US startups don’t want to go public anymore
qz.com
qz.com
This point is made most dramatically by looking at the growth of private equity investment through the early naughts. Some relevant plots can be found in [1] which uses the data to advocate for deregulation, which I do not believe gets at the underlying issue.
[1] https://www.cato.org/cato-handbook-policymakers/cato-handboo...
The majority of the stock market is owned by a few funds as well.
Both are individually poor examples of the wealth inequality as a driver of trends in the capitalization of tech businesses...
One is an alternative to the other. And typically the biggest investors/funds/endowments do both as a diversification strategy.
For example, my college’s endowment was invested to varying degrees in the oil/energy industries. A bunch of forestry school grad students organized a “divestment campaign” to pressure the investment office to divest from anti-environment assets. I’m not sure how effective they were in the end, but they sure made a lot of noise.
So yes, endowments/pensions/sovereign wealth funds are certainly obligated to listen to their “constituents” if you will, but only by societal contract. A big enough PR storm should be sufficient to drive investment or divestment, if enough people are emotional and aggressive in marketing their argument.
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> “Endowments aren’t generally used to lower tuition,” said Richard Vedder, an economist at Ohio University, testified before the House Ways and Means Committee last year. “Typically less than 20 cents of every dollar of endowment income is used for scholarships to lower fees for students. Making college more affordable is not the dominant use of endowment resources.”
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> Critics note that a lot of endowment money goes toward glitzy student centers, athletic fields and pricey academic buildings.
From here: http://wfae.org/post/colleges-pressured-spend-more-endowment...
The most valuable asset an institution like that has is time. Mere mortals can only start to live on investment income in their twilight years, but universities don’t die. As they get old enough, they could even become entirety self-sustaining.
What number is enough?
A nonprofit institution doing good work should always seek to expand its reach and the extent to which it fulfills its mission. Are you concerned that the American people are too educated, or that too much is invested in research?
The thing that's missing in this is progressing the goals of the organization itself, its mission.
Universities shouldn't be hedge funds with a sideline in teaching and research.
Universities shouldn’t be fundraisers and lobbyists with a sideline for teaching and research. Becoming independently wealthy frees them from that.
I've been in the industry long enough to remember working in it when it was very easy for tech companies to go public. It did not work out well for retail investors.
VC grew because it got mature and turned out to work well (for recent history) and it provided a way to avoid the stresses of public market oversight while a fledgling startup is pivoting every few months and making no money.
It doesn't appear to have anything to do with wealth inequality and you didn't really provide any evidence to back up that assertion. Maybe when all you have is a hammer everything looks like a nail?
VCs overall, perform quite poorly. But they’re useful for banks, they need somewhere to put money as a hedge against more traditional investments (and currency devaluations in general I guess). For them it’s just a different risk class, and therefore useful for diversifying their risk.
CALPERS "textbook example of the principal-agent problem" being all over VC is very bad for teachers:
https://www.nakedcapitalism.com/2018/02/calpers-chief-invest...
"Companies staying private longer is bad for investors. Eliopoulos described the motivation as “more companies staying private.” But that doesn’t mean this behavior creates an investment opportunity. In fact, it prevents the monetization that investors need to realize returns. It might be different if these VC backed companies were growing up to throw off tons of free cash flow, but as far as we can tell, that is seldom if ever the case. As we wrote regarding Uber, a prime example of this behavior:
Kalanick had maintained he wanted Uber to stay private as long as possible. That may be a fad with some unicorns, but it’s not the way for a shareholder to maximize his net worth, so it’s a preference that raises questions about the founders’ ulterior motives. Needless to say, that desire put him at odds with his investors."
The reason late stage VC investments historically were attractive was that certain marquee investors would help validate the venture shortly before a planned IPO. The limited time between the investment and the IPO (and the investors’ reputation helping assure the IPO would be priced at a healthy premium to the last pre-IPO round) meant the odds of a healthy quick profit were high.
With more companies staying private longer, these conditions aren’t operative.
Also, I did provide evidence---in fact the thrust of the article I cited is that diminishing numbers of IPOs are making wealth inequality more acute. Furthermore, it's presumptuous of you to assume that "wealth inequality" is my hammer of choice---I cited a piece from the Cato Institute!
