Over the summer, I attended a think tank about the future of the Public Corporation. Due to the increase in funding in the private market, the amount of companies going public has declined. This article lists 6 (5 serious) reasons why companies are staying private. This is important to policy makers because a lot of the reasons have to do with disclosure and compliance rules. While these regulations are important for public confidence in the markets, it seems to have altered funding to corporations.
https://www.inc.com/howard-tullman/6-reasons-companies-arent-going-public.html
Mark, very interesting article. While companies are staying private longer, there may be a recent trend worth paying attention to. Today, Spotify went public and I found an article that indicates that America’s public markets are perking up. Will this last?
https://www.economist.com/news/finance-and-economics/21738897-burden-going-public-will-need-be-lightened-if-flurry-initial-public
This article is the perfect capstone for the conversation we had at the end of class today. The article touched on the three types of private companies out there: real companies, unreal companies (bogus unicorns), and dead dogs living on borrowed time. Regarding the “dog deals”, the author states, “[y]ou’d think that most of us had learned our lessons…but there’s really no evidence to support that…no one really wants to mention the Emperor’s lack of apparel.” This relates directly to conversation about why so many people missed the major issues surrounding Theranos. At some point, everyone is so invested, that they just want to keep the house of cards up until they can plan a decent exit.
For the “real” companies, the article outlines great reasons why they do not want to go public. One of the most interesting reasons cited was the desire to avoid media scrutiny. In the current milieu, where companies can be taken down by tweets and C-suite scandals, I do not blame any company for guarding its public exposure. Even if they have nothing to be ashamed of or hide, you never know who might find what and spin it to harm you. This leads to bad companies fearing exposure and good companies fearing the spin culture which finds something bad to make the story. Media is an increasingly powerful source for good and bad which must be handled.
Very interesting article that brings a lot of issues to the point in the context of companies not being as eager to go public as they may have been some years ago. Furthermore, it illustrates some concerns especially policy makers should be aware of. One is that stricter regulations and increased requirements for compliance may at one point become too burdensome for many companies to go public at all. This leads to more private funding and capitalization deals and, hence, in many cases to lesser informed investors. Of course, this is the opposite of what the policy makers aimed at in the first place. While we could argue that the professional investors in these deals should be sufficiently experienced to gather the necessary information to assess the risk correctly, cases like Theranos might indicate that this assumption does not necessarily hold true. Furthermore, we should not forget that especially Venture Capitalists usually do not invest and risk their own money in these deals but the resources of, for example, pension funds. In addition, when risk is systematically underestimated, even large companies (e.g. Bear Stearns) might eventually fail and, at least in some instances, have to be saved with taxpayer money. Hence, even in private funding and capitalization deals the public often eventually bears (at least to some extent) the risk.