Gerstner argues traditional IPO bank fees of 6-7% plus historical-only financials leave investors unable to evaluate high-growth companies.
“And on top of that, of course, you can only give historical financials, which leaves most investors in the dark about a high growth company's future prospects.”
Gerstner says Altimeter's SPAC model lets companies set their own price and charges zero fees to the company.
“You set the price, you tell the story with forward looking forecasts. We serve up a world class group of mutual funds and hedge funds as your shareholders.”
Gerstner says Altimeter's SPAC model lets founders set their own price and select their shareholders.
“You set the price, you tell the story with forward looking forecasts. We serve up a world class group of mutual funds and hedge funds as your shareholders. You ring the bell, it's your IPO.”
Gerstner criticizes traditional IPOs as year-long processes where companies don't know pricing or shareholders until the end.
“It's a year long process where you don't know the price for your shares or even who your shareholders are going to be until the end of the line.”
Gerstner calculates over $1 billion in cost savings for Grab employees and shareholders.
“And so if you say it's 30 percent on a $4,000,000,000 raise, that's over a billion dollars of savings. Right? Over $1,000,000,000 of indirect cost savings to the employees and the shareholders.”
Gerstner claims Grab achieved 20-30% higher valuation than traditional IPO would have delivered.
“So in a traditional IPO, let's say you have a $10,000,000,000 enterprise value raising a billion dollars. If it's being underpriced, he would argue structurally by 40%.”
Gerstner says traditional IPO costs include upfront fees and structural underpricing as the larger expense.
“There's the upfront fee, five and a half, 6%, whatever they're paying on the amount of capital raised. But he would argue the much bigger expense, right, is the indirect cost of the structural underpricing.”
Gerstner predicts most IPOs in the next twelve months will price below their last private round.
“majority of companies that come public in the next twelve months are going out below their last”
Gerstner says IPO investors today demand significantly higher returns than 2021 deals as margin of safety.
“anybody who does an IPO today, okay, is going to demand a, you know, a rate of return into that offering that is a significant margin of safety relative to all deals that were done in 2021.”
Gerstner says companies going public now must offer bigger discounts than pre-correction 2021 levels to attract investors.
“in order to get into the public markets, they have to, you know, step in with a bigger discount than they would have, you know, pre this correction.”
Gerstner reveals Altimeter tracked 100 potential IPOs in 2021, three in 2022, and zero in 2023 year-to-date.
“So that was 46 in 2020, a 100 in 2021, three in 2022, and zero year to date in 2023.”
Gerstner says Instacart will IPO at around $10B versus its $50-60B private valuation, an 80% down round.
“Right? Super high quality company. I think its last private round was 50 or 60,000,000,000 in the bubble, and now it's rumored to be going public at somewhere around $10,000,000,000.”
Gerstner forecasts 5-7 good-sized IPOs in Q4 2023 and closer to 10 in Q1 2024.
“I think we're gonna see five, six, seven IPOs, good sized IPOs in q four. We'll probably see closer to 10 in q one,”
Gerstner argues historic tech IPOs needed capital access, unlike today's companies with deep private markets.
“I think the biggest thing that has changed over the last twenty years, you know, back to you know, if we think about the companies that went public in in in those early vintages, the Microsofts, the Apples, the Googles, the Salesforce, etc. What was one commonality, Bill? They needed access to capital to grow.”
Gerstner says Instacart needed board courage to ignore prior high valuations and go public at lower valuation.
“I think one of the obstacles. Right? So it's performed incredibly well. Off of the bottom, it's performed really well since the IPO, but it took a board that had the courage to say, you know, we're going to ignore what the prior valuations were, and we're gonna focus on getting the the company public.”
“He said to me, the IPO market is slow in volume terms for lack of supply, not lack of demand. And I've been making this case that the IPO window is wide open.”
Gerstner identifies deep private capital from sovereign wealth funds as structural change preventing companies from going public unlike past decades.
“And if you look at the private market alternatives for them for capital, we didn't have sovereign wealth funds that were writing multi billion dollar checks at that point in time.”
