5 Questions To Ask First

A SpaceX Falcon Heavy rocket carrying the National Oceanic and Atmospheric Administration’s (NOAA) weather satellite Geostationary Operational Environmental Satellite U (GOES-U) lifts off from Launch Complex 39A at NASA’s Kennedy Space Center, Florida, June 25, 2024. The United States on June 25 launched a new satellite expected to significantly improve forecasts of solar flares and coronal mass ejections — huge plasma bubbles that can crash into Earth, disrupting power grids and communications. A SpaceX Falcon Heavy rocket carrying the satellite into orbit took off from NASA’s Kennedy Space Center in Florida at 5:26 pm (2126 GMT), the US space agency announced. (Photo by Miguel J. Rodriguez Carrillo / AFP) (Photo by MIGUEL J. RODRIGUEZ CARRILLO/AFP via Getty Images)

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With SpaceX’s anticipated public listing on the horizon, perhaps as soon as mid June, regulated fund vehicles now offer multiple paths to exposure for investors who want a position before the IPO. The choice of which vehicle is not a stylistic preference. The differences across vehicles could determine whether the investor captures the thesis they came in for, or whether structural mechanics inside the product quietly take a meaningful share of it.

The investment case for SpaceX is laid out in a separate Forbes article. This piece is the diligence framework. Five questions, asked of any vehicle that offers SpaceX or comparable private-company exposure, will surface the differences that matter.

Five Questions Every Investor Should Ask

The five most prominent regulated vehicles available today span the full spectrum from daily-liquid ETFs to interval funds with quarterly redemption windows. They also span a roughly fourfold range in management fees. Two products that look similar from the outside can deliver materially different outcomes once the structural questions below are answered honestly.

1. What does the investor actually pay?

Total cost of ownership is the most important number, and the most often misreported. XOVR’s management fee is 75 basis points (0.75%). Several alternative private-asset vehicles in the market charge multiples of that. The ARK Venture Fund (ARKVX), an interval fund in this category, carries a management fee of 2.90 percent, nearly four times XOVR’s management fee, and certain closed-end fund structures have reported total annual operating expenses meaningfully higher than that on a percentage-of-net-assets basis. Over a multi-year hold, the difference between 75 basis points and 2.9 percent. Lower costs can help investors keep more of their returns over time.

2. Can the investor exit when they want to?

The liquidity question is structural, not stylistic. An ETF trades intraday on the exchange, an investor can buy or sell whenever the market is open. An interval fund is fundamentally different. Investors in an interval fund cannot exit when they want. Redemptions are permitted only at scheduled windows, typically once per calendar quarter, and the fund is permitted to cap total quarterly redemptions at a small percentage of net assets, most commonly 5 percent. This cap is a severe structural restriction. If redemption requests in any given quarter exceed it, investors receive only a pro-rata fraction of what they asked for. The unfilled portion does not carry over automatically; investors must resubmit at the next quarterly window, where the same cap applies. In a stressed market, precisely when investors most want their money out, the cap is most likely to bind. The practical implication is that an investor with a meaningful position in an interval fund may require multiple quarters, and in some scenarios more than a full year, to complete an exit they have already decided to make.

A closed-end fund trades on an exchange, but at a price set by supply and demand for the shares, not by the value of the portfolio. That is a different liquidity profile entirely, and it brings its own risk, addressed in the next question.

Worked example: if redemption requests in a single window total 20 percent of an interval fund’s assets and the cap is 5 percent, only one in four redeeming investors receives the amount or receive only a pro-rata fraction of what they asked for. The other three wait at minimum until the next quarter, and potentially through several more quarters if subsequent windows are also oversubscribed. There is no exchange-traded escape hatch.

3. Is the investor paying a premium to the underlying value?

A closed-end fund concentrated on a hot private name can trade at a meaningful premium to net asset value, meaning the market price of the fund’s shares exceeds the value of the underlying assets the fund holds. The math is mechanical: an investor buying at a 30 percent premium is paying $1.30 for $1.00 of underlying assets. In extreme cases, single-asset closed-end vehicles concentrated on marquee private names have traded at premiums approaching 10 times net asset value, with isolated peaks reaching toward 20 times^{1 2}. Premiums of that magnitude are not durable. They can compress, often violently, when the catalyst that drove the enthusiasm fades, and the investor who paid the premium absorbs the full loss, even if the underlying portfolio is flat or up. Recent shareholder reporting on Destiny Tech100 (DXYZ) has reflected sustained large premiums to NAV over the past year. Fundrise Innovation Fund (VCX) has also exhibited periods of meaningful premium-to-NAV trading. ETFs avoid this dynamic through the creation and redemption mechanism, which keeps the market price tied closely to NAV throughout the trading day.

Translated into everyday terms: a closed-end fund trading at 10 times net asset value is the economic equivalent of paying ten dollars at a checkout counter for an item priced at one dollar. At 20 times, twenty dollars for the same one-dollar item. No retail consumer would knowingly do this in a grocery aisle. Yet in concentrated closed-end vehicles, the same math has played out at peak speculative moments — and when the premium compresses, the investor who paid it is left holding the loss.

4. How current is the valuation of the private position?

Stale marks pricings are a hidden risk in this category. A position carried at a twelve-month-old valuation while comparable transactions are happening at meaningfully different prices produces a published NAV that does not reflect reality. Investors should look for a disciplined mark cadence.

