
Slow Exits Are Fucking Up the Valley - RKoutnik
https://zachholman.com/posts/slow-exits
======
Analemma_
I think this is part of a trend that is occurring everywhere, not just the
Valley: the gradual phasing-out of the public corporation [0][1]

Companies in every sector, not just technology, are switching to private
financing. And why wouldn't they? There's less regulation, and less having to
answer to Wall Street and the occasional corporate raider. Since there's more
wealth accumulating at the top it's easier than ever to find wealthy
individuals to finance you without having to tap the markets.

I don't think this is a positive development for society, but under the
current circumstances it's probably an unavoidable one.

[0]:
[http://appcgg.co.uk/siteContent/downloads/Causes%20and%20Con...](http://appcgg.co.uk/siteContent/downloads/Causes%20and%20Consequences%20of%20the%20Decline%20of%20the%20Public%20Corporation.pdf)
[1]: [https://www.bloomberg.com/view/articles/2015-06-24/where-
hav...](https://www.bloomberg.com/view/articles/2015-06-24/where-have-all-the-
publicly-traded-companies-gone-)

~~~
hawkice
If I own a huge amount of a successful company, getting that asset liquid
makes a lot of sense. Aside from being to sell at any time, being public means
more bidders = probably a better price.

I don't see it as a progression so much as two motivations in balance. Sarbox
&c make being public less appealing for a company. So, when one force gets
stronger, the equilibrium moves.

------
arohner
Most of the blame for this can be placed on Sarbox
([https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act](https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act)),
and other regulations imposed by the SEC.

Believe me, if you're a founder, you want to exit as well. The problem is, the
cost for being a public company has gone up dramatically, due to increased
regulatory compliance costs.

~~~
msvan
Honestly, why would you as a founder of Uber/AirBnB/other big startup want to
exit? You are probably already very rich. All your employees are staying put.
If you need capital there's plenty to go around. No need to listen to Wall St.
telling you what to do with your company. If anything it seems that going
public is a necessary nuisance for many of these startups.

~~~
hawkice
If you're being paid $900k/year, why would it matter if you could sell your
$500MM asset? I mean, I lead a simple life, so _I_ wouldn't care. But some
people _do_ want that, and I see the appeal.

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sjg007
Blaming Sarbox is a complete red herring. The reason we see less IPOs is
because the unicorns are overvalued compared to revenues.

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segmondy
How about, the Valley is fucked up and is revealing so by slow exists?

~~~
RickS
That implies an inversion of cause and effect - that the inability to exit is
doing damage, and that companies want to go public but are unable.

That's a different argument entirely, and doesn't feel reflective of the
current fundraising climate, which other comments to the OP discuss in depth.

~~~
NotSammyHagar
so this article is not about the roads? /s

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huslage
VCs aren't playing with their own money. They're playing with funds from many
investors. The exits (and writedowns, etc) are controlled upstream of the VC.
Right now VC funds are a hedge and the investors don't need a payoff. At some
point those investors need action and will require their VC folks to remove
them from those investments (see dotcom bust). This isn't unusual and has
nothing to do with what Zach mentions in his article.

~~~
bogomipz
>"Right now VC funds are a hedge and the investors don't need a payoff"

What are they a hedge against?

------
joeblau
> number of people from GitHub who are in a financial position to become true
> angels.

How much money does one need to make to become a "true angel"?

~~~
arohner
Quick back of the envelope: let's define angel as someone who can write 10,
$25k checks a year. Let's say they have a yearly lifestyle expense of $250k,
so they need to make $500k/year off their wealth. Then, assume they make
between 4-8%/year on their investments. so that's $6-12M in the bank.

~~~
ThrustVectoring
I usually just multiply the yearly income stream by 20 rather than futzing
with rate-of-return calculations. It's way easier for napkin math and gives
about the same answer ($10M in this case).

~~~
arohner
Agreed, I was just showing my work.

------
draw_down
I work at a venture-backed company, started by people who already have enough
money of their own. VCs don't make up enough share of the board to force them
to do anything. Given that the founders already have money, what is their
incentive to exit?

And if I don't like it as an employee, sure, I could take a job somewhere
else. Somewhere else that also likely has its own reasons for taking as long
as possible to go public.

What if the way it used to be was the anomaly, and now is normal?

