

For Billion-Dollar Companies, Venture Deals Outstrip Going Public - gdilla
http://blogs.wsj.com/digits/2014/08/19/for-billion-dollar-companies-venture-deals-outstrip-going-public/?mod=WSJ_hpp_sections_tech

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TheMagicHorsey
We have the heightened burden of SEC regulations to thank for all these
companies staying private. If the regulatory burdens were lower more companies
might go to public markets to raise capital, instead of to VCs.

The regulations are meant to protect the everyman, but the perverse result is
that the opportunity to participate in these fantastic returns is now
restricted to the executive tier at the startups, the rich accredited
investors, the VCs, and the private equity firms.

The rest of us are left out ... unless we become founders ourselves.

~~~
ojbyrne
Except in the days before the "heightened burden of SEC regulation" IPO shares
were largely only available to wealthy clients of the banks that underwrote
the IPOs. The rest of us were just as left out.

~~~
refurb
Not sure I understand. IPO shares are still only available to the wealthy
clients of the banks that underwrite them.

~~~
ojbyrne
That was my point - nothing has changed. The OP was suggesting things were
better in the past.

~~~
sparky
Yeah, I think that comment conflates three things: 1) The regulatory burden of
going public (Sarbanes-Oxley compliance et al.) pushes companies to stay
private, which keeps the average Jane from investing in those companies via
the public markets.

2) For those companies that are privately held (whether that's because of the
regulations in #1 or for more fundamental reasons), _separate_ regulations
(accredited investor rules et al.) prevent the average Joe from investing
privately.

3) On top of #1 and #2, market forces and norms give more investment
opportunities (both public and private) to large, established players than
individual laymen. For example:

* Companies may prefer to take $1M each from 5 large investors than $1k each from 5000 people, both to reduce logistical burden and because those large investors statistically have other unique things to offer like expertise, advice, and connections. This is unfortunate for the small-time-but-sophisticated investor, but seems quite rational.

* IPO shares only being offered to large friends and clients of the underwriter. The _justification_ is reduced logistical overhead as in the previous case, but the _true_ motivation is widely suspected to be cronyism.

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michaelvkpdx
The tech industry is just a vehicle for money laundering by the rich now. At
least IPOs gave engineers and workers a chance to win a lottery ticket.

Developers, stop slaving away for the VC's. You are wasting your time and have
no chance of getting paid until we reform the economic foundation of our
trade.

~~~
mahyarm
Well you do get secondaries, but it's usually only something like 10% of
vested stock, while your still working there. The lack of a public market also
makes it far more risky to hold the stock for long term capital gains tax
rates. I agree the lack of IPOs make equity earnings less valuable to the
typical employee.

~~~
thecage411
I wish more people knew this. Even if you beat the odds and the startup you
work for goes places, you may only get 10%-15% of the proceeds now, and be
hoping for the rest even further out in the future. Almost certainly better to
just work for a public company from the start.

~~~
pedalpete
Are you saying you only get 10-15% of the proceeds of YOUR vested stock? So if
I have 1% of a $100m company, my shares would only get me $100k, not $1m? Can
you explain or link to a source of more information?

~~~
rhc2104
Petalpete - the comment above refers to pre-ipo sales of employee stock.

A bunch of private companies that hit billion dollar valuations let employees
sell some of their shares. That person is claiming that those sales allow
employees to sell 10-15% of their vested stock.

Of course, if they do that, they still keep the other 85-90%.

~~~
thecage411
This is exactly what I meant, thanks for filling in the details.

------
phkahler
Some possible explanations: 1) Inflation - a billion dollars isn't what it
used to be. 2) Stock market bubble causing investors to look elsewhere. 3)
Founders are younger - they aren't looking to retire yet so let it grow, let
it grow, don't need an exit yet.

~~~
gdilla
Also some founders are able to trade equity for big cash in a funding round

[http://www.businessinsider.com/snapchats-founders-
pocket-10-...](http://www.businessinsider.com/snapchats-founders-
pocket-10-million-in-addition-to-the-60-million-round-2013-6)

------
vannevar
Seems like this would be a natural consequence of the increasing concentration
of wealth. The top 1% of the population control 43% of the wealth in the US.
But for the 99%, much of that wealth is illiquid and not readily available for
investment (particularly speculative investment). So I wouldn't be surprised
if the 1% controlled as much as 90% of the liquid wealth available to invest
in young companies, making it unnecessary to go to the public markets.

~~~
throwaway7808
By the way, what's the minimum income, to be in top 1% of incomes in the US?

~~~
idlewords
Around half a