The wave of AI companies going public is presented as a growth opportunity, but it functions mechanically as an "exit" for early investors. It allows insiders to cash out and pass the immense financial risks of unprofitable, capital-intensive businesses onto the public market, dubbed "dumb money."

In the 1980s, companies like Apple went public early as a fundraising necessity, allowing public investors to capture most of the growth. Today, robust private markets mean companies stay private longer, making IPOs primarily a liquidity event for insiders and VCs, with less upside left for the public.

Retail investors should view hyped IPOs not as a starting line, but as the finish line for early venture capitalists and insiders. These sophisticated players use the public market's excitement to cash out, leaving retail investors to bear the risk of post-IPO volatility and potential downturns.

The traditional purpose of an IPO—raising capital for company growth—is obsolete. Today, companies scale using private equity and only go public to allow early investors and insiders to cash out. This means the public market captures significantly less of a company's early, high-growth phase.

Unlike early tech IPOs where public investors captured enormous gains, today's blockbuster IPOs arrive at such inflated valuations that almost all value has already been extracted by private investors, leaving minimal upside for the retail market.

By delaying IPOs, highly-valued private companies concentrate wealth among a small group of early investors. When they finally go public, regulations often compel passive funds and 401(k)s to buy in at peak valuations. This forces retail investors to become the "bag holders," assuming significant risk after most of the value has already been created.

The first-day surge in an IPO's stock price represents value transferred from the company to institutional investors who bought at a deliberately underpriced offering price. Retail investors who buy after this 'pop' are often left purchasing inflated shares while insiders cash out on the manufactured frenzy.

An IPO is a liquidity event for early, connected investors to sell to the public. Retail investors, often buying on hype, should view these events with caution, as they are purchasing shares from more sophisticated players who are cashing out.

For many large companies today, an IPO's primary purpose has shifted from raising growth capital—which is readily available in private markets—to creating liquidity for early investors and employees. The public offering acts as a valuation marker and an exit opportunity, not a funding necessity.