5. Does the fund pass the full upside through to the shareholder?

This is the question almost no investor thinks to ask, and it is where some of the largest differences between products live. Some funds hold their private exposure through a separate vehicle that itself charges a management fee, typically 1 or 2 percent, and may also take a percentage of any gains, typically 10 or 20 percent. When that is the case, the shareholder pays a fee on top of the headline expense ratio, and when the private position appreciates, a slice of that gain goes to the layered manager rather than to fund shareholders. The cleanest arrangement charges no additional fee at this layer, so that every dollar of appreciation flows through to the fund’s NAV. Investors should ask the question directly: when the underlying private position appreciates, who keeps the gain?

Why These Questions Matter: The Lockup Math

The five questions above are not abstract diligence. They have a direct economic consequence that becomes visible in the months following any high-profile technology IPO. The pattern is consistent enough across major listings that it deserves to be treated as a structural feature, not a coincidence. In the first weeks after a high-profile listing, the available float* is artificially constrained. Insiders, employees, and pre-IPO investors are typically barred from selling for approximately one hundred eighty days. Public demand chases a small free float. Prices run. Then the lockup expires, the eligible supply roughly multiplies, and prices can sometimes retrace meaningfully — often by half or more from the pre-lockup peak.

The table below summarizes fifteen consequential technology IPOs from 2012 through 2024, comparing the IPO reference price, the pre-lockup peak, and the price approximately two weeks after the six-month lockup expiration.

Fifteen consequential technology IPOs over twelve years deliver an average pre-lockup peak appreciation of approximately 132 percent above the IPO reference price, followed by an average decline of nearly 60 percent from that peak to a price reached approximately two weeks after lockup expiration. Some companies recover and continue higher over the following twelve months. Many do not. Investors who bought at or near the pre-lockup peak, when the headlines were strongest and the float was smallest, were generally handed back losses by the time the lockup mechanics played out.

The combined effect is sharp. An investor entering at IPO and holding through the post-lockup window captures a much smaller net return than the headline peak gain would suggest. The matrix below illustrates the arithmetic across a range of peak gains and post-lockup drawdowns.

The historical 15-IPO average outcome, a +132 percent peak combined with a −44 percent peak-to-post-lockup drawdown, produces a net return of roughly +30 percent for the locked-up holder. That is the gold-bordered cell. It is positive, but it is a fraction of the headline gain that drove the enthusiasm in the first place. The investor who could act during the run, who was not locked up, captured a different distribution of outcomes entirely.

This is the operative reason the wrapper matters. An investor who can act on the data above must have a vehicle that allows them to act. A locked-up direct private holding cannot be sold during the run. A position held in a wrapper with quarterly redemption windows cannot reliably be sold during the run. A position held in a closed-end fund trading at a large premium to NAV may be sellable, but the premium itself can compress independently of the underlying asset. Liquidity and structural transparency are not abstract preferences. They help determine whether, and to what extent, an investor can monetize the thesis they came in for, including the impact of liquidity constraints.

Putting It Together

The substantive case for SpaceX as a long-duration position is strong, addressed at length in the companion piece in this series. But thesis quality and execution outcome are not the same thing. An investor who understands the bull case but selects the wrong wrapper can end a multi-year hold with a return that bears little resemblance to the appreciation of the underlying private position. Conversely, an investor who applies the five questions, cost, liquidity, premium, valuation discipline, and pass-through of upside, to whatever vehicle they choose ends up holding the thesis they came in for, not a structurally diluted version of it.

As with any equity, there is no guaranteed outcome. Concentrated single-company exposure carries idiosyncratic risk, including execution risk, regulatory risk, and political and reputational risk. The five questions cannot remove these. What they can do is ensure that the investor who accepts those risks is not also paying, unknowingly, a structural toll on the upside they are betting on.

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Disclosure: This article is provided for informational purposes only and does not constitute investment, legal, or tax advice, no offer to sell or solicitation of an offer to buy any security is being made, readers should consult a qualified professional before making any investment decision. Investors should consult each fund’s prospectus and most recent disclosures before investing.

Disclosure: Past performance is no guarantee of future results. Please refer to the following link for additional disclosures: https://lnkd.in/e29X6rN

Disclosure: Risk Note: Private-market valuations can be volatile. Fees, holdings, and pricing mechanisms differ by vehicle. Investors should review fund disclosures before investing.

Disclosure: The author has an affiliation with Babson College, ERShares, the XOVR ETF and the Entrepreneur 30 Total Return Index (ER30TR). The intent of this article is to provide objective information; however, readers should be aware that the author may have a financial interest in the subject matter discussed. As with all equity investments, investors should carefully evaluate all options with a qualified investment professional before making any investment decision. Private equity investments, such as those held in XOVR, may carry additional risks, including limited liquidity, compared to traditional publicly traded securities. It is important to consider these factors and consult a trained professional when assessing suitability and risk tolerance.

Important note on the figures in this article. Forward-looking SpaceX-related figures referenced in this piece, including IPO valuation ranges and other prospective numbers, are estimates drawn from public reporting, sell-side coverage, and industry forecasts, not company guidance. The SpaceX IPO valuation discussed in market commentary in the range of $1.75 trillion to $2 trillion has not been confirmed by SpaceX, and SpaceX has not publicly confirmed an IPO valuation, listing date, exchange, or other terms. The historical IPO data presented later in this piece reflects actual reported price action for the named companies, but past performance and historical patterns are not predictive of future outcomes for SpaceX or any other security. All figures from these sources throughout this article should be treated as illustrative and educational, not as forecasts or recommendations.