Former SEC Chair Gary Gensler Talks SpaceX & Mega IPO Risks

**SPEAKER_1** (0:02)
Bloomberg Audio Studios, Podcasts, Radio, News.

**Kailey Leinz** (0:07)
And joining me now for more on this here in our Washington, DC studio is Gary Gensler, the former chair of the Securities and Exchange Commission. Mr. Chairman, welcome back to Bloomberg TV and Radio.

**Gary Gensler** (0:17)
Oh, it's good to be with you, Kailey.

**Kailey Leinz** (0:18)
It's good to see you. It strikes me that we did see SpaceX debut today after Senator Elizabeth Warren wrote to the SEC and requested a delay over concern about the valuation, concern about how this could impact retirement accounts. If you were still helming the SEC, would you have shared those concerns? Would you have let this go forward?

**Gary Gensler** (0:39)
Other people are in this job right now, but some of the concerns that I think she also wrote another letter to the index providers, and Romaine was just speaking about that.
One of the things is that NASDAQ made an accommodation, they changed their rules, and for your listeners, this is important because it's when do the index companies purchase these securities. And what's interesting is at SpaceX, they have an arrangement where a lot of their insiders and venture capital firms and so forth aren't going to have the traditional lock up for 180 days. So it will be a faster phasing of this. And in fact, what will be interesting, under the NASDAQ rules, once about a third of the stock, 33%, is no longer locked up, which could happen as quickly as July of this year, then they count all of it in the index. So all of a sudden pop into the NASDAQ 100

**Kailey Leinz** (1:42)
Well, so let me ask you this, as you speak to the unique nature of this in so many ways, do you see this as being unique to SpaceX and an Elon Musk led company and changes being made with that in mind, or is this really setting new precedent and this is the way we're going to see these things work going forward?

**Gary Gensler** (2:00)
Well, we're in this little era of mega IPO's and we don't know what will happen with with entropic and open AI. We just have this Google offering of 85 billion. That's a sign of this enormous interest in artificial intelligence and in this case in space.
I do think there's a shift that's gone on here in this particular offering. I mean, the valuations, Kailey, with the 19% pop today are about 120 times revenues, not earnings.

**Kailey Leinz** (2:37)
Now, there's no profit here.

**Gary Gensler** (2:39)
There's no profit here. And two of the businesses are pretty understood. There's Space Launch Business and there's Starlink, which is called Connectivity. Those two businesses combined only had about $16 billion in revenues in the last 12 months. There are artificial intelligence business duking it out.
Grok is not currently thought of as one of the leading three. That's Google, Open AI, Anthropic, and don't count the Chinese models out.
So, where does that play out over the next two to five years, and are these valuations taking some of those risks into that?

**Kailey Leinz** (3:19)
Well, and I also wonder how much of the valuation is valuing the man at the top in Elon Musk. He's going to have 85% of the voting share here. There are major governance questions that were raised as this company went public. How great of a concern is that to you?

**Gary Gensler** (3:34)
Well, they've also shifted some things.
They did a little bit of a...
We're not going to be in Delaware anymore. We're going to be in Texas, right? We're going to be under a little bit different governance. And they also, the Securities and Exchange Commission, changed some things that shareholders can't sue the company. They have to go to arbitration. And so, the governance has really shifted, and those risks have to be understood by shareholders. I do think as you start to see these shares come available, out of lockup and so forth, you'll see where this stock will trade. And your earlier segment said, well, it's all about, will they deliver on this big commitment of the new starship? But I also think the uncertainty is about how the shares come out of lockup. And there's a lot of venture capitalists that will say, listen, I love this, but let me take some risk off the page, right? I mean, this is at 120 times revenues. Maybe I should take some of the profits off the page.

**Kailey Leinz** (4:41)
Well, it's lofty to say the least. Of course, we had a sense. This was an unusual pricing, not the typical discovery process. It was just set. But we did have a sense of what the demand would be based off of private market behavior and also prediction market behavior. I want to talk to you more about the prediction markets overall, Mr. Chairman, because we have also seen, maybe we're reaching the end of it now, open question as to whether we reach a memorandum of understanding with Iran, but we have frequently seen bets being placed on this conflict, actually things moving in futures markets.