| Welcome back! Maybe the "dumb money" isn't so dumb after all. Over the last two years, Silicon Valley has been flooded with special purpose vehicles that promise individual investors a way to own shares in OpenAI, Anthropic and other buzzy startups. These often seemed like a sure way for individuals to lose money, thanks to exorbitant fees and the funds' sometimes dubious claims of share ownership. But a SpaceX initial public offering could make these funds look like a smart bet after all. If the stock market ends up valuing SpaceX at $1.25 trillion—the valuation Elon Musk recently said the rocket ship company was worth after combining with his xAI—the price would be 10 times the $125 billion valuation the company had in mid-2022. This far exceeds the roughly 60% increase the DJIA has had in the same time frame. These SPVs, marketed to amateur investors as a way to buy private shares before a public offering, are riskier than buying shares in a stock index fund. There are currently over 1,000 unicorns, many from the 2021 boom, that have yet to do an IPO and might never do so, which could mean there will never be a return on those investments. A dentist in Iowa who bought a lot of these "billion-dollar startup" shares could lose their shirt. The funds also don't have the kind of information about business performance a public company discloses. And they sometimes carry heavy fees, as my colleague Sri wrote in this deep dive in late 2024. One fund, Sand Hill Road Technologies Fund (which is based in Miami, not Silicon Valley), told prospective investors they could get access to shares of SpaceX for $258 a share, roughly double the $135 institutional investors at the time were expected to pay. That markup got them ownership of a fund that was investing in another SPV buying the shares. In a SpaceX IPO, the SPV investors would also pay 20% of the profit on the investment. However, the IPO valuation Musk and many investors expect is so stratospheric that ordinary investors could make the kind of return only Silicon Valley insiders typically brag about. That could be true even if they bought shares when SpaceX was already valued above $100 billion, instead of $100 million, and have to give up more of the payout. "There's this whole industry that supports everything Musk and hypes it," said Max Wolff, co-founder at Systematic Ventures, which advises investors on SPVs. But the reality is this groupthink might have paid off, at least for now, he said. His companies have "been a reliable returns machine in a low-growth environment." Wolff added that he's seen the industry shift its mentality about SPVs over the years. They were once seen as a way for Silicon Valley insiders to sell their shares to outsiders, but he says that many firms now see them as a way to come up with the large checks needed to compete with the strategic investors and sovereign wealth funds. Venture capitalists "aren't big enough" to write the billion-dollar checks by themselves. We've seen established firms such as Thrive Capital, Khosla Ventures, Menlo Ventures and others set up SPVs as they participate in huge funding rounds, sometimes selling the shares to limited partners. It remains to be seen whether the public market agrees with the $1.25 trillion valuation for SpaceX. But if those investors get on board with that figure, expect SPV managers to be touting this as a success story for years to come. | 
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