ESO's Monthly Start-up

April 2025

CoreWeave: A Canary in the Coal Mine or Red Herring?

One of the most highly anticipated IPO’s of recent memory went out last week and lets just say… it didn’t hit quite as hard as people were expecting. CoreWeave, a cloud computing company backed by Nvidia and OpenAI, has been making waves over the past year. Many people considered the company to be a proxy for AI as a whole, as the company’s entire business is running data centers full of the specialized Nvidia chips that customers need to run their AI workloads.

This would be investor’s first shots at getting access to a “pure-play” AI company since the boom following the launch of OpenAI’s ChatGPT.

However, the IPO went off more with a whimper than a bang, with the company downsizing their IPO the day before listing by 23.5%, and then pricing at $40 per share. This price was well below the expected price range of $47 to $55 per share (My colleague Sam Stroud wrote a great article on what this exit looks like for employees and investors, so you should check if out here if you’re interested: CoreWeave Prices IPO at $40 — What Employees and Investors Stand to Gain).

So what gives? Where is all this AI hype everyone has been talking about? Why aren’t investors busting down the door to get a piece of this thing?

There’s also the more existential question of if CoreWeave, an AI darling, isn’t able to have a massively successful IPO, then what chance do the other companies in the IPO pipeline stand? Ultimately, all of these questions culminate into one larger one: Is CoreWeave’s lack luster IPO a canary in the coal mine for the IPO pipeline and AI or is it just a red herring?

Canary in the Coal Mine Defense

It’s no secret that the current economic outlook has been volatile to say the least. Stocks finished the quarter down nearly 5% after entering correction territory in mid-March. It was the worst market quarter since the second quarter of 2022. Growth stocks performed even worse, down over 9% for the quarter. A lot of this drop is due to uncertainty surrounding the impact of tariffs and the economic outlook for the year.

Ultimately, this is going to have a negative impact on new IPOs as they will feel the impact of larger market moves. This definitely played at least a partial role in the underwhelming performance.

A more existential worry however has less to do with the overall market and is more AI specific. There has been a ton of money flowing into the industry over the past couple of years, and there are starting to be some skeptics that think the industry is getting a little bubbly. DeepSeek really spurred this concern after they touted their reasoning model was able to achieve OpenAI level results with far less cost and energy (though there is some skepticism regarding if they actually did what they say they did).

Bubbly, overinvested industries in times of economic uncertainty typically are met with skepticism by investors, and may be a warning signal for other late-stage startups looking to exit in the near future.

The Red Herring Defense

Anyone totally freaking out about CoreWeave’s market debut and saying “if this hot AI startup can’t do it, no one can”, clearly hasn’t spent any time looking at the company’s fundamentals.

While the things I mentioned above about the market environment are true, there are some glaring issues with CoreWeave that may have ultimately played a larger role. The biggest issue is their business model, which is based largely around using debt to build data center capacity, well ahead of actual demand. That debt carries high interest rates, and depending on what happens with core rates and other aspects of the business, payment on that debt could be as high as $1.7 billion in 2025. That alone could theoretically knock out all the money raised during their IPO.

Additionally, the company is burning through cash at an alarming rate, and more than 75% of CoreWeave’s revenue is dependent on Microsoft and Nvidia. These are just the three main issues I have time to write about, but there are plenty more. The founders also seem to think so, having cashed out already on nearly $488 million worth of shares before the IPO (At a higher price of about $47/sh per their S-1).

Ultimate Thoughts

Based on the data we have on the current economic landscape and CoreWeave specifically, I largely believe these fears of CoreWeave being a canary in the coal mine for other companies going public and AI in general to be way overblown.

I think the main takeaway is that just having AI in your description or your name tied to Nvidia isn’t going to save you in the markets if your business model and financials aren’t up to snuff.

It’s a tale as old as time: Good companies with strong fundamentals and outlook are going to have good results. Coreweave’s IPO may have faltered, but lets not mistake one bad apple for a rotten bunch (and they still have 6 months of lockup to prove me wrong).

Tips of the trade

A section where we provide helpful tips for anyone with stock options or shares at private companies.

What We Wish More Startup Employees Knew About Their Equity

It’s Financial Literacy Month—so let’s talk about the elephant in the startup room: your equity. For many employees, it’s their biggest financial asset... and the least understood.

So here are four things we think every startup employee should know.

1. You likely only have 90 days to act after you leave.

Most employees know they’ve been granted stock options—but few realize those options often expire 90 days after you leave. If you don’t exercise them in time, they vanish. It’s one of the most painful ways to lose out on equity you worked years to earn.

Even worse, the financial hit might come at the worst moment: when you’re between jobs or uncertain about your future. Often times exercising your options is not top of mind during this transitional period.

That brings us to a major pain point few people plan for…

2. Exercising often costs more than you think.

Let’s say you’ve got 10,000 options with a $1 strike price. Sounds simple, $10,000 to buy your shares—which can already be a stretch. But then you learn the company’s fair market value (FMV) is now $10. The IRS sees a $9 spread per share and may charge you Alternative Minimum Tax (AMT) on that phantom gain.