Here's a good source: http://wir2018.wid.world/part-3.html
So then your association with income inequality makes even less sense. If you're just referring to the centralization of the control of funds that happens with anyone who puts their money in a pool that has a manager. It has nothing to do with inequality because teachers make very little and so does their chosen pension leader and yet the latter has investment control over massive sums of money.
>sounds like a fairly obvious canard.
Yawn. An appeal to obviousness is tiresome to respond to. If you think you have a point to make, elucidate it. From where I sit, as long as pensions are involved in private equity, it benefits working people too.
>in fact the thrust of the article I cited is that diminishing numbers of IPOs are making wealth inequality more acute
So then it's not a symptom, it's a cause. To explain the difference: Lack of IPOs are not caused by income inequality but the lack of IPOs lead to more income equality.
1) Massive compliance overhead. Going public and maintaining public status can be a real nightmare.
For example staff generally "get" what a financial statement audit is about - are the numbers correct. And when they aren't everyone gets that a system should be improved. And the auditor makes some notes about areas to improve based on their work, and the difficulty and errors noted in checking the actual numbers. This is the audit most private companies go through - and it actually works pretty well.
A public company under SOX - now you have an audit of the numbers (great) and you have a kind of meta audit of the system (internal control) that got to those numbers (ugh). The cost / benefit of this second part is not clear to most staff. It's huge checklists, everyone get's checklist fatigue, and no one dares change a system after the auditors have been through etc. You literally can ask, why in the world do we do crazy procedures X/Y/Z? Because the auditors accepted it and we are too scared to change it. All critical thinking goes out the window. And folks start driving workarounds to the systems to get stuff done (double ugh and big actual risks).
Read some PCAOB reports for "audit failures". These aren't actual "audit failures" - no numbers were wrong. But it'll be things like - the auditor read over the calculations, checked underlying documents, recalculated numbers sat in on some meetings, but STILL didn't do enough to assess internal control over some calculation.
OK - I'll save the rest for later, but the idea that the private markets are the new public markets rings true to me. These are folks who can weigh actual cost / benefit of compliance cost vs losing money on an investment. Most are going to stick to something like a regular audit. Multiply by 100x in every dimension?
Perhaps have compliance tiers such that smaller co's can optionally be in a riskier and less audited stock system or level. However, we probably don't want too much of the economy in that pool.
As it is, private investors may be willing to take on riskier and even dodgier companies who don't want auditors snooping around. That's fine: if the rich want to gamble with dodgy companies via private investment, go for it.
It seems a lot like the Uber/taxi fight - I imagine at some point somebody painted a car like a taxi and kidnapped some riders, and we needed a way for riders to be able to trust that the driver is safe to ride with so licenses/medallions came about. Now with the internet and verified identity of drivers, turns out we don't need it anymore and Uber has built a safe way to get into a stranger's car.
The people who have been attacked by Uber drivers wouldn't agree with that statement. I think Uber/Lyft/etc. are largely safe, but their standards are pretty low, and for a long time they weren't even doing proper criminal background checks on prospective drivers. Agreed that the old taxi system was entirely broken and needed to get shaken up, but Uber was hardly a responsible darling in all this.
It's not immediately obvious which one would be safer. In theory ridesharing yields a more extensive data/evidence trail (driver identity, passenger identity, GPS history, etc), making assault much harder to get away with; this would seem to be a better deterrent than relatively anonymous cab rides.
I did a bit of googling and can't find any hard numbers that compare the two types of transport from a driver-on-passenger assault POV. I would welcome cited figures anyone else might have.
On my local Nextdoor someone posted recently about a trial being finished and warning that his wife had been sexually assaulted in a nearby area. The actual newspaper story was a little heart-breaking, on the one hand the guy clearly had been trying to improve and felt remorse, on the other he's a menace to women, he literally walked up to the women and put his hand up her skirt.
While they may have "served their debt" would a taxi firm or someone like Uber really want to hire a serial rapist?
Also, Uber's behavior isn't helping the cause in anyway.
Of course it is. The system rewards greed, which is a strong incentive to bend the rules or even break them if one thinks they can get away with it. That is why tight controls are necessary, even if they are costly.
