Imran Khan on IPO Pricing, Public Markets and AI Investment

In this 2024 interview, Proem Asset Management founder and chief investment officer Imran Khan discusses IPOs, acquisitions, AI spending and his experience with Alibaba and Snap. His market judgments are historical views and reflect his role as an investor.

Khan disputes the idea that the IPO market is simply closed. In his view, many private companies are reluctant to accept public-market valuations below those of their earlier funding rounds. He also sees institutional allocations and demand for lower reported volatility influencing capital flows.

He favors going public earlier and argues that an IPO price is a snapshot rather than the full value created over a company’s life. Stebbings raises employee morale when a listing price falls short of expectations; Khan stresses culture and commitment to the mission.

Khan expects limited liquidity and losses in some private portfolios to slow future allocations. He also argues that a long private holding period can span major technology shifts; these are his 2024 forecasts, not established outcomes for individual funds.

He believes public-market feedback and liquid shares can encourage discipline and support acquisitions. He points to cloud computing and the iPhone as innovations developed by public companies, arguing that being public need not prevent long-term investment.

Khan objects to treating revenue multiples as a standalone valuation. He illustrates how projected growth, eventual margins, a future earnings multiple and an investor’s required return can imply a price today; the assumptions are hypothetical and highly consequential.

Gross margin matters because a low-margin business has less revenue available to turn into profit, he argues. He considers revenue multiples more useful for some high-margin subscription businesses than for low-margin businesses, while still requiring analysis of growth and cash flow.

He recalls advocating Google as an analyst when some investors favored Yahoo and questioned Google’s capital spending. His lesson is that the size and economics of a market can be hard to see early; this anecdote is his recollection.

For slower-growing software companies, he recommends focusing on operating efficiency and returning capital when reinvestment opportunities are limited. He views public-market pressure as potentially useful, while Stebbings notes that accepting slower growth can compress valuations.

Khan says his loyalty as an investment manager is to the clients who entrusted him with money. That is his account of his professional responsibility; he also says he wants founders to succeed.

Stebbings asks why a private company with abundant capital and secondary liquidity should list. Khan concedes a profitable company can remain private and buy back shares, but questions the sustainability of repeatedly raising outside money to fund both operations and employee liquidity.

On M&A, Khan criticizes what he sees as overregulation but does not blame enforcement alone for the slowdown. He says seller valuation expectations and complex capital structures also impede deals; these are his political and market judgments.

Stebbings points to the risk that a large transaction could spend months in review and fail. Khan agrees that major buyers can attract scrutiny and says each case differs, while arguing that smaller deals may face different conditions.

Discussing a reported proposal involving Wiz, he argues that a substantial breakup fee could mitigate some risk and that high valuations require continued execution. He explicitly says he lacks all the facts; his assessment is not evidence of the terms or outcome of a completed deal.

Khan disagrees with a focus on eliminating every first-day IPO pop. He argues that leaving some upside can build relationships with new shareholders, though he acknowledges a doubling may be excessive. The appropriate price and allocation involve trade-offs for selling shareholders and new buyers.

He says large investors often receive only part of their desired position in an IPO and may buy more afterward. This is his explanation of price and allocation dynamics, not a guarantee that a discounted offer will rise or attract aftermarket demand.

He stresses building investor trust before an IPO through consistent communication and performance. A traditional process then involves a filing, roadshow, investor analysis and indications of demand before a final price is set.

Khan estimates that a strong IPO may convert a large share of one-on-one meetings into orders, while weak demand can lead to a pulled offering. His percentages are practitioner heuristics, not universal rules.

In his description of a traditional IPO, the company and banks set an initial range using comparable companies and feedback, then assess demand and investors’ price views during the roadshow. Oversubscription alone is not enough: the quality and price sensitivity of demand matter.

