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Venture Global’s IPO stumble shows the limits of gassing up a valuation

Pitch in poetry, execute in prose

In financial markets, as in life, the line between ambition and delusion is often perilously thin. The recent IPO of liquid natural gas exporter Venture Global is a textbook example of how even the most promising prospects can unravel when investor scepticism clashes with sky-high valuation ambitions. What started as a confident march, fuelled by Trump-era energy optimism and the allure of a booming LNG export market, swiftly turned into a cautionary tale, courtesy of the equity capital markets.

The stars had seemed aligned. US equity markets have been on a tear. The incoming administration has vigorously promoted natural gas and promised to rescind the Department of Energy’s pause on LNG exports. Against this positive backdrop, Venture Global aimed for the stratosphere, setting a valuation range for a $2.3bn IPO at $40-$46 per share — implying a fully diluted market cap of $125bn.

But even in this bulled-up era, markets don’t run on pixie dust alone. Investors balked at the company’s assumptions, starting with its valuation of future cash flows from five LNG terminals — of which only one is operational and another is nearing completion. Fund managers also pushed back on assumptions of a $6 per million British thermal unit spread on LNG sales, noting much of the output hadn’t yet been contracted. A mere 1.9 per cent free float also left many potential buyers concerned. And then there was the legal quagmire: multibillion-dollar arbitration claims from BP, Shell, and others, alleging that Venture Global had reneged on its contractual obligations by selling LNG on the spot market. 

Despite pressure from the underwriters, investors held firm: in their view, Venture Global could not justify an over 30 per cent premium on a forward EV/ebitda basis compared to its more established peer, Cheniere Energy, which many of the targeted fund managers know well and already own. Even in hot markets, investors expect an IPO discount.

Faced with mounting concerns, the IPO was dramatically reworked, with its valuation slashed by a jaw-dropping 42 per cent. The shares priced at $25, at the midpoint of a revised $23-27 range, raising $1.75bn. This amounted to a humbling climbdown, exposing the chasm between boardroom bravado and unforgiving market judgments.

How did the bankers and management get the terms so wrong? In fact, these kinds of misjudgments aren’t all that uncommon — and they’re not that easy to avoid! 

One possible culprit is the investment banking ecosystem. Banks operate in a world where success is measured in mandates secured and fees earned. Winning an IPO pitch often hinges on presenting the most compelling (read: optimistic) valuation. In the world of equity capital markets, the mantra might as well be: “Pitch in poetry, execute in prose.” When courting clients, bankers float punchy numbers with just enough plausibility to preserve credibility. 

A lower valuation might be more realistic, but it won’t win you the mandate. Every equity capital markets banker — and I mean every — can tell a plaintive story about losing a big IPO pitch because the mooted valuation in the presentation deck was below those of other banks. Of course, no client tells a spurned bank that their numbers were too conservative; the euphemisms are always about “misunderstanding the story” or failing to grasp “growth potential.” But you get the point.

Venture Global’s leadership may have played its part too. In my experience, founders and executives at companies like these are often charismatic, visionary risk-takers — people who’ve thrived by zigging when others zagged. Their confidence, the very quality that fuels their success, can also make them resistant to advice that feels like a brake on their momentum. Telling phenomenally successful entrepreneurs that their brainchild is worth less than they think is not for the faint of heart. It’s also possible the banks, under pressure to keep the client happy, didn’t push back hard enough on the company’s valuation expectations. I’ve seen this happen time and again.

All that said, one common reason for an IPO re-pricing or withdrawal is not present here. Sometimes the stock market falls during the marketing process, rendering what seemed like a reasonable price range suddenly untenable. But that wasn’t the case here. If anything, the Trump-era enthusiasm created a frothy environment. Yet investors still have their limits. Venture Global discovered, the hard way, that not every story — no matter how aligned with the Zeitgeist — commands a premium price.

So what’s the big deal about repricing an IPO? After all, isn’t price discovery part of the process? Technically, yes. But the cost is still significant. A downward repricing isn’t just a financial adjustment; it’s a psychological blow. Momentum shifts. The narrative evolves from “hot-ticket” to “let’s wait and see.” The company loses pricing leverage, while investors take the upper hand. Indeed, two large fund managers told me on Friday they would have participated at $27-30 per share, whereas the offering ended up pricing at $25.