How long ago is 2008?
> are we sure it's still a problem in the modern era?
Sure seems like it to me.
Why do you think 2008 could not have happened without Fanny and Freddy?
As mentioned earlier, Sarbanes-Oxley regulations on public company reporting (which is what is being discussed here) precedes the 2008 financial crisis. There are different regulations that came into place on banks after the 2008 crisis like the Basel III capital requirements that attempt to solve a different problem.
I think it's arguable, though, that setting up onerous regulations is itself an example of throwing the baby out with the bathwater. A ton of otherwise honest companies are required to spend money on compliance because of the actions of a (relative) few bad apples.
The thing that always gets me is that the industries that have grown up around simply guiding and auditing other companies around process and financial compliance suck billions of dollars out of the economy that could be spent in better ways.
Not saying we should throw away the entirety of this regulatory apparatus, because it does serve a useful function, but I think it would be wise to examine the cost of regulation and eliminate parts that cost more than they're worth.
It makes more sense to punish those who cheat than to create onerous regulations to prevent cheating. (Of course no reason you can't have appropriate levels of regulation alongside severe penalties for the white collar crimes the regulations are supposed to prevent.)
Why not create stronger incentives for individuals? Simplify regulations with massive painful corporate fines and jail/asset forfeiture for culpable leadership. Red tape is implementation details, let them figure it out. A laser pointer is the best way to herd cats.
> The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.
Tends to ring true more often than not.
The folks who wanted to take down the country faced almost NO consequence and SOX did little to prevent it. Seriously - thousands of companies jump through regulatory hoops - and the aggressive players get off with nothing.
There are lots of people (most people) working to do the RIGHT thing. It's SUPER annoying to have people put in huge efforts to get a bunch of small things right, and then to have goverment totally fail to enforce truly 101 big things.
I would trade out some of the stuff that 4,000 companies and 100,000's of individual have to jump through for even 100 companies getting some actual enforcement action. Everything from IRS audit to anything else you can think of, just at least make there be some consequence for the 101 style abuse of the systems.
Even auditing another 10,000 individuals, 200 additional executives - the number of folks putting money offshore - with full disclosure now available through leaked documents and information sharing, there should be 1000's of cases to chase this stuff down, not just voluntary disclosure programs.
While true it was those same "slimebags" that wrote the rules. They made the system complex and convoluted so they could legally do everything they were doing before only now with a full government liability shield protecting them.
There are thousands of public companies in the US, and they all have to endure SOX. It's a pain in the ass but it's not something to be feared. There are plenty of regulations that many companies need to go through that are less onerous than SOX.
For example?
Some facts for those that may read the above and get the wrong idea. EVERY major big four firm and their clients and all other major players have had great difficulty in this area. It's super painful because the question is not - are the numbers right - which pretty much everyone in accounting would understand putting efforts towards, but a very meta (and wide) question on systems getting to the numbers (with turns out to be subjective).
What's crazy is I can step back from this type of thing and without even going into a company spot lots of issues likely illustrating poor control or even worthy of enforcement action (actual enforcement) from the outside. Seriously, go to a consumer complaint website - if you see a ton of the same complaint it's worth a look.
This is why CFPB was such a powerful idea. Yes - they overreached slightly but 90%+ great work - and very focused on bad actors which was wonderful to everyone trying to do right thing. Absolutely should have kept going with that idea.
Just a flavor... pay close attention to words like all and every which open up each item to huge scope - the auditor here picked a random month to test a system and actually went in person to a meeting where reconciliations were performed. Now repeat this 100x for each client. Every firm out there doing audits has had issues like this (many).
These are the MOST experienced people - so I laugh when I hear that "only inexperienced people" have problems.
KPMG:
A.1. Issuer A
In this audit, the Firm failed to obtain sufficient appropriate audit evidence to support its opinions on the financial statements and on the effectiveness of ICFR.
