As we scooped last week, bankers have been puzzling over how to handle the tsunami of selling — more than $1 trillion at the valuation being discussed — that would hit the market six months after the IPO, if the company pursued a traditional insider “lock-up.” They are considering ways to have those shares trickle into the market sooner and more slowly, assuming the demand is there.
A document prepared by hedge fund Lykos Global Management that was seen by Semafor and shared with some of SpaceX’s underwriters pitches a new IPO structure and games out how it would work for a company SpaceX’s size. (It’s unclear whether SpaceX is considering this structure, but Semafor reported that similar ideas are on the table.)
If SpaceX stock price trades at a five-day average that’s 50% higher than the IPO price, the first gate would lift, allowing employees to sell 15% of their stock, according to Lykos’ presentation. After that, the price thresholds decrease because the market is deeper and can more easily absorb new shares without wild swings.
A sustained 40% increase over the list price frees up employees to sell another 10% of their shares and lets SpaceX’s non-affiliated venture investors sell 10%. Directors at the company are let out later, then finally CEO Elon Musk, though whether he wants to sell remains an open question.
The process — dubbed the Threshold-Indexed Dynamic Exit, or TIDE — is cheekily named to fix the problem it solves: the wave of selling that follows big IPOs and can weigh on the stock price. It’s essentially a rolling IPO, calibrated to the market’s ability to smoothly absorb the largest chunk of stock ever thrown its way.