that was a

competitor to Facebook.

So much interest in SpaceX has been

about the launch business. Uh Starlink,

you know, Curser is is by and large and

and Grock even XAI in general is by and

large like a very different business

than what got people so excited about

SpaceX and the vertical of space. And so

I I'd be interested in in sort of these

conglomerate businesses and is there any

anything different about uh businesses

that don't have sort of a a straight

vertical when they IPO and come out?

>> Well, I I think with SpaceX uh it is

indeed a little different that than many

of the other big tech companies in that

uh it is more of a conglomerate. the uh

AI business and the Starlink business uh

are somewhat different whereas OpenAI,

Anthropic uh you know for that matter

Nvidia uh are are pretty much focused on

uh a much narrower business. On the

other hand, Alphabet, while um their

search engine is is the the big driver

of revenue and profits, uh they've got

some other things going on as well.

Whimo, for instance. Now, what about

just overall net issuance? know the size

of these three particular IPOs, one of

which only one of which has actually

come to fruition um are historic, but

then overall you have to compare to just

the the sum of all of the issuance that

come that came about. I I took a look at

your uh some of your data last night and

was just stunned at the number of

companies that went public in 1999 and

and just the late 90s in general. And it

feels like we haven't seen that. 2021

felt it wasn't even close, I think, to

in terms of the total number of

companies, but it felt more like that.

This feels quite different in terms of

its three mega companies. I is that the

case? How different is it from these

other hot IPO periods where you're

seeing lots of smaller companies come to

market? 2026 is unique. uh if if all

three of these companies do go public uh

you know three companies wi with uh the

largest IPOs in in the history of the

world uh the total proceeds being raised

uh are are big uh although as a

percentage of US market cap uh you know

in in the same ballpark as during 99 and

2000 and 2021 but the absolute number of

companies uh going public this year uh

is not going to be anywhere near

records. Um you know nowhere near the

311 operating companies that went public

in 2021

uh in in particular uh software uh

software as a service. We're not seeing

a lot of companies going public in

public and private markets. That there's

a widespread view that AI is threatening

the business models of a lot of these

companies. Uh there haven't been a lot

of biotech companies going public this

year. Uh so so we're seeing a lot of

enthusiasm for AI. Uh but uh that that

doesn't mean there's enthusiasm for all

sorts of industries. uh and and in that

regard in 99 and 2000 the internet

bubble uh there was enormous enthusiasm

for internet related companies uh with

justification but uh other industries

at the time the term that was being used

was old economy companies uh the IPO

market was actually kind of depressed uh

and and we're seeing you know some

analogies now where the market is uh

really gung-ho about certain industries

uh and less enthusiastic about others.

People always have the question and you

you alluded to this earlier that IPOs in

general are not a great investment over

a three-year time horizon unless of

course you're going to these larger

higher revenue companies then you said

they keep up. But do they outperform?

Because a lot of the narrative is that

you need to have exposure to this

company or else you're going to be left

behind. There's commentary about the the

permanent underclass that that these

that these companies and AI is going to

change the world so much that if you

don't have exposure,

you're going to be left behind. Is that

kind of always the narrative with these

new high-tech companies um and and do

the large ones that you're talking about

that keep up, do they actually tend to

outperform? I think there are a couple

of issues uh in in your question. One is

uh kind of a a hedging demand. If AI is

going to be disruptive changing the

world uh and your job is threatened um

you know maybe you should uh hedge some

of your human capital uh by having

exposure to AI if uh AI uh does threaten

some of your labor income. uh maybe

you'll make some money on your

investment side. Uh on the other hand,

that the history of technological change

is that the main beneficiaries are us

consumers. Uh and and workers uh not the

owners of capital. Uh for instance, um

you know what are some of the really

earthshattering technological changes

that have occurred over the years?

electricity. Um, you know, uh, how many

billionaires, uh, are are there from,

uh, all of the incremental improvements

in electricity? Um, I live in Florida.

