Early SpaceX investors will now reap the rewards

For nearly two decades, some of the world’s most prominent investors have quietly accumulated shares in SpaceX while the rocket maker has remained largely out of public markets.

Now, as Elon Musk’s company seeks a valuation of around $1.8 trillion in its initial public offering, those initial bets are poised to create some of the biggest paper gains in venture capital history.

Major beneficiaries include veteran stock picker Ron Baron, Cathie Wood’s Ark Invest and mutual fund giant Fidelity Investments. It is also set to win venture firms such as Founders Fund, Sequoia Capital and Andreessen Horowitz, as well as hedge funds such as D1 Capital Partners and Coatue Management. Selected pension funds and endowments will also get a share of the windfall.

The gains are stunning for investors who backed SpaceX before its success became obvious. Baron first invested through employee tender offers in 2017, when the company was valued at less than $22 billion, and has participated in 27 financing rounds since then.

As of the end of March, SpaceX accounted for 33% of the assets in the $10.4 billion Baron Partners Fund and 23% of the Baron Asset Fund, making it one of the firm’s most significant investments.

“We think SpaceX will be the largest, most profitable company on the planet,” Baron said during a webcast for investors this week. He said his firm has invested about $2 billion in the company over the years, a stake that has grown to roughly $12 billion.

It’s still too early to create value

Wood’s Ark Venture Fund he has also been one of the biggest beneficiaries of SpaceX’s meteoric rise. The rocket manufacturer became the largest holding in the portfolio, accounting for 11.4% of the fund’s net assets as of March 31.

Ark sees SpaceX as much more than a launch provider, Wood said. “We believe that through the acquisitions of Starship, Starlink and xAI, SpaceX is building vertically integrated AI infrastructure for a much larger space economy,” he told CNBC.

The investment also reflects Ark’s broader thesis on technological convergence. SpaceX sits at the intersection of many of the firm’s core innovation themes, including artificial intelligence, robotics and energy storage. Wood believes the company’s next phase of growth could be driven not only by its existing Falcon 9 launch business and Starlink satellite network, but also by Starship, the next-generation rocket system that could create new commercial opportunities in space.

“For long-term shareholders, the IPO will provide greater access to a company that we believe is just at the beginning of its value creation process,” Wood said. he said.

No traditional asset manager is benefiting from SpaceX’s rise more than Fidelity Investments. The Boston-based firm got in on the action early, through former portfolio manager Gavin Baker, who began buying shares in 2015, when SpaceX was valued at about $10 billion.

As of March 31, SpaceX accounted for 4.7% of the $177 billion Fidelity Contrafund, one of the world’s largest actively managed investment funds. The company also represented 3.3% of the $103 billion Fidelity Blue Chip Growth Fund and 2.6% of the approximately $99 billion Fidelity Growth Company Fund.

Fidelity declined to comment for this story.

Aces are coming

The extraordinary returns reflect not only the company’s growth but also the scarcity of access.

“They were looking for a chance against Elon, and it worked out very well for them,” said Greg Martin, co-founder and managing director of Rainmaker Securities. “After taking a chance on Elon, it turns out that a long-term cap table position is very rare because the cap table is so tightly managed.” A capitalization statement or capitalization statement refers to a written breakdown of a company’s equity ownership.

Martin said that unlike many venture-backed companies that routinely expand their shareholder base, SpaceX maintains tight control over who can invest. As a result, investors who secured positions early often had opportunities to participate in later rounds of financing that were not available to most institutions.

“Their early bet on Elon not only paid off on their initial investment, but also allowed them to deploy much more capital as the business became an increasingly obvious success,” Martin said.

This dynamic has helped turn relatively modest early investments into positions worth billions of dollars. Venture firm Founders Fund began backing SpaceX in 2008, while hedge funds such as Coatue and D1 ventured into subsequent private rounds.

“Our success comes from thinking about almost everything that other people do that doesn’t make sense, and hopefully by doing those things we’ve done 75% of the work,” Philippe Laffont, founder of Coatue Management, said at the Global Alts conference in New York this week.

Pensions and donations

Pension funds and university endowments are also poised to reap significant gains from SpaceX’s debut; This underscores how the company’s rise has rewarded institutions responsible for funding pensions, scholarships and academic research.

The Ontario Teachers’ Pension Plan invested more than $200 million in SpaceX in 2019 through a newly created technology-focused investment vehicle at the time. At the time, the pension manager described SpaceX as a “compelling investment opportunity” due to its “proven track record of technology disruption in the launch space and significant future growth potential in the satellite broadband market.”

University endowments have also emerged as major beneficiaries. St. Washington University in St. Louis invested nearly $50 million in SpaceX almost a decade ago; this stock gained dramatically as the company rose towards its IPO valuation. The holding now accounts for more than 10% of the university’s nearly $17 billion endowment, according to Bloomberg News.

The University of Washington declined to comment and the Ontario Teachers’ Pension Plan did not respond to CNBC’s request for comment.