The Firm identified this manual control and certain other manual review and reconciliation controls as compensating controls, but failed to sufficiently test these controls. Specifically —
o To test the review and approval of changes to the financially significant applications, the Firm tested a sample of changes to determine whether they had been appropriately approved. The Firm's testing was not sufficient as ... its sample was limited to changes made in only one month (the third month before year end) and the Firm failed to consider whether this month was representative of changes made throughout the year.
o To test the manual review and reconciliation controls, the Firm obtained certain monthly operating review reports and reconciliations and attended certain monthly management meetings where the reports and reconciliations were discussed. The Firm's testing was not sufficient, as (a) it did not test controls over the completeness and accuracy of the data in the reports, and (b) it failed to test whether these controls identified all of the relevant issues for investigation and, if so, whether such issues were appropriately investigated and resolved.
From what I've heard from people at my company who deal with auditors, there's no fear or antagonistic relationship; both sides want a positive outcome (which shouldn't be surprising at all). But the cost of the audits and the cost to develop compliant process is real, and I wouldn't blame a private company for eschewing public markets to avoid having to deal with that, especially if they have enough access to private capital.
But here’s the thing; any company over a certain size is going to have internal compliance. Because that’s just good business; you want to know if money is walking out the back door.
Parent companies are still going to audit their subordinates; they don’t want the risk. Banks audit private companies before giving them loans. Investment bankers and private equity do the same. These auditors publish standards. So good internal controls processes will still be necessary, just for different reasons. If you want access to funding and resources, you had better be compliant.
I interpret it as the parent saying that they're afraid of making changes because they're afraid that the auditors won't sign off on it. "Scared" is a funny word to use when they could have called it a "pain in the ass", etc.
Well, it is suprising to me. In my country, when there is some audit by government agency, be it tax office, or stock market regulators the usual approach is that auditors won't rest until they find something against the company, some reason to fine it.
I think that auditors simply consider their time wasted if their come back to their office empty handed (i.e. without fining the audited company).
There are many cases where tax office made a company go bankrupt by first charging it with some crime, then blocking its accounts, then fining it. After few years of lawsuits company wins, court finds them innocent and orders refund of all the fines, but by the time this happens it is already too late: company is long bankrupt.
So I think you are lucky to live in a country where auditors are this friendly :)
A big trend in American business is the collapse in the number of listed companies. There were 7,322 in 1996; today there are 3,671.
The number of companies doing initial public offerings (IPOs), meanwhile, has fallen from 300 a year on average in the two decades to 2000 to about 100 a year since.
(1) - https://www.economist.com/news/business/21721153-company-fou...
All publicly listed internet portals of the 90s (Yahoo, Infoseek, Excite, Ask Jeeves) have been essentially overrun by Google. Retail had to either consolidate, slim down or delist due to a private equity infusion, with AMZN emerging as a clear winner.
The Big Ideas: IPO's and being public are more expensive with less benefit while at the same time M&A has flourished.
[0] http://www.cmgwealth.com/wp-content/uploads/2017/03/document...
This article suggests it's all micro-cap stocks: https://www.institutionalinvestor.com/article/b15nlcmsmn57fx...
And the first article I came across looking for the latest 2017 number is about Amazon's interest in becoming a bank. Guess the trend validates the dystopian sci-fi trope of multinational conglomerates ruling everything in the future.
[1]: https://www.bloomberg.com/gadfly/articles/2017-10-06/amazon-...
https://en.wikipedia.org/wiki/McFadden_Act
https://en.wikipedia.org/wiki/Bank_Holding_Company_Act
https://en.wikipedia.org/wiki/Riegle-Neal_Interstate_Banking...
The idea isn't new, and isn't scifi.
(I work at LTSE)
> One kind wants companies to make more money by being meaner: They call for efficiencies, stock buybacks, mergers, less spending on perks, etc. This stuff is often stereotyped as enriching shareholders at the expense of workers and other stakeholders, and as harming long-term value by focusing on short-term stock-price results.
> The other kind wants companies to make less money but be nicer: They call for more social responsibility or environmental studies or other things that might reduce returns on investment (at least in the short term) but achieve broader social goals.
> They are not so much opposed as they are unrelated.
from https://www.bloomberg.com/view/articles/2018-01-08/what-do-i...
Forgive me if I'm wrong, but isn't it kinda up to the shareholders?