Air conditioning has been great. Uh but

uh who has made huge sums of money off

of air conditioning uh for travel? Uh

you know a 100red years ago uh to get

from North America to Europe, you took a

boat. It it took a week or more. Uh now

you can have non-stop flights from all

sorts of places to other places uh at uh

relatively low cost. Um but have

airlines made a lot of money? Well, you

know, lots of people have noted over the

years that uh airline investors h have

on average uh destroyed wealth with AI.

Uh uh certain companies look like they

they will be making quite a bit of money

out of it. Uh but the the main benefits

are are going to wind up uh flowing to

as humans and our role as as consumers.

uh that this has been the story of

technological change where lots of

companies are going to be incorporating

AI into their businesses. It's going to

allow them to do things more

efficiently. Competition is going to

force them to lower product prices. Uh

and our standards of living will be

increasing over time. Uh will it be

evenly distributed? No. uh you know

nothing is is totally evenly distributed

but uh you know standards of living keep

improving uh not only in North America

but throughout the world. One of the

things I think is also unique about

these companies is the the regulatory

risk that is there with them. What do

you think about the the regulatory risk

for these companies and have there ever

been um companies that have come to

market with that sort of albatross

hanging over them?

>> There is no question that AI is

disruptive and going to be very

disruptive.

The internet was also disruptive. Uh

older viewers will remember when you had

to pay for a long-distance telephone

call. Um

you know communication be has become uh

costless. Uh

certain industries the media has been

totally disrupted. The law of unintended

consequences have not been repealed.

Nobody predicted uh 70 years ago, 60

years ago uh that fertility rates around

the world would fall as much as they

have. uh the

equivalent of concern about climate

change was the population explosion.

Nobody predicted uh that the worldwide

declines in fertility rates. Why have

they occurred? Uh a variety of reasons

that not all of which are fully

understood. Uh but the internet has

probably been partly responsible for it.

uh the availability of free online

pornography uh has uh affected the

behavior of of uh young males and in

particular with AI. The law of

unintended consequences has not been

repealed. You know, a lot has been

written about uh the decline in social

interaction with with people being

online.

uh you know people are doing this

voluntarily. There are some advantages

to it. Uh but there are unintended

disadvantages.

Um and uh with with regulation

uh how to deal with with some of these

things uh are difficult decisions. Uh

Europe leads the world in regulation.

uh a lot has been written about uh why

uh Europe has not been creating

world-class tech companies and uh a lot

has been written about the excessive

regulation there has been a big cost to

European companies and uh it's put them

at a disadvantage lowering the uh stock

market returns in Europe lowering

economic growth in Europe

um with with AI uh that there is a

legitimate concern about you know what

if we um have recursive self-improvement

where some of the models uh go out of

control and uh either by themselves or

with bad actors wind up doing uh

enormous damage. uh it could occur. Uh

companies like Anthropic, all of the the

uh big companies are worried about this.

They're putting in some safeguards. Uh

are the the safeguards going to be

sufficient? Only time will tell on that.

Uh so I I I think uh there's a lot of

self-regulation going on. That doesn't

mean there shouldn't be any government

regulation.

uh but you can also overdo it. Uh and it

it's it's really difficult in a lot of

these areas to figure out exactly what

the the right way of doing regulation

is. I guess my question was more about

any historical analoges where these new

disruptive technologies had come out and

people were like like around 1999 when

all these internet companies were coming

out were people trying to push for

regulation to sort of limit this

disruption or was there a more blas uh

free market attitude um about about the

internet at that period in time whereas

today Um, you know, it's a major it's a

mi, you know, we we just had primaries

here in New York City. I can tell you

that uh I've how many ads I saw that so

and so took money from AI. Don't vote

for this guy because he took money from

AI companies. So, it it it's driving the

political discussion here in the United

States. And and I just wonder, you know,

looking back at these prior cycles

whether that was the case. There's been

concern about technological change for

centuries. You know, lites, uh, uh, you

know, a couple hundred years ago, uh,

the industrial revolution was

threatening certain jobs. With most

technological changes, the the, uh,

disruption has been very gradual. You

know, think about agricultural

productivity improvement. uh 200 years

ago almost everybody in the world made

their living from agriculture. In the US

you know even broadly defined it's less

than 2% now. Uh one of the reasons why

our standards of living have gone up but

farmers haven't lost their jobs. What

happened is the children of farmers

decided I'm not going to be a farmer.

