A lot of retail investors have a severe case of FOMO for SpaceX shares. But a quick search online shows some people are already flexing pre-IPO positions in Elon Musk’s trillion-dollar spacecraft company.
One of these investors is Anthony Scaramucci (1) who discussed why he invested in SpaceX in a private round on X, writing, “I missed Amazon. $10,000 invested in the Amazon IPO on May 15th, 1997 would be worth almost $20 million today … I’m not making that mistake again.”
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Scaramucci isn’t the only VIP investor. The rapper 2 Chainz (2) mentioned that he was also an early SpaceX investor on the “Earn Your Leisure” podcast. That being said, there are plenty of “average investors” who claim they’re now co-owners of SpaceX, too.
For instance, The New York Times reported on about 150 listeners of the podcast “Rich Habits” who secured their SpaceX stock before its public launch (3).
It’s unclear how each individual got into SpaceX so early, but one strategy is picking up steam: “special purpose vehicles” (SPVs).
What is an SPV?
Basically, an SPV is a separate company set up to buy and hold a specific asset (in this case, private equity) for investors. People who participate in an SPV pool their money so the SPV can buy shares as if they’re one person.
Why does this work with SpaceX stock?
Private companies typically don’t want to crowd their shareholder list with a bunch of names. So, SPVs stand a better shot of getting approval because they can bring in a lot of capital through just one legal entity.
According to The New York Times, at least 170 SPVs bought into SpaceX, but that number could be higher. Since these deals are on the private market, reporters are only judging what they hold by their listed names in SEC filings. In these 170 cases, the title explicitly said “SpaceX” or something closely related like “Space Exploration” (4).
The shady side of SpaceX SPVs
SPVs seem like a sweet strategy to beat the crowd to hot IPOs, but a closer look reveals “layers” of potential risks.
Often, SPVs don’t just buy SpaceX shares directly from the company. Instead, they could buy private equity from another SPV — even multiple SPVs — creating complex and costly arrangements in the private market.
For example, the “Rich Habits” crowd got SpaceX shares through one SPV, Witz Ventures, buying into another SPV, DataPower Capital, that bought SpaceX shares from another unnamed firm.
DataPower Capital’s founder, David Yakobovitch, told The New York Times he got shares directly from a SpaceX-listed shareholder and personally wouldn’t invest with more than one degree of separation. As he put it, “If it’s going several layers down, it can get a little murky” (5).
That “murkiness” could be hiding something malicious.
There are cases of fraudulent deals that are taking advantage of the relative lack of transparency in the private market and the increasing appetite for hyped stocks.
One case reported from the U.S. Attorney’s Office of the Middle District of Georgia involved the company Vika Ventures that promised access to shares in private companies like SpaceX and Stripe. Instead, the roughly $5.9 million from over 50 investors went into founder George Iakovou’s luxury watch collection and private jet charters before his conviction (6).
Be wary of the FOMO to invest pre-IPO
As a retail investor, it’s only human to feel frustrated when you see others flashing SpaceX shares on social media. But remember that there are many dangers in the private market, especially with hyped companies like SpaceX.
Even if you find a legit SPV with SpaceX stock, these aren’t the most efficient way to buy private shares. Actually, you won’t “own” SpaceX shares. You’re only pooling money in a company to get exposure to SpaceX through your stake in that SPV.
Then there are the often excessive SPV fees.
One proposed SpaceX SPV from the Fearless Fund carried a 6% fee plus 20% on any realized profits, per The New York Times. That’s not even adding in bonus fees if you’re buying SpaceX through multiple layers of SPVs (7).
So, even though it feels like you’re getting in early to the biggest IPO ever, you may not make as much as you’d hoped working with an SPV.
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Article Sources
We rely only on vetted sources and credible third-party reporting. For details, see our ethics and guidelines.
X (1); YouTube (2); The New York Times (3),(4),(5),(7); U.S. Department of Justice (6)
This article originally appeared on Moneywise.com under the title: From 2 Chainz to Anthony Scaramucci, many claim to own SpaceX shares even before the IPO. How some get an early jump
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Disclaimer : This story is auto aggregated by a computer programme and has not been created or edited by DOWNTHENEWS. Publisher: finance.yahoo.com