If shareholders value something other than the "long term value" you speak of (I guess share price and dividends) then that's their prerogative surely? If I want to buy a controlling stake in a company but my idea of value is, say, sacrificing profit at the expense of employee perks and charitable efforts, then this is my "shareholder value" and isn't it then the responsibility of the company to provide that?
Likewise, if I buy shares in a company and then want that company fire all the highly paid people so profits go up to enable me to flip my shares for more money, that's my value and isn't it therefore up to the company to do that?
In summary, if the value of a company is measured by what the shareholders want, then it can't be a problem if the company does the thing that the shareholders want, even if that's destroying what you see as the "long term value" of the company.
It might not be what you want as a founder or CEO when you IPO, but those are the rules, those are the risks and you have to take them if you want to play the system?
In the US it seems entirely reasonable that an owner should be able to undermine the long-term viability of something they own, but in Germany other stakeholders - the larger community the company exists in, the employees of the company -- get a seat at the table to determine the company's course.
I'm not advocating for either, just an interesting distinction.
Personally I'm a big fan of the "middle ground" European model that seems to be, "capitalism with boundaries", as far as I can tell unfettered capitalism is incredibly destructive and unfair.
- If you accepted a lower salary in exchange for equity, you most likely got a bad deal.
- If you worked somewhere long enough to vest 100% of your options, you're probably underpaid (because people who hop around tend to earn more).
https://techcrunch.com/2017/08/05/markets-are-strong-but-big...
That's not what the TechCrunch article actually says.
The article says that the big mergers and acquisitions are down. But the big M&A are the economic equivalent of luxury real estate deals. Do you really care that a Hollywood celebrity can't sell his or her mansion at a nice price?
Most people are interested in their segment. In fact, smaller M&A deals are on the rise: http://www.successfulacquisitions.net/ma-today-smaller-deals..., and the chances are, your startup, if it does not go belly up, will end up in this category.
Huge M&A are difficult to pull properly. The fact that there are fewer is a good thing. It will also make the evaluations more reality-based and not based on "but mommy, I wanna be a unicorn too".
Contrast Family Video (privately held and still going strong) vs. Blockbuster Video (no longer a thing). Sure, video rental may not have enough money in it to satisfy the Wall Street vampires, but there's still enough life in it to make money. If you don't have to keep vampires happy, you can invest your profits into your business, or even into new ventures.
Hilariously, there's a Family Video in my neck of the woods that moved across the street into the former Blockbuster location. They retained ownership of their original building* and are using that for a new business venture (a 24-hour fitness center). EDIT: In their new location, and many others, they have a Marco's Pizza attached.
* There's another whole issue: owning your real estate rather than being beholden to a landlord.
They even made that awful stripper movie (versayth anyone?) “sfw ” by using cutting edge CGI to add little triangle bras, apparently costing more than the original movie. Which I think they had to pull because that made it copyright infringement :)
I was so annoyed I vowed never to rent from them again.
(too soon? :D )
IIRC, GE does as well, or used to.
There were efforts to reproduce the Netflix DVD model for porn, but home delivery of porn always had a comfort issue, so they were never as successful against local rental as Netflix was against blockbuster.
So, the instant gratification, want to watch the new release crowd quickly discovered they could get their fix for $1, and if they forgot to return it, no big deal it was just $1. The tiny little machines meant that they didn't have massive overhead, so not renting movies on mon/tue/wed/thur wasn't a big deal.
So for slightly more than a single new release a month you could have a much larger back catalog with netflix, and for new releases and quick turnaround you could rent a movie for $1 instead of $5-6 or whatever the standard 3 day thing was at blockbuster.
Their problem was that they were fat, dumb and happy screwing their customers and creating ill will. When a couple reasonable alternatives presented themselves boom, the bottom fell out faster than they could react. Although in hind site, I can't really imagine what they could have done. Maybe trim the stores down to a few deep catalog sites with a subscription model like NF while sprinkling little robotic boxes everywhere? Who knows, the end result would have been much lower profits, and if there is one thing history tells us, its that corporation have a really hard time when their margins shrink. Its just to hard to trim the fat.
I don't think we screwed customers. A new release was $5 (AUS) for a night, that's hardly extortion. Almost all of our profit was made on new releases in their first week. The rest of the stock in the shop turned an almost insignificant profit and merely existed to buff the selection a bit and keep people in the store.