I'm going to move off to the city and

take some different job. So it it hasn't

been as disruptive. Uh with AI, the

rapidity of change uh and threatening a

lot of white collar jobs is creating a

lot of angst and legitimately so. It's

not irrational for lots of people to

worry about how uh my job might be

threatened. In the journalism community,

uh the internet uh destroyed the

business model uh of uh traditional

newspapers, magazines. You know, how how

many people read a print newspaper now?

Um

uh but uh

this really is disruptive with with the

uh ability to dramatically increase

productivity in certain areas uh in a

very short period of time. Uh so I I I

can fully understand uh disruption uh be

being a concern. But what should the

government do about this? Well, you

know, should we uh limit technological

change because they're going to be some

losers where um we're foregoing big

productivity changes and having a lower

standard of living for lots of people.

uh that that that's a a tougher issue in

terms of the dynamics of of there are

going to be some winners, some losers,

but on average standards of living will

be improving a it's not as if the US is

in a um uh situation where uh you know a

prohibition on improvements here means

the rest of the world will be standing

still. you know, in particular, China

is uh making great advances in in a lot

of areas and uh you know, unilateral

disarmament in western democracies

doesn't always end well. To your point

about China, I mean, yes, that is a very

uh that is a very unique aspect of this

that it it is in many ways an arms race

um between between the US and China. Um,

have there been IPOs like this with such

uh per national defense significance in

the past and and companies of of

national interest like this coming to

market?

>> There are are certainly some precedents.

Um but but uh you know there there are a

lot of companies with dual use um you

know Boeing uh knows how to build uh big

commercial airline

airliners really well uh and a lot the

same technology is used for military

airplanes for that matter. Uh, Anderell

uh is very much a um military tech

company. Um but uh Anthropic, Boeing,

others are are dual use. Um and uh you

know just where you um uh draw the

dividing lines is difficult. Certainly

the Trump administration

uh is uh you know doing some things uh

some are well thought out others on an

ad hoc basis you know some may be

vindictive in their motivation uh that

creates uncertainty for companies uh but

but it's not only in the uh tech area

sometimes in in the supply chain like

with rare earth metals another question

I would have is how these things work in

waves. So we uh in looking at the data

of um it was the IPOs that doubled in in

their first day was the data I I looked

at last night and you know there were a

lot of them in the late 90s going back

as far as 1996. Um you know we've had

enough time between 2021 that I would be

um I'm willing to say that this this

current wave of IPOs is not a

continuation of that wave. And and so my

question would be, do do you think that

this is the beginning of a of a

multi-year wave of public equity

issuance uh that we're seeing right now?

>> I don't think it's it's necessarily

going to result in in a big boom uh in

the number of IPOs.

Uh in 2021, uh there was a lot of

enthusiasm for software as a service

companies that has faded. But but with

AI uh the cost of training large

language models the the cost of doing

certain things uh is enormous

and it's an industry structure where

where some of the verticals are having

just a small number you know sometimes

one company uh unlike during the

internet bubble where where uh the same

logic of winter takeoff all in in

certain niches um was there but

companies were going public at uh a

stage when it wasn't clear who the

winners were going to be. Uh a and uh

now with with companies staying private

longer with more venture capital money

uh it tends to be the case that the

companies going public are those where

it's much more clear that these are

among the winners and those that uh

didn't achieve that never go public. Uh

some of them sell out in trade sales

being acquired by a bigger company in

the same industry, sometimes at a

premium, sometimes at a fire sale price.

Um but um you know by and large uh we

see the successful companies going

public where there's less chance of of

complete failure. Uh having said that uh

there is one big exception to that and

that is life sciences biotech

uh where from 2013 to 2022 a very large

percentage about 30% of all the IPOs

were in that one sector

and most of them went public with zero

revenue from product sales. Um and most

of them went public where they had a

business model where the chance that we

have revenue from product sales is zero

during the next 5 years. Uh that that

was an industry where uh that there are

voracious demands for capital. Uh where

lots of companies were were going public

uh where the scientific uncertainties

were big. uh some of them like madna uh

turned out to be big winners uh a lot of

them that the science just hasn't worked

but uh that you know that's the story of

drug development. Do you think that the

change from smaller more speculative

companies coming to market and public

market investors getting the chance to

invest in them in earlier stages to what

we have now with these later stage

companies being the ones that come to

market. Do you think that is a good

thing or a bad thing for markets?

