The IPO for Elon Musk's Spacex is expected to be the biggest ever, and will convert it into an almost $2 trillion enterprise. However, potential investors might want to have a good look at the way the company is set up, and particularly how Musk is paid and how his share holdings work.
An IPO (Initial Public Offering) is the way that a private company transforms into a publicly traded company, and is the way that companies raises capital for expansion. It allows institutional and retail investors to get a piece of what they think will be an exciting and profitable venture. Spacex may well be exciting - space! rockets! Mars! - although the profitability piece is much less certain.
And about Musk's position, investors should be pretty wary about investing in a company that has been expressly constructed around him in order to maximize his income and his control. The shares that will become available for ordinary investors at next month's IPO will be Class A shares that confer one vote each. What Mr. Musk has are Class B "super-voting" shares that carry 10 votes a share. Musk has 5.5 billion of these B shares, giving him around 85% of all votes. And he has those votes even though he doesn't technically have the share in his hands until the company achieves some increasingly-unlikely targets, such as establishing a colony on Mars with a million inhabitants, launching high-powered data centres into space, etc.
This set-up allows Musk almost complete control over the company, including an ability to appoint insiders to its board, to set his own compensation package, to insulate himself from shareholder lawsuits, etc. Investment experts say they have never seen anything like it, calling it "insane" and that the governance structure "freaks me out".
Caveat emptor, caveat emptor, caveat emptor!
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