The dream of many individual investors is to buy into a hot initial public offering (“IPO”) before it goes public. A soon-to-be-public fund is looking to make that dream a reality… at a price.
Powerlaw Capital has filed to launch a fund that includes a number of 2026’s hottest potential IPOs, and any investor could buy the fund on a public stock exchange.
The hitch is that the Securities and Exchange Commission (“SEC”) still has to approve the plan. So, it’s not a given at this stage…
But if the SEC does rubber-stamp the fund’s prospectus, individual investors could buy a fund that holds stakes in the following companies:
- SpaceX, the Elon Musk-backed spaceship company aiming for a $1.5 trillion valuation
- OpenAI, the maker of the ChatGPT bot
- Anthropic, the company behind the Claude AI chatbot
- Anduril Industries, a maker of autonomous weapons and related software
- Databricks, a data-analytics firm
- Stripe, a payments specialist
- And a dozen more companies
In a normal year, any of these named companies might rank among the largest IPOs of all time.
But in 2026, their pre-IPO valuations already put any of them at or near the top of the largest public debuts ever. Yes, valuations have soared – even before the legendary first-day IPO pop.
While the fund may contain some massive players, investors should pay particular attention to the fund’s risks and the pricey fees to get access to these private stocks.
Powerlaw: Buy Hot IPOs Before They Go Public
The key appeal of Powerlaw’s fund, of course, is the ability to buy some of the most popular private stocks… those that are usually the exclusive preserve of venture-capital firms, institutional investors, and high-net-worth investors.
Can you blame the investing public for wanting to get on board?
It’s hard not to be enticed by the soaring valuation of OpenAI in the past 18 months or so. In October 2024, the stock was valued at $157 billion, and it’s now looking to raise money at a $830 billion valuation – a stunning gain of 430% or so, if it comes off…
And presumably, an IPO would only add further to the upside. So, investors want in.
The Powerlaw fund gives them that opportunity. OpenAI is the largest of the fund’s 18 positions, which are heavily focused on artificial intelligence. The fund’s 10 largest positions as a percentage of its value include:
- OpenAI: 31.0%
- SpaceX: 11.1%
- Mercor.io: 5.8%
- Kalshi: 5.7%
- Deel: 5.6%
- Payward: 5.5%
- Colossal Biosciences: 5.5%
- Groq: 5.2%
- Databricks: 5.0%
- Anthropic: 4.3%
A further 3.0% of the fund is in xAI, which should be rolled into SpaceX stock as the two companies merge. So, the SpaceX stake should ultimately be a larger portion of the fund.
Additional portfolio companies include Anduril Industries, Canva, Figma, People Center, Perplexity, Stripe, and Waymo.
The potential upside of these companies is high, but so is the risk, even if these companies have the stamp of approval from Silicon Valley.
While individual investors understandably want in on the game, the ability to invest in private companies is not arbitrarily limited to more well-heeled investors.
The financial disclosure requirements for private companies are low, so these firms don’t need to report the same figures or insights about their business to investors. This lack of disclosure creates risk.
To reduce the risk to individuals, the SEC limits investment in private companies to sophisticated investors, including professionals and what it calls accredited investors. Accredited investors are individuals with a net worth of $1 million or annual income of $200,000 or more. These investors are assumed to be able to weather the risk and potential loss from private stocks such as these.
The Powerlaw fund tries to do an end-run around this kind of regulation, giving investors the ability to buy these private stocks by listing its fund on a public exchange.
Risks of the Powerlaw IPO Fund
Before you consider buying the fund – if it is approved – it’s important to understand a few risks and drawbacks. (You can see the fund’s full prospectus here.)
Fees
The fund is planning to charge a 2.5% management fee, a quite beefy cost for the privilege of buying in. That is, every $10,000 investment would cost $250 each year.
To put this in perspective, any investor can buy a low-cost fund based on the S&P 500 Index – and enjoy its historically strong, long-term returns – for less than 0.10%. That translates into a cost of less than $10 annually for every $10,000 invested. (There are even cheaper ones, too.)
So, you could pay 25 times or more to own this Powerlaw fund compared with an S&P 500 fund.
Less Financial Disclosure
Private companies are not subject to the same high levels of financial disclosure that public companies are. That creates a lack of transparency into their operations and, therefore, more risk.
It’s important to recall that the SEC limits investment in private companies to more sophisticated investors for reasons such as the companies’ greater operational risk.
Closed-End Funds Are Often Mispriced
This fund is structured as a closed-end fund, unlike most exchange-traded funds (“ETFs”), which are structured as open-end funds. The price of an open-end fund closely tracks the fund’s net asset value (i.e., its holdings) due to its legal structure. That’s not the case for a closed-end fund.
A closed-end fund may trade at a substantial discount to its net asset value, and it is often priced at a 10% discount or more to its holdings, also in part due to its fees.
However, given the buzzy nature of the pre-IPO stocks here, the Powerlaw fund may trade at a premium to the value of its holdings – which is even worse. You’ll pay more but get less.
That said, the fund should move directionally with its holdings, even with a price disparity. This setup may not be a dealbreaker for those who want access to these highly regarded stocks.
Mix of Holdings
The fund holds a hodge-podge of investments in various proportions, so you don’t get to pick and choose what you get here. As mentioned above, 31% of the fund is invested in OpenAI, while about 11% is in SpaceX. Many of the remaining positions each make up about 4% to 6% of the fund.
So, if you really want access to a significant piece of Stripe or AI player Perplexity, this fund may not be the way to go.
In addition, it’s vital to understand that the fund’s holdings are not all direct holdings, as with a traditional publicly held stock. Instead, they also consist of forward contracts for the delivery of the portfolio stock or special purpose vehicles, which hold stock in another fund.
These extra layers create further risks that are not typical in publicly traded funds.
Valuation
Finally, it’s important to understand that the venture-capital firms backing these companies are looking to capture for themselves as much of their value as they can. These large investors are not interested in cutting in outside investors for a piece of the pie if they’re not forced to do so.
So, IPOs often underperform the market for a while because they’re hyped out of the gate. A study from Bain & Company found that around two-thirds of global IPOs from 2010 to 2014 trailed publicly traded rivals over a five-year period… by a whopping 46 percentage points.
Is the Powerlaw Fund for You?
As you’re considering whether to invest in this Powerlaw fund – and we’re not saying to do so one way or the other – weigh the potential upside against the risks. Also, consider whether investing in riskier private companies fits with your financial goals and needs.
Publicly traded stocks have a strong record in their own right – and better financial disclosure.
If it’s approved, Powerlaw’s fund will be interesting to watch in the coming year.
Regards,
James Royal
Editor’s Note: A strange change is coming to the stock market – and it’s about to have dramatic consequences for anyone over the age of 50.
“If you own popular AI stocks like Nvidia, you’re in for a big shock,” says Whitney Tilson, who predicted the 2000 Tech Wreck and founded a $200 million hedge fund firm.
He isn’t the only leading figure warning investors to tread carefully.
Michael Burry, who made hundreds of millions shorting banking stocks before 2008, just placed a $1 billion bet against AI stocks – he’s short both Nvidia and Palantir.
And if Whitney is correct, what’s coming to AI stocks next won’t be a crash or mass rush for the exits…
It’s something far more dangerous – a permanent change that could leave millions behind.
That’s why he’s stepping forward today to reveal the one place you can move your money today, which could outperform stocks, bonds, and gold in the near future.