>> I don't think it's good or bad. Um that

that there's been a lot of hand ringing

about individuals not having the

opportunity to get in at an early stage.

Uh but uh a lot of money has flowed into

venture capital and private equity. Uh

prices have gotten bid up. When you buy

high, expected returns are lower. uh and

I don't see any reason to think that a

free lunch is sitting there. Uh you know

LPS that last few years have not been

earning especially high returns on

average. you know, for the funds that

had invested early in SpaceX and

anthropic and open AI, they've done very

well. But a lot of VC funds didn't

invest in those companies and put a lot

of money into software as a service

companies, for instance, and haven't

done all that well. But but in in

general,

you know, I I I think money flows into

different asset classes

uh until the point where the expected

returns on a riskadjusted basis are not

abnormally high or low. And I I don't

see any reason for venture capital or or

private equity to be an exception there.

I I I just don't see a a free lunch

sitting there uh that that uh I'm

clamoring to invest in.

>> So do you think that we've reached that

state for those asset classes?

>> Yes. Um now you can also make the case

and it has been made and correctly so

that that certain asset classes are

illquid uh such as private equity and

venture capital. they're they're less

liquid than investing in publicly traded

stocks and bonds and and so there should

be an illquidity premium. Um and uh for

investors such as pension funds with

long horizons uh putting some of your

assets into these asset classes uh and

earning that illquidity premium uh is a

very sensible investment strategy. But

that illquidity premium is not based

upon a law of physics. Uh it's based

upon money flowing in and out. And my

opinion is that so much money has flowed

in that that illiquidity premium is

probably pretty close to zero. The other

side of it too is that we now actually

we do have access to those companies

still. So there are vehicles now for

retail investors who traditionally have

to wait for these companies to go public

to get access many of them in the form

of closedend funds that can trade at

huge premiums to the net asset value at

the private marks. I mean what do you

think about these new ways that people

can get exposure to these private assets

that as you just pointed out h have

largely been bit up uh with all the

capital that has flown into the space.

Do you think that that is is gonna by

and large harm investors?

>> For a lot of these products, you're

paying fees on fees. Uh there's, you

know, an extra level of middlemen

involved and uh you know, it's not at

all clear to me that the public market

investors are are going to do great. Um

that there there's also an issue of of

access. Uh lots of people want to invest

in Sequoia Capitals funds. Sequoia

Capital has a a phenomenal track record.

Uh but uh you know even big

institutional investors I are frequently

told by Sequoia Capital we don't need

your money. Uh for retail investors uh

that there's an adverse selection

problem. even if an asset class does

well, uh that doesn't mean the funds

that you can get into are going to do as

well as the average. Uh and I I think

that's a especially uh when there's an

extra level of fees involved. So, um,

you know, I I I just don't see uh that

that there's that this free lunch

sitting there uh that that uh retail

investors are losing out on. Well, even

doing as well as the average isn't

really that good, especially in in

venture. I think that the returns are

are clustered largely in the top desile

where if you can't get in to those

funds, um you're better off sticking

just to public markets. Um, but one of

the reasons that institutional investors

do tend to like uh these these

pre-market style funds is that the

volatility of them you you know they're

they're setting their own marks. They're

they're marked when they want to raise

and and you can do a lot of things to

avoid having to do an equity raise,

especially now with the size of the

venture debt markets. you know, you can

find ways to sort of bypass having to

take a down round and having any sort of

downward volatility in your portfolio.

Um, but there are new things coming out.