The result? A $10,000 bill can suddenly become a $40,000+ problem—just to hold your shares.

Most people don’t realize this until the deadline is looming. But with some planning, there’s a smarter path…

3. Exercising gradually can lower your tax burden—and reduce panic later.

If you believe in your company and can afford it, exercising before the FMV rises (or spreading your exercises across multiple years) can reduce or even eliminate AMT. This isn’t just a tax move—it’s a peace of mind move.

Plus, if you’ve already exercised your options, you won’t be scrambling during the 90-day window. That flexibility can be huge.

Still, it’s not risk-free—you’re putting real money into something that’s not easy to sell.

4. Your equity isn’t liquid.

Even if it looks valuable on paper, your startup equity isn’t something you can instantly turn into cash. There’s no open market for it, and selling often requires company approval. Tender offers and secondary sales help, but they’re rare and often limited to select employees or investors.

Even when a “liquidity event” happens—like an IPO or acquisition—you may still have to wait. IPOs typically come with 6-month lockups, and by the time you can sell, the stock price may have dropped. M&A deals can take months (or longer) to close—and sometimes don’t close at all. Just ask any Plaid or Figma employees.

Bottom line: liquidity takes time. Be ready for the wait—both financially and emotionally.

Funding your option exercise can be expensive and a require a large capital outlay. Feel free to reach out to us to discuss your options for partnering with ESO to exercise your options risk-free.

The ESO Fund does not provide legal, financial, or tax advice.

Public Multiples Check-in: "Yesterday's Price is not Today's Price"

Markets had a tough month in March with all indices posting losses. The Dow fell 4.2% for the month, while the S&P 500 and Nasdaq Composite shed 5.8% and 8.2%, respectively. The S&P 500 and Nasdaq posted their biggest one-month declines since late 2022. Market reactions are based around continued uncertainty surrounding tariff impacts and other economic uncertainty.

Why this matters: We are likely in for a bit of a bumpy ride as the market continues to digest all of the news coming out of Washington.

March's Top Ten:

  1.  The biggest new of the month is that Google has announced it is acquiring Wiz for an eye-watering $32 billion. The deal would be Google’s biggest acquisition ever, and came mounts after an initial $23 billion offer fell through.

  2. I have no idea how Elon finds the time to do all the things he does, but it was announced this past month that his AI company xAI will be acquiring X (former Twitter). The deal is valued at $33 billion, $1 billion higher than the take-private transaction for Twitter in 2022.

  3. There is a new hot company on the scene, and investors are paying big bucks to get in: Anysphere, the developer of AI-powered coding assistant Cursor, is in talks with venture capitalists to raise capital at a valuation of nearly $10 billion. The round, if it transpires, would come about three months after Anysphere completed its previous fundraise of $100 million at a pre-money valuation of $2.5 billion.

  4. ServiceNow, an AI platform for business transformation, announced this month it’s acquiring Moveworks for a record $2.9 billion. It’s the company’s largest acquisition to date.

  5. Therapy provider Hinge Health filed for IPO this month, adding to the increasing back-log of companies indicating they will be hitting the markets in the near term. The company’s revenue jumped 33% in 2024 to $390 million.

  6.  Autonomous vehicle software company Applied Intuition has raised a $250 million round valuing the startup at $6 billion. The Series E was lead by Lux Capital, Elad Gil, and Porsche Investments Management.

  7. Circle Internet Financial, the issuer of crypto stablecoin USDC, has hired bankers for a late April IPO. It would be the biggest cryptocurrency IPO since Coinbase went public in 2021 via direct listing

  8. Anthropic raised a Series E this month at a $61.5 billion post-money valuation. The round was lead by Lightspeed Venture Partners, and comes on the heels of the company reaching $1.4 billion in ARR.

  9. The most salacious news of the month comes from an unsuspecting place: HR Tech. Rippling filed lawsuit against competitor Deel that they “cultivated spy, orchestrated long-running trade-secret theft and corporate espionage” against them. Hey, I don’t make the news, I just report it.

  10. Stripe revealed this month it doubled its free cash flow last year to about $2.2 billion and grew revenues to $5.1 billion. The company has no plans as of now to hit the public market.

Why this matters: We are starting to see some larger M&A activity which is encouraging for the industry, especially given the volatility currently in the market. It does still remain to be seen how strict the Trump administration is going to be on antitrust concerns with some of this M&A activity, so that will be something for us to watch closely in the upcoming months.

Startups that are hiring!

Open positions are per the company's website.

About ESO Fund

ESO Fund empowers startup employees to turn their stock options into reality. Since our inception in 2012, we've been dedicated to providing risk-free funding for the exercise of stock options, ensuring that individuals can seize the opportunities embedded in their equity.

Our mission is simple: to make equity compensation accessible and understandable. Through our innovative solutions, we've assisted countless individuals at 650+ companies in realizing the full value of their stock options, contributing to the success stories of numerous startup employees.

For more information on ESO Fund and how we can help fund your option exercise, please refer to our website at www.esofund.com!