Gerstner reports Coatue's Philippe suggested companies now need $10 billion market cap to go public.
“he implied you tell me if I got this wrong. He implied that in the modern era, you need to be $10,000,000,000 to go public. Yeah. Market cap. Yes.”
Gerstner says Philippe implied companies need $10 billion market cap to go public, calling this threshold problematic.
“He implied that in the modern era, you need to be $10,000,000,000 to go public. Yeah. Market cap. Yes. Which if it's 10,000,000,000 or bust, that's a bitch, man.”
Gerstner argues regulatory burdens keep companies private longer, harming retail investors.
“I think we're better off as a country when these companies are coming public sooner. But that's that's in fact what's happened. So we invest early.”
Gerstner says OpenAI's $150 billion round with 10 investors created a dream IPO cap table, calling it a private IPO.
“If you looked at that, the cap table for the 10 investors in that round, it would be a dream day one IPO cap table for any company that wanted to enter the public markets.”
“So we're three years into this recovery. We've got this incredible group of companies that are still private, you know, think of the Stripes and Databricks and SpaceX, etcetera.”
Gerstner says OpenAI and Anthropic deals are bigger than any tech IPO in five years.
“I was just looking at these. I think these are bigger private IPOs than any public IPO done in the last five years in the tech market.”
Gerstner calculates OpenAI could IPO at a trillion dollar valuation at 10x $100 billion revenue, below Facebook's IPO multiple.
“if you guys went public at 10 times 100,000,000,000 in revenue, right, which would be I think a lower multiple than Facebook went public at, a lower multiple than a lot of other big consumer companies went public at, That would put you at a trillion dollars.”
Gerstner predicts Anthropic and OpenAI will go public within twelve to eighteen months.
“Over the course of the next twelve to eighteen months, both Anthropic and OpenAI will come public would be my guess.”
Gerstner says Cerebras is opening at over $100 billion valuation within minutes of speaking.
“We had the risk capital that stepped in, and now it's gonna go public today. I'm hearing in less than two minutes at over a 100 over a $100,000,000,000.”
Gerstner warns retail investors not to YOLO into Cerebras at $400 per share.
“I get worried about Scott, like I said on the show Yeah. With retail investors, I would not be YOLO ing into this thing at $400.”
Gerstner says institutional demand for Cerebras is around $250-275 range, while demand over $300 is mostly retail investors.
“I would say it's more in that range. That's what I'm hearing from the institutions. I think most of the demand over 300 is frankly retail that listen.”
Gerstner says SpaceX IPO rumored for June 12 will raise about $75 billion.
“We have incredible IPOs coming starting with SpaceX rumored on June 12. Hopefully, I'll be back in the New York Stock Exchange with you guys. It's gonna be an incredible IPO.”
Gerstner states SpaceX IPO will raise approximately $75 billion and is rumored for June 12.
“It's gonna be an incredible IPO. It's gonna raise about 75 it's gonna raise about $75,000,000,000.”
Gerstner says SpaceX IPO is rumored for June 12 at the New York Stock Exchange.
“We have incredible IPOs coming starting with SpaceX rumored on June 12. Hopefully, I'll be back in the New York Stock Exchange with you guys.”
Gerstner says SpaceX IPO will raise about $75 billion, requiring Altimeter to sell other holdings to participate.
“It's gonna raise about 75 it's gonna raise about $75,000,000,000. Okay? So when when if Altimeter and we do wanna buy the SpaceX IPO, I've gotta raise that money from somewhere.”
Gerstner predicts a robust back half if OpenAI hits $100 billion exit revenue and IPOs this year.
“If that revenue is on track, right, if they're headed to a $100,000,000,000 of exit revenue, you know, this year and and and have an IPO in the back half, I think you could see a really robust, you know, back half of the year.”
Gerstner says many Anthropic VCs plan to buy more shares in the IPO rather than sell
“@litcapital You might be surprised how many of those VCs are looking to buy big additional stakes in the IPO rather than sell. 🧐📈”