The IPO Illusion: Why Public Investors Are Arriving Late

For decades, an IPO used to mean something very specific: a company was growing so fast that it needed massive amounts of capital to keep expanding.

Public investors funded the next phase of growth. The business needed your money to build more factories, hire more employees, expand distribution, or dominate a market. That was the deal.

Now? That’s increasingly not what’s happening.

I saw a Wall Street Journal headline that said Anthropic is raising another $30 billion in private funding, and it really made me stop and think. If a company can raise tens of billions of dollars in private markets before ever needing public investors, then what exactly is the IPO even for anymore?

Historically, IPOs funded growth. Today, many IPOs are becoming liquidity events.

Private equity firms, venture capitalists, founders, and early employees are staying private longer than ever while the explosive growth phase happens behind closed doors. By the time the company finally goes public, much of the “hockey stick” growth investors dream about has already occurred. The public is often invited in after the biggest upside has already been captured privately.

And the timing matters.

Most insider lockups expire roughly six months after an IPO. That’s when early investors and insiders can finally begin selling shares to the public. So if a company raises another massive private round right before going public, you have to ask the obvious question: if they already have all the capital they need, why IPO at all?

The uncomfortable answer may simply be liquidity.

Public markets increasingly serve as the exit strategy for private investors who spent years building the valuation higher and higher in private markets. The IPO becomes less about raising growth capital and more about transferring ownership risk to retail investors at peak optimism and peak valuations.

You can actually see this behavior show up in the data. From 2018 to 2020, the U.S. averaged roughly 300-500 IPOs per year. Then 2021 happened. Interest rates were near zero, money was basically free, valuations exploded, SPAC mania took over, and more than 1,000 companies went public in a single year — one of the biggest IPO booms in history.

Almost perfectly on cue, the market rolled over in 2022 once rates rose and easy money disappeared. Many of those companies that rushed public during peak euphoria are now trading dramatically below their IPO prices.

That doesn’t mean every IPO is bad. But investors should stop treating IPOs like they’re automatically getting in early. In many modern IPOs, “early” was five funding rounds ago.

The public used to fund the growth story; now we need to be careful not to fund the payout.

Process over predictions.

Shean