I we're starting to get um these, as of

right now, they're largely in in

offshore markets, but these perpetual

futures for unlisted companies that are

pricing these private assets. And so my

question would be do you think that that

is has the potential to change this

latestage IPO

uh phenomenon that we're seeing because

by and large people have said that it's

because they they like to stay private

because there's no fluctuation in the

asset value and allows them to think

long term. But if the market has has

created a financial derivative and it's

trading and it's setting the price and

that's informing what private market

investors think you're worth, uh what's

the point in in staying away from the

public markets? And so I I wonder what

you think about some of these new

developments and how they might change

some of these trends we've been seeing

over the last few years. There is this

issue of what Cliff Andessa said AQR

refers to as volatility washing that

using stale pricing uh takes uh an asset

that um uh actually is pretty volatile

and pretends that it is not volatile.

Uh, and uh, you know, some of the LPs

might want to uh, pretend that that they

like uh, this pretend lack of volatility

uh, because it makes them uh, sleep

easier at night or to uh, mislead uh,

the u

uh, fundamental owners about how risky

the investments uh, really are. Uh

so so uh you know my opinion is uh in

real estate uh as as well as VC and PE

you see a lot of volatility washing uh

uh among uh private real estate funds uh

they report much smoother returns and

wagged returns

uh than publicly traded REITs do.

for instance. Uh but on average uh the

private equity real estate funds have

lower returns. Um maybe it's it's

because uh some investors are willing to

overpay for fake lower volatility. Um

now uh per h have recently uh been

attracting attention. Uh maybe that's

going to be changing some things but uh

you know extra layers of fees um uh

complications

uh uh you know there's potential for

some fraud uh there uh you know I think

it's just a matter of time before there

are some scandals w with uh various

funds uh turning out to be ponzi schemes

uh you know that that's one of the

reasons that that people are willing to

pay up for a brand name behind it. Uh

less chance of of uh due diligence not

having uh been undertaken. But but e

even there there's still uh

opportunities to get taken. Uh after

all, even Sequoia Capital uh was a

victim of the FTX fraud. Certainly even

the the smartest people in the room got

caught up in in FTX and and many other

um fraudulent businesses and you know in

the private credit world there's a lot

of concern about private credit risk and

and by and large like the two biggest um

scandals we've we've had were pretty

fraudulent in their nature rather than

credit events. Um there there was a lot

of fraud going on there. Um but but my

question was more about you know take a

take a hypothetical company that has

raised at a at a hundred billion dollar

valuation in the private markets. Um and

people are speculating that it it might

be coming public soon and and so they're

now somebody has launched a perpetual

future on it and that perpetual future

based off of what's happening to public

market comps is now trading at $50

billion in terms of its its implied

valuation of the company. um you know,

how is that going to affect

private capital's willingness to pay up

for the $150 billion round that that

hypothetical company wants to get and

and how is that going to change the

calculus around doing another round in

the private markets? I mean, we've heard

about companies doing series H M L. You

know, we're we're going to run out of

letters eventually. Um and and I'm just

wondering whether this new form of price

discovery might might impact those

decisions if you see that being

possible. These markets getting large

enough that um they they they impact

capital flows in that way.

I I think there there is indeed uh an

issue that it's hard to mark something

at a stale price when there's an obvious

um public indicator out there that that

uh market participants are paying a

different price. uh with uh mutual funds

that that invest in private companies uh

they don't all mark that that uh equity

investment or for that matter private

credit investment uh to the same mark.

uh that the more transparent uh the

valuation on and the private investment

is, the harder it is to uh avoid uh

marking it to to market based upon that

that public number. and and and with

with mutual funds um where uh they've

got to post an NAB every day uh they

they do have a uh strong motivation to

have an accurate mark. um uh to the

degree that that you've got a uh tiny

portion of the portfolio in a a private

investment. Uh if you're not marketing

it to market, the distortion in the

overall NAV is pretty minor. uh the the

bigger is uh your portfolio

uh in that asset uh the the more

important it is to market to market to

prevent a stale price arbitrage

opportunity. Um that there um you know

are are some uh funds out there that uh

real estate funds that that uh use

appraised values that don't mark to

market. uh where uh the stale price

arbitrage uh is there uh I've taken

advantage of it on uh some occasions

where public market uh valuations of

real estate funds have dropped uh stale

pricing allows me to get out at a high

NAV with a predictable decline ahead. um

you know, I'm diluting the other

shareholders that haven't taken their

money out by by doing that. Uh and and

um uh the the one fund that that I did

this with where I know some of the the

board members uh you know, I I've told

them, you shouldn't be doing this. You

shouldn't be allowing people like me to

take advantage of the other

shareholders.