He argues that meaningful allocations can matter to large active managers, who must decide whether a position is large enough to justify attention. Stebbings raises Instacart’s order book as a question; Khan’s explanation is a general view, not verified evidence about its particular investors.

He describes 180 days as a standard lockup and says restrictions can allow the market to absorb information before insiders sell. He dislikes very short lockups because he thinks they can signal weak confidence; terms vary by transaction.

On whether private investors have an informational edge after a company lists, he sees a distinction by horizon. Years of knowing management may help assess long-term adaptability, while public-market investors may be better equipped to manage short-term trading risk.

Asked to compare a Harris and Trump administration, Khan declines to predict which would be better for markets. He favors regulation he considers targeted and criticizes an unrealized-capital-gains tax in broad terms; his examples and concerns are political opinions, not an analysis of a specific enacted tax law.

On AI capital expenditure, he says the key question is whether technology raises productivity enough to justify the spending. He offers a hypothetical economy-wide percentage improvement and large dollar figure as an illustration, not a measured forecast.

He compares Google’s historical investment in infrastructure with Yahoo’s approach, arguing that returns can become clear only over a long period. He recalls a Google–AOL distribution arrangement as an example of accepting short-term economics to build reach; the details are his recollection.

For cloud providers, he identifies a risk that demand for AI capacity might later stabilize or decline, leaving excess infrastructure. He says he does not know whether that will happen and cites post-pandemic capacity planning as an analogy.

He sees possible AI applications in recommendation, autonomous vehicles, robotics and defense, and expects advertising platforms may benefit from improved matching. These are his hypotheses about future value, not demonstrated returns across those sectors.

Khan says a public company need not invent an AI story simply to satisfy the market. His advice is to communicate the current business honestly and manage expectations; any valuation benefit still depends on execution and cash flow.

He traces the Alibaba relationship to a 2004 trip to China and meeting co-founder Joe Tsai. After moving from research to banking, he says he helped Alibaba finance a buyback of part of Yahoo’s stake.

He recalls that financing was difficult after Facebook’s public-market decline and amid governance concerns. His proposed solution for part of the global investor allocation was no post-IPO lockup, based on the expectation that large institutions would still want to build larger positions.

Khan says the Alibaba IPO story was simplified for international investors using familiar analogies. He argues that a clear initial explanation earns attention for deeper analysis; an analogy should not substitute for due diligence.

On investing in China, he says uncertainty and unpredictability in regulation make analysis difficult. This was his assessment at the time, not a prediction that all Chinese investments would perform a certain way.

Turning to Snap, Khan credits Evan Spiegel’s understanding of customers, conviction and tolerance for criticism. He also notes the company already had a strong product when he joined as chief strategy officer.

He says Snap’s revenue grew rapidly from a small base to a $1.6 billion annualized rate by the fourth quarter of 2018. He distinguishes the run rate from annual recurring revenue; the historical numbers are his account.

Khan credits hiring and empowering a sales team to educate advertisers, followed by a need for self-service advertising and measurement. In hindsight, he would have invested earlier in small businesses and direct-response advertising to make growth more durable.

Rapid growth creates pressure and can distract leaders from planning the next stage. He says he would have looked further ahead from the earlier revenue milestones rather than assuming the same trajectory would continue.

He recalls Joe Tsai’s enthusiasm for Snap and describes Alibaba’s investment as emerging from that relationship. He also says Snap had built relationships with public-market investors before its IPO, helping them understand the company.

In quick-fire remarks, Khan advises questioning consensus and says public-market investors should be cautious about moving deeply into early private rounds outside their expertise. He sees near-IPO investing as a different activity from building a seed-investment organization.

He says a major personal mistake has been losing focus or overestimating his abilities. Long-term investment decisions should account for how context may change over two, five or ten years, not only how attractive an asset looks today.

He is examining which companies may benefit or suffer from AI and over what time horizon. He also wishes investors asked more often about after-tax returns, since frequent trading can make those differ materially from headline performance.