Anthropic Filing Before OpenAI For IPO Is Financially Significant

In the IPO race, being first matters. A lot. And being second matters, too, just not in a positive way. 

As Anthropic has filed for its IPO ahead of OpenAI, the financial impact may be significant because economic history demonstrates that the first to file - assuming they are well-managed, and Anthropic is considered the better-run enterprise - is then in the best position to take advantage of the money and talent flowing into the market. Companies filing later don't perform as well as their predecessors. This situation is especially acute now because SpaceX, which is not a pure AI company and has a plethora of well-known leadership and performance challenges, is going to market before the others in this latest generation of tech companies. Despite that, it will raise a huge amount of money. The issue is not that SpaceX is first, but that whoever is third will struggle on a relative basis. That is why Anthropic's filing before OpenAI matters. And don't be surprised if OpenAI tries to jump the queue. JL

Asa Fitch, Kate Clark and colleagues report in the Wall Street Journal:

Anthropic, recently valued at nearly $1 trillion, has filed confidentially for an initial public offering. Banks have told Anthropic and OpenAI that whoever makes it to market first will define the new industry and have first dibs on the large pools of cash eager to back new AI companies. There are clear advantages to being first. As importantly, there are major disadvantages in being second. Research has shown that IPOs come in industry clusters, and that companies listing later in a cycle don’t perform as well. That stands to reason, given that higher-quality companies with deeper moats tend to go public early, triggering a barrage of followers that might not be as strong. And even in a hot market, there isn’t an infinite amount of money to go around. “SpaceX (IPO next week) is going to consume a ton of capital, and the guy that goes second is going to have a better position than the guy that goes third.”

In the bitter rivalry between AI heavyweights OpenAI and Anthropic, it will mostly be who has the best technology that determines the ultimate victor. But which one of them gets to its public offering first matters a great deal, too. Anthropic, the artificial intelligence lab recently valued at nearly $1 trillion, said Monday it has filed confidentially for an initial public offering, setting up a blockbuster year for IPOs.

The filing could put the company behind the Claude AI model on a path to go public this fall.

Elon Musk’s SpaceX is preparing to stage what is likely to be the largest IPO ever next week. The Wall Street Journal reported last month that Anthropic’s chief rival, OpenAI, was preparing to submit its own IPO filing imminently.

Banks have told both Anthropic and OpenAI that whoever makes it to market first will get to define the new industry and have first dibs on the large pools of cash eager to back new AI companies. If both file initial paperwork with regulators around the same time, either would still have a chance to stage an offering before the other.

The window for initial public offerings is decidedly open, with a receptive market. Cerebras, an AI-chip company, rose 68% on its first day of trading last month. Only digital-design platform Figma’s absurd 250% rise last year was bigger for a company valued at more than $10 billion at listing in the past five years, according to FactSet data.

Elon Musk’s SpaceX plans to follow up this summer in what may well be the largest IPO in history—with a targeted valuation of $1.5 trillion. That will add more heat to the IPO cauldron. 

This is all the more reason for OpenAI and Anthropic to try to be the first big artificial-intelligence-model developer to go public. Anthropic filed confidential paperwork Monday for a listing that could come as soon as the fall, while OpenAI has been working with bankers on its own filing.

There are some clear advantages to being first out of the gate. Just as importantly, there are major disadvantages in being second.

Academic research has shown that IPOs tend to come in industry clusters, and that companies listing later in a cycle don’t tend to perform as well. That stands to reason, given that higher-quality companies with deeper moats tend to go public early, triggering a barrage of followers that might not be as strong.

And even in a hot market, there isn’t an infinite amount of money to go around. Investors may rotate out of other stocks to pile into SpaceX, then do more reshuffling to make bets on OpenAI and Anthropic later this year or next. The one that goes first is likely to gobble up more of the increasingly scarce capital.

And both OpenAI and Anthropic are looking for sky-high valuations. Anthropic raised money recently at a valuation approaching $1 trillion. OpenAI was last valued in March at $852 billion.

“There’s only so much oxygen in the room,” said Patrick Healy, founder of Issuer Network, which advises companies going public on leading U.S. exchanges. “SpaceX is going to consume an absolute ton of capital, and the guy that goes second is going to have a better position than the guy that goes third.”

For the better-run company—in this case Anthropic, headed by Dario Amodei—the cost of waiting may be especially large. A lukewarm market reception for an early OpenAI listing, which seems plausible given the steady drumbeat of dysfunction at the Sam Altman-led company, could force Anthropic to delay or scale back.

That is just what happened in 2019, when ride-hailing rivals Lyft and Uber Technologies went public. Lyft, the smaller of the two, was first out of the gate with an IPO that didn’t live up to its hype.

A post-IPO decline in the stock directly affected Uber’s listing two months later. Uber cut its target valuation, but its shares still fell after its debut, even in a market where other tech listings had been doing well.

Going first isn’t risk-free either, of course. The first to list risks that the market takes time to reflect its value, given that it is in a nascent industry without much of a track record. 

That has happened with tech listings in the past. Facebook’s stock lost more than half its value in its first three months of trading in 2012 amid worry about whether it could adapt to a shift toward mobile-phone ads. It later went on a sustained upward run as the company showed its resilience and investors grew more comfortable with its business model. But other companies that had been itching to list—notably Twitter—ended up having to wait.

Importantly though, even when the market’s initial verdict is negative, Facebook and other early IPO movers got to reap the benefits of being public as they waited for their shares to recover. This includes whatever money is raised from the IPO, and keeping employees happy by allowing them to cash out. Those factors add urgency to OpenAI and Anthropic’s IPOs, both of which could come this year. 

Which gets there first—and how markets react to it—could help shape the future of the two companies and the next phase of the AI boom, either underlining the market’s confidence in AI’s transformative power or delivering a warning about its excesses. The stakes are high indeed.