So for Venture Global, the fallout extends beyond wounded pride and temporary embarrassment. Raising capital under less favourable terms is a tangible setback.

The stock stumbled out of the gate, closing down 4 per cent on Friday at $24. While no one can say for certain, it’s worth asking whether a lower initial price range might have avoided a rocky start. The repricing cast a shadow over the deal’s dynamics, and the flagrantly unrealistic nature of the first price range — coupled with an aggressive campaign to convince investors that other fund managers supported it (“Gaslighting at its finest,” one investor told MainFT) — may have sown doubts about other management claims that might otherwise have been accepted at face value. With strong market tailwinds, this offering had the potential to be a blockbuster; instead, Venture Global’s market debut landed with the grace and buoyancy of a deflated balloon.

However, not all is lost. Cutting an IPO price range is sometimes just a hiccup; some companies have weathered the experience and thrived. Google famously priced its 2004 IPO at $85 after starting with a $108-135 range, and the rest, as they say, is history.

More generally, markets have a way of recalibrating, and Venture Global’s IPO offers a nuanced lesson. It’s a reminder that valuations aren’t fixed by management or banker decree, but rather hammered out in the back-and-forth with investors. 

The key takeaway from Venture Global’s market debut is clear: investors are willing to pay a premium valuation, but only if the financials justify it today — not based on the hope that the company might enter a higher-growth phase two or three years down the line.

Even in these optimistic markets, there’s a boundary between visionary thinking and valuation credibility. Venture Global’s down-priced, downsized offering is not a negative omen for the IPO market, but a reality check at a time of market excess elsewhere.

Decision marks latest confrontation between Elon Musk and Brussels

Tesla is suing the EU over tariffs the bloc imposed on imports of electric vehicles from China, in the latest confrontation between the carmaker’s billionaire boss Elon Musk and Brussels.

The European Court of Justice published confirmation of the case, filed by Tesla’s Shanghai subsidiary, on its website on Monday without giving further details.

Tesla’s lawsuit follows similar claims filed by Germany’s BMW and several Chinese carmakers.

In October the EU imposed anti-subsidy tariffs of up to 7.8 per cent for Tesla and up to 35.3 per cent on other Chinese electric vehicle imports produced by other carmakers. The were in addition to a 10 per cent standard import tariff for the industry.

The anti-subsidy tariffs came after an EU investigation launched in 2023 on China’s unfair support for its EV industry. Brussels found that carmakers had benefited from soft loans, cheap land deals and subsidies for suppliers such as steelmakers.

About a fifth of all electric cars sold across the EU last year, or 300,000 units, were built in China. Tesla accounted for 28 per cent of Chinese-made EVs imported into the bloc in 2023, more than any other brand, according to Transport and Environment, an environmental NGO.

Tesla was hit with the lowest tariff after an individual examination by the EU found that it received the smallest amount of support from the Chinese government.

Tesla executives have said they are adjusting their import policy from China to respond to the EU tariffs. The company currently exports Model 3 vehicles from Shanghai to the EU, while it produces the Model Y in Berlin.

The legal filing gave no details about Tesla’s argument. The case against the European Commission will be heard at the General Court, the EU’s second-highest court, and the verdict can be appealed against to the ECJ. The process could take about 18 months.

European Commission trade spokesperson Olof Gill said on Monday in response to Tesla’s filing: “We’re prepared to defend our case in court as necessary.”

Musk, an adviser to US President Donald Trump and an outspoken critic of EU technology regulation, has backed the far-right Alternative for Germany party in the country’s election campaign.

New Tesla registrations fell 13 per cent year on year to 242,945 vehicles in 2024, according to Acea, the European car industry body. Musk’s political activism has been blamed for deterring some drivers from buying a Tesla, though it has made others more likely to buy one.

Coffee chain launches plan to get more paying customers back in stores as it reports fewer transactions

A man in a winter coat enters a crowded Starbucks café and lounges on a caramel-coloured seat. Then he gets up, goes to the bathroom and exits into a frigid downtown Manhattan. 

One thing he does not do is buy a drink. Effective Monday, Starbucks plans to change that. 