Late fees were an annoying issue but a necessary evil when you only have X units of stock and if they aren't returned you can't rent them out again. We were pretty lenient on reducing late fees to sensible amounts but some people were terrible at bringing things back and incurred ridiculous fees.
Physical rentals are a pain. On top of the X units issue, you have to keep them in good rentable condition and customers weren't very obliging on that front either. Digital delivery makes so much more sense now that we have the bandwidth to acommodate it. I can see a small market might still exist, but you can't afford to scale it anymore. Blockbuster was always going to die.
That's behavior of a shitty CEO and you will get that whether a company is public or privately held. A CEO that bends to every short term whim of an investor will always destroy the company.
If you're paying in stock with the argument that I'm buying into the company, then I should be able to realize that income.
If you're paying in stock without actually saying I can cash out that stock why would I accept being underpaid.
If you are an engineer that takes a salary+stock comp where the company gets to choose the value of "stock" -- is it salable, is it zero-value until we've repaid our creditors is being foolish.
If a company is not willing to guarantee your ability to cash out they are /explicitly/ stating that the stock part of your salary is worth zero.
If that's their claim I would expect a salary >200k to compensate.
I'm saying that for a non-public startup I would want to have a lawyer ensure that my contract allowed me to exercise the stock grants the company claims to be offering.
I am following that with the simple "if they aren't willing to sign such a contract, neither am I". I have no expectation of forcing a company into a contract they disagree with, I'm saying that if I sign a contract with such a startup it's going to give me a reasonably predictable income. That means either a real and competitive salary, or an ability to exercise the "stock compensation". I'm not going to subsidize someone else.
I'd also like to see regular employees given the option to cash out some of their equity during private funding rounds. Usually this route is only given to founders, but if it were common that employees could do so as well, that would reduce risk and make the uncertainty of an IPO or acquisition more tolerable.
In the end, though, I'm going to pick a company that I'll be happy working at, regardless of the compensation package, so maybe it doesn't matter that much.
As a "financial vehicle" options have nonzero value, but that doesn't imply one should expect a payoff, especially given very limited bites at the apple.
VCs learned their dotcom bust lesson well. The cycle can drag much longer if you don't go public. The exit target now is a sale to an existing public buyer, skipping the market validation stage altogether.
This is true but having lots of small public investors sometimes makes it easier to maneuver than a handful of big fish / massive investors akin to many small customers compared to 1-2 big clients that dictate your fate.
Public markets are similar to product development that targets many small customers compared to private markets that are like services / contracting that have a few or one big client, the latter is more risky and sometimes you are directed by the big fish rather than not being worried about having to please everyone.
Public markets are directly tied to everything now, the stocks, bonds, wages, jobs, retirement, funding, etc. Equities were created to give everyone a chance to invest and ride the tide up with the big boats, if companies are already tapped by the time they go public, public markets, retirement and market based wealth will not be as robust.
Today, it's also prone to sudden random fluctuations because an algo-trading software Bayes classifier decided to sell based on historical data it pulled out of its shiny metal ass.
What other reason is there for an IPO?
And is this article really arguing that Americans are underinvested in the stock market and not grossly overinvested?
liquid stock in a growing company is one of the most powerful currencies for attracting and maintaining talent. private company stock is generally valued at at least a 30% discount to public stock, and for an early-stage startup it is hard to place any value on private stock at all
the whole GAAP thing is also a weak argument. investors know that tech startups arent going to have tons of tangible assets and pp&e and actually like capital-light models. investors are smart enough to figure out when gaap is useful for valuation and when it isnt
If that is the case, then the self-correcting market mechanism should be : startups don't go public sooner -> employee options are worthless -> employees realize this and start asking for salaries in line with public companies -> private investors don't have enough capital to compete on "liquid compensation" with public companies -> startups are forced to go public
Though I think there is still fair bit of time before this happens; too many people still cling to their beliefs in the lottery tickets aka "perpetually illiquid startup options"
"Another source of disquiet is intensifying industry concentration." -- concentration or horizontal scaling? One of the things I disliked about working at Google was their claim they owned all my work at all times because they were literally in every single business associated with technology[1].
