An overview of The Snowflake's IPO banner on the front of the NYSE as employees of the tech company celebrate the largest tech IPO in the history of the exchange on September 16, 2026.
Kostas Lymperopoulos | CSM | AP
One of the biggest problems with the traditional IPO process (and there are several) is that it is impossible to tell whether a deal is a success or a failure.
Snowflake, the cloud-based data management company that saw its largest IPO in 2020, gained 112 percent on its debut Wednesday. For investors who received an allocation at the offer price of $ 120 per share (which, incidentally, was 41 percent higher than the range Snowflake originally marketed in September), this is a win. It's also a win for past backers like Altimeter Capital and Sutter Hill who have repaid their original investments multiple times.
"The heart is beating a little faster right now," said Brad Gerstner, founder and CEO of Altimeter Capital, at CNBC as he watched the stock open.
But there is a downside that is often talked about: money that's on the proverbial table. This deals with the abstract concept of opportunity cost – what Snowflake could have levied if it valued the business as the broader market valued it. In this case, it's $ 3.8 billion (on top of the $ 4 billion Snowflake raised from its initial public offering and concurrent private placements). Critics of the IPO process say this is capital that could otherwise have been invested in the business.
"In many ways, $ SNOW is the ultimate test of how broken a process is," tweeted Bill Gurley, general partner of Benchmark venture company and a frequent critic of the traditional IPO process.
Snowflake's "money on the table" is the largest for a US-listed company since Visa went public in 2008. The deal added additional assets to Visa investors who received an IPO $ 5 billion and not the company. (Note: Visa shares are up roughly 1,200 percent since going public, compared to the S&P 500 rising 161 percent over the same period.)
Snowflake's opportunity cost also exceeds that of Alibaba, the record holder for the largest public offering in the US in 2014. However, Alibaba's minority IPO included stocks issued by the company – known as primary stocks – while the rest were sold by previous investors like founder Jack Ma or Yahoo. That meant Alibaba left $ 3.2 billion on the table, below Snowflake's.
(Of course, Snowflake shares were down 10% on Thursday, which means the stock may not have been as mispriced when it went public as the pop reflected on day one.)
Are SPACs Better?
Why is that so important? Well, skeptics of the traditional IPO process often point to inefficiencies and mispricing as reasons why the path to public markets needs to be reformed. However, the newer methods for IPO candidates like SPACs and direct listings are better at hiding the opportunity cost.
In direct listings – like those of Slack and Spotify in the past and the upcoming debut of Palantir – companies don't leave money on the table because they don't (yet) raise money. That could change soon as the Securities and Exchange Commission cleared the ability for companies to raise fresh capital through direct listings. However, there is currently no clear-cut way to measure opportunity cost as market forces drive pricing with no first indicator to compare day one performance.
It could be argued that direct listings incur opportunity costs if they are unable to create a book with investors, as traditional IPOs do. Or there are opportunity costs of foregoing the ability to issue shares as part of the deal and raise additional capital. However, the exact dollar number is difficult to determine.
With SPACs or special-purpose acquisition companies, companies find a "backdoor route" to the public markets by agreeing to be acquired by a blank check shell company. The price is agreed by two parties – the managers of the blank check company and the board of directors of the start-up. Sometimes the market offers the value of the SPAC when a deal is announced, but it's an indirect line about what says of the price at which the start-up was acquired, a deal that is voted and closed months later .
But maybe that's the idea. Perhaps the lack of the psychological "what if" is a big component of why the alternative IPO procedures are more attractive.
But should we then reformulate our thinking about opportunity costs as these newer methods become more popular?
Because they always exist.
– With reporting by Gina Francolla.
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