Latent Space: The AI Engineer Podcast
00:05:25 · Jamin Ball, Shawn Wang
[00:05:25] S0: Right? Yeah. Exactly. Exactly. [00:05:27] S1: Yeah. So... Okay. That... That's the normal mechanics. I I think... And and that's it. Right? So so off the top of your head, you know, people should understand that an s one is just a filing that you have to do. OpenAI has done theirs as well, confidentially, and then then then they go public. Yep. People have filed s ones and not IPO ed. That's right. Cerebras famously did that. That's right. And then they did it again. And it... It's just part of the routine process. And you have investor day, and you have whisper rumors and all these things. Right? So as someone who's... Unless you're literally a banker or fund manager, that's all you need to know, basically. Right? There's not... There's no... This is part of the process, and there's a lot of indication to try to make it a successful IPO. Yeah. Successful is a mixed or loaded word these these days because, typically, you'll hear things like IPO is so successful, the stock popped 50% Yeah. On the first day. That's actually potentially a failure if you're Bill Gurley. [00:06:21] S0: Yeah. Exactly. Exactly. [00:06:23] S1: Who is like, well, you could have got 50% more. [00:06:25] S0: Exactly. And, you know, and just just for the audience, what what that mechanism is is in an IPO, it's like a fundraise on steroids. You're gonna go out. You're gonna raise a bunch of money at a certain price. [00:06:34] S1: How much are they raising? Like, 20,000,000,000? [00:06:36] S0: I don't think that's been [00:06:37] S1: Okay.
00:06:37 · Shawn Wang, Jamin Ball
[00:06:37] S1: Okay. [00:06:37] S0: I don't think they've decided yet. I think the rumors are, like, 75 to 100,000,000,000. Fuck. It'll be a big raise. I mean, typically, what you used to see price. I I know. What you used to see in normal IPOs was companies would float about 10 to 15% of their company, which means, like, what you would sell into the IPO would be 10 to 15%. [00:06:55] S1: Yes. And there's an employee lockup and a bunch [00:06:56] S0: of Exactly. Now it's maybe as as the companies get bigger and bigger and bigger, they might float less of the company because, hey, you can take less dilution. It's no different than a company raising a series a, b, or c. It's you're gonna raise money at a certain dilution. And, yeah, the Bill Gurley thing is, well, if the stock pops 50% on day one, why wouldn't you have just raised money at a higher price? [00:07:18] S1: Yeah. Right. [00:07:18] S0: You can take it on take it on less dilution. [00:07:20] S1: And that's a whole separate topic. Yeah. [00:07:23] S0: We've got lots of nuance to public markets and IPO [00:07:26] S1: allocation There's on conflicting incentives, and then there's the there's the chance that you actually... You don't pop. Yes. So all that, let's put it at a high level. Why now? Why IPO now? Right? Mhmm. They they could do a Stripe. They could do a Databricks. Yeah. Right? Yeah. They're not. They're IPO ing. Why?
00:07:26 · Shawn Wang, Jamin Ball
[00:07:26] S1: allocation There's on conflicting incentives, and then there's the there's the chance that you actually... You don't pop. Yes. So all that, let's put it at a high level. Why now? Why IPO now? Right? Mhmm. They they could do a Stripe. They could do a Databricks. Yeah. Right? Yeah. They're not. They're IPO ing. Why? [00:07:42] S0: Yeah. I think, I I think there's a couple reasons. Well, one, it's all speculation. It's hard to know. But I think there's a number of reasons why companies have historically chosen to go public. There's kind of the obvious, let's provide liquidity to our employees and our investors in, like, an unrestricted way. Because, of course, you know, now big companies, Databricks, Stripe, OpenAI, Anthropic, kind of like tenders are are pretty regular. Like, once a [00:08:06] S1: year, you'll you'll get like... Well, if you wanna cash out, here's here's the Yeah.
00:08:06 · Shawn Wang, Jamin Ball
[00:08:06] S1: year, you'll you'll get like... Well, if you wanna cash out, here's here's the Yeah. [00:08:08] S0: But, you you'll have a... You'll be limited in how much you can sell. You know, now once a company has gone public, once they've gone through the lockup, you know, which is anywhere from... You know, it used to be just ninety day... One hundred and eighty days, six months. And now it's kind of like every company has a bespoke lockup that's like dribbled out. Some are shorter, some are longer. But it's got like unrestricted access, you can generate liquidity for your employees, help morale, whatever. Or you need a liquid currency for acquisitions. And hey, a company might be more willing to take an acquisition from a public company because the currency you're getting back is is liquid versus in a private company, maybe it isn't. [00:08:46] S1: It's made up.
00:08:46 · Shawn Wang, Jamin Ball
[00:08:46] S1: It's made up. [00:08:46] S0: Really know the value. Yeah. It's monopoly money. Yeah. I would say these quasi public companies, OpenAI, Anthropic, Databricks, I think their currency has almost started to be viewed as cash, not monopoly money because they're very high quality. They're very late stage. That effect probably means less. I would say a a bigger reason to go public because... And it used to be companies went public because now you could access much larger quantums of capital. You know, you... If you wanted to raise a $100,000,000, it used to be the only way to raise a $100,000,000 is to to go public. You know? You you seize and raise series a. A seed a seed of of more than that. And so it's not necessarily the quantum of capital. I think whether it's US institutions getting bigger, maybe folks who used to act as LPs, large pension funds and endowments, acting as direct investors in a company themselves, or kind of the emergence of big sovereign international funds investing direct in companies. There's a huge capital base available to private companies. And so I don't know if the argument necessarily holds. Hey. If you want to raise a lot of money, go public. I think OpenAI raised a round of like 120, 130,000,000,000. Biggest of all time. Yeah. Exactly. I think maybe a more important angle is is more of like the debt piece. So once you go [00:10:07] S1: Talk about it.
00:10:07 · Jamin Ball
[00:10:07] S0: Once you go public... Actually, let me take a step back. If you want to raise debt or if you want someone else to raise debt, not on your behalf, but like as a Neo Cloud, a Neo Cloud might want to raise debt to build a data center for Anthropic to to use. Debt providers are gonna look at Anthropic, and they're gonna underwrite Anthropic's credit worthiness. And how it works is they'll go, they'll say, hey. We're gonna syndicate how many billions of dollars of debt for you, Anthropic, or via a Neo Cloud for you. But we're gonna need we're gonna need, like, full open kimono on your financials. We're gonna need to know exactly how this business is doing so that we can underwrite you. And then everyone we syndicate the debt to on the back end, they also need to see it. And I'd say historically, companies have just been hesitant to go full open kimono with their financials to the debt and credit markets because they don't want them to be fully public. But if you want to be rated by the by the rating agencies who basically... They'll give you a credit rating. Investment grade is the highest. Your credit rating will kind of impact the rate with which you can raise debt at. And the higher your credit rating, the lower the rate that you'll receive. But you, you know, have to be open kimono with your financials. So going public is a great way for companies to basically... You're gonna get rated. I think SpaceX very famously got rated very quickly after going public. You can tap into... Yeah. Arguably too. I mean, there there was a lot of people who said it was, hey. It was too fast. They need to season more as a public company.