uh and it still goes on because a lot of

the constituents like those nice steady

uh returns. Well, things may be turning

and it tends to have to do with with the

introduction of retail into these

private markets. So, earlier this month,

there were announcements that the

Southern District of New York is

starting to look into valuation

practices of private credit and private

equity. And you know, there's a saying

in markets that they they don't take the

punch bowl away while while the music is

playing. Um, and and by and large,

institutional investors are kind of held

to a different standard. They you're

you're tall enough to ride the ride. You

can suffer the consequences of of your

folly if you if you make a mistake, but

retail investors are more protected. And

private assets, they're moving retail

into them. And so the the mismatch in

marks like like I I'm wondering whether

there's a world where if there is a deep

and liquid perpetual futures market in

private companies is a venture capital

firm going to be allowed especially if

they have some sort of evergreen vehicle

with access to those companies are they

going to be allowed to set their own

marks? Is that going to be, you know, I

this is speculative, but I I I I see a

world where there's just more retail

capital in there and and there's perhaps

more oversight. I think there is the the

possibility of a sea change here because

in in private markets where you've got

institutional investors, even if they're

being victimized,

uh they're hesitant to sue. Uh why?

Well, one of the reasons is if you've

got a history of suing GPS,

uh, you know, other GPS don't want you

as an LP. Uh, with retail in investors,

uh, class action plaintiff attorneys

are, uh, happy to jump in. Uh, they're

not worried about, uh, getting shut out

of, uh, future investment opportunities.

So the uh in incentives for um in

investors um or at least the incentives

of their attorneys I are different uh

and and I I think uh with retail

products uh that there's going to be

much more pressure to mark to market uh

especially when you've got uh you know

per uh giving uh clear signals about

market prices. Now, it will still be the

case that there will be a legitimate

argument that well, maybe those public

market uh

investors uh setting the price don't

have access to all of the private

information. Uh that that results in um

uh some of the insiders uh knowing that

that uh the the uh value is actually

there. even even if public market

investors aren't aware of it. Uh so it

it's it's not always going to be a black

and white decision and there there will

be some gray areas. I want to close with

a with a question about sentiment and

and uh depending upon which side of this

you're on, you're either very concerned

about the equity issuance that we're

seeing or you're very excited about the

equity issuance that we're seeing. Do

you think either of those groups are are

right or wrong based off of what your

study of IPO markets has told you?

>> Sentiment does matter, but uh sentiment

is partly based upon the fundamentals

and and this is one of the reasons that

it's so difficult to disentangle things

that that people tend to get optimistic,

overly optimistic when there are good

reasons to be optimistic. uh and and so

figuring out is this rational or is

there overreaction

uh is frequently quite difficult. You

know, there are very good reasons to be

really excited about AI. Uh but what's

the right price? Uh that that's much

harder to determine. Um I one thing I I

might uh mention that that we haven't uh

focused on is US venture capital has

done quite well. Uh but uh you know we

don't hear uh a whole lot about Japanese

venture capital, European venture

capital, Latin American venture capital.

Why? well that there haven't been the 10

baggers there uh with the frequency that

it has occurred in the US and uh you

know as as a result that the returns to

LPS haven't been as good um and not as

much money flows in as a result uh that

that's that's why uh the venture capital

market is so big in the US because there

have been so many of the 10 baggers um

and

you know with 2020 hindsight uh clearly

US tech has been the area to invest in

in recent decades. Um but you know a big

question is at current valuation levels

is it all priced in today?

Yes, that is the big question one that

we'll get the answer to over time but

unfortunately for now we're just going

to have to uh to speculate and wait and

watch. Uh, Professor Ritter at the

director of the IPO initiative at the

University of Florida's Warrington

College of Business. Uh, where can

people find your work?

>> My website IPO data page. If you just

Google J Ritter IPO data, it will pop up

right away.

>> All right. Well, thank you very much,

professor. Thank you.