The world’s largest coffee shop chain is introducing new policies for the roughly 11,000 stores it operates across North America. Free cups of water are out. Free coffee refills, in ceramic mugs or glasses, will be in.

Customers will now be defined as people who make purchases. People who do not may be asked to leave. 

Starbucks is acting with urgency. Its North American locations rang up 5 per cent fewer transactions in 2024, the first annual decline since the pandemic year 2020.

Same-store sales are expected to be 4.8 per cent lower in fiscal first-quarter results to be published on Tuesday, according to analysts polled by Visible Alpha. 

Chief executive Brian Niccol has embarked on a turnaround plan he calls “Back to Starbucks”. The name is nostalgic: he seeks to make Starbucks a “community coffeehouse” again, a cosy place to linger and fraternise. 

But it is also literal: Starbucks needs to get more paying customers back inside its stores. 

In the past week baristas sat through three-hour training meetings that included how to enforce a new “code of conduct” that has begun appearing at stores.

A version of the code posted in the window of a New York café last week said the store was for use by “our partners and customers (people making purchases and those accompanying them) — this includes our cafés, patios and restrooms”.

Law enforcement was invoked as an option to remove those who do not comply. 

Starbucks in 2018 declared any visitor a customer regardless of whether they made a purchase, weeks after a controversy over the arrest of two Black men who had asked to use the restroom before buying anything at a store in Philadelphia. 

This month’s policy reversal is stoking concerns of its own.

Donald Whitehead, executive director of the National Coalition for the Homeless, said his advocacy group will petition the company to reconsider. He said Starbucks sometimes served as a “buffer” location for the homeless in the morning hours, after shelters emptied out and before libraries opened for the day. 

“We don’t need less resources. We need more,” he said. “I know that Starbucks is not responsible for the welfare of the homeless population, but we are very concerned.” 

Workers United, a labour union representing baristas at 538 stores, called on the company to make code of conduct enforcement part of formal talks over a new work contract. In a post on X it argued that “workers and customers are getting nickelled and dimed” as free water and open access to restrooms disappear. 

Michelle Eisen, a barista and union organiser and bargaining delegate, said that she and her colleagues will “have a very hard time telling an unhoused person in Buffalo, New York when it’s negative 3 degrees that no, they can’t sit in our café for 10 minutes and warm up, because they can’t make a purchase. That is going to be a very difficult thing for me to carry out”. 

Starbucks said it is not setting time limits for visitors to make a purchase: employees will not be expected to interfere with a guest quietly using a table in an empty store.

However, a visitor might be approached and asked to make a purchase in a crowded store where customers are waiting for a place to sit.

Most retailers already have codes of conduct, the company said, and its own will help “prioritise our paying customers who want to sit and enjoy our cafés or need to use the restroom during their visit”.  

“The code of conduct change is Brian Niccol shifting Starbucks back to what is more of an industry standard,” said Gregory Francfort, an analyst at Guggenheim Securities.

Niccol introduced “Back to Starbucks” when he joined the company in September and has since spelled out goals including condensing the menu, a separate queue for mobile order pick-ups and a four-minute target to fulfil orders made at cafés.

He also wants to restore some of the warmth lost as Starbucks focused on app-based business and removed comfortable chairs to streamline operations. Among the other changes due Monday will be the return of “condiment bars” with creams and sweeteners for customers to choose.

Angele Robinson-Gaylord, Starbucks senior vice-president of store development Americas, told a commercial real estate conference in December that fewer new stores will open this year as a team of more than 750 people works on redesigns to incorporate “what you see, what you smell, what you hear, to create a full sensorial experience”. 

The experience was austere at a Starbucks outlet in New York last week. Seating consisted of low windowsills warmed by HVAC ducts running underneath.

Some of the roughly 15 visitors sipped drinks or waited for their names to be called by baristas filling orders. Others appeared to be uninterested in the products for sale. One sat by a bathroom door watching videos on her phone.

Bryant Simon, author of Everything but the Coffee: Learning about America from Starbucks, said Niccol’s push to re-establish the chain as a community hub revealed a contradiction.

“This is the catch and the difficulty of creating community,” he said. “Not everybody wants everybody there.”