"Finally, there’s the societal benefit that stems from the institution of public capital markets." -- again what societal benefit is that?
Startups, and by that I mean venture based ones, not the local pizza restaurant or nail salon, absolutely would love to "go public" and have some nice liquid event. But they screwed a lot of people at the turn of the century out of their money and as a result that route was closed down. There are at least hundreds of companies that start, grow a bit, and get acquihired or otherwise consumed by big companies. The people then do their time (18 - 24 months typically) at BigCo and then roll out to do it again. If they could go public and take your money without consequence I'm sure they would :-).
[1] No, this probably would not hold up in court, but it was what legal told me when I asked them for a definitive statement.
How do they respond if you attempt to negotiate salary based on the expectation of putting in 8760 hours per year?
SpaceX is a great example. They don't want to go public simply because their longterm goal is not something that has an immediately apparent path to monetization. And on top of that it's also very high risk. Elon is driven by ideology which is, in my opinion, a great thing. But it's not something that would work well at a public company.
As another example take something like Steam - the primary PC gaming platform. In spite an effective platform monopoly, they've chosen to never 'squeeze' their position. And they're doing better than ever for it. On the other hand they could likely multiply their short to mid term revenue in exchange for killing themselves in the long run. When the owners of a company are more interested in increasing their net worth, than in creating a solid long term company - it creates a major conflict of interest.
In theory my argument should fall flat because of market efficiency. If making decisions so obviously hurts a company's longterm outlook, then that should theoretically be factored into the price of a stock. But in reality quarterlies seem to drive the market.
It shouldn't. Market efficiency is precisely why we'd "lose" SpaceX if it went public now. The market does not optimize for the best future of mankind. It optimizes for short-term profits (those who don't get outcompeted by those who do). It's a powerful solution to some problems, not all problems.
When you view it as a supply/demand, it becomes more obvious. There was ~27 trillion that people had in the US market in 2016, from the numbers I am looking at. And that's with roughly 3,800 companies, giving us an average market cap of about 7.1 billion. If that number were to go back up to ~7,500, all else being equal we would very likely see those market caps cut in half as the funds dispersed across the rest of the market. Yes, this is a vast simplification and there are many factors at play like fundamental ratios and proper valuations to determine what companies are worth. But I think this is something that is certainly a factor and not something I had considered before.
Going public was a great way to extract money from the public, but not so much these days. The money is being extracted before hand. VCs are getting paid irrespective of how the companies perform. The money being risked is not their money, but money raised indirectly from the public. Your 401k or pension might be part of the billion+ that Uber raised. :D
Acquisition is a great way to exit for those with skin in the game, angels and series A investors who are more likely to risk their own capital.
If we dig further, this is an after-effect of keeping the interest rates low for a long time. That means access to credit is much easier. So, there is no rush to profitability and going public.
But, given that interest rates are now slowly rising I predict we might see more and more companies going public and IPO to raise money.
It seems the broadcast implied that an average startup, prior to the 1990s bubble, took about 10-15 years to go public. According to the broadcast, a company would go public once the business model was proven. Going public wasn't an "exit" as we consider it now.
Maybe we're just seeing a return to normal?
Ouch. Would hate to have had to file a quarterly public report showing our wounds to the public...
You would either have to go public or compensate employees at public company salaries.
Buy you or crush you. If you get really lucky you end up at Snap and are fighting for your life against a company an order of magnitude larger.
Seems like authors aren't considering ICOs as a new form of IPOs for startups. Any computer and finance literate person can invest, not only small American residents. Volatility is higher in ICOs and there are practically no regulations, so investors should be more careful. Nonetheless, the underlying basic concepts are the same
How? For companies that have gone through an IPO, there is GAAP, SOX, SOC2 controls, etc. These were all designed to help investors be informed so they can manage risk. With ICOs, what have you got? "Trust us, we've not written a bug into our system that will give us unlimited coin to offload after the price reaches a certain point."
Because people don't know what and who to trust. There is so much information out there, and so many conflicting claims about it all means, that there's no easy way to tease out what's true. Anyone advocating for a particular policy comes across as an ideologue, because they cannot possibly convey the body of facts that informs their position, meaning what they mostly present is fervent belief and insistence that they are right.