SpaceX IPO proves that noble lies are better than the naked truth

Sometimes, to keep society from falling apart and let people live in peace, leaders have to tell myths or lies

Because if people realized rules are just made up by humans and aren't divine laws, most would feel lost, stop following them and society would break down into pure selfishness and chaos 

That’s why political philosophy has always argued that a 'noble lie' is way better than the harsh naked truth

The exact same thing happens in finance. We like to think markets run on pure logic, but for example a startup's valuation is just a noble lie, a necessary fiction agreed upon by the founder and investors

It’s a necessary fiction because if a brand-new company were valued on what it actually owns (desk by desk, computer by computer, line of code), the investor would take 100% of the business on day one. As a result, the founder wouldn't even want to get out of bed to work on their own idea

That is why to value young companies, the game works backwards. Founders just decide the max ownership they are willing to give investors (like 20%) for the cash needed to build the company (say, 1 million). Using reverse math, that puts the company's value at 5 million

That is always a noble lie. A necessary leap of faith to give the company some breathing room while keeping everyone's interests aligned

In this same way, we can say that SpaceX's colossal valuation for its IPO is a noble lie, a necessary fiction and a useful illusion

SpaceX has a super expensive business that runs satellite internet, reusable rockets, and AI data centers. Because of that, they needed to raise a massive amounts of cash but since they couldn't find that kind of cash from private investors (or they could not provide the right terms), they decided to go to the public markets

The main challenge was protecting existing private investors from dilution. Above all, they needed to protect their largest shareholder, Elon Musk, who under no circumstances would allow himself to lose majority ownership and control

To avoid watering down shares, the fix was to sell the tiniest slice of the company possible on the stock market: just about 4% of the total

This is the heart of the move. That 1.77 trillion dollar valuation didn't come from a deep analysis of what the company is actually worth today or in the future. The math was done backward: they figured out the cash they absolutely needed (75 billion) and the most shares they were willing to sell without losing control (4%), forcing a 1.77 TUSD price tag on the whole thing. That's it

This is exactly why markets, like societies, crave noble lies. The grand illusion of colonizing Mars and becoming a multiplanetary civilization is a beautiful, inspiring narrative

It’s far more comforting than the harsh naked truth. That SpaceX is currently a capital-hungry internet provider doing financial gymnastics to sustain its massive infrastructure

The market doesn’t want to fund a cash-strapped telecom company. It wants to fund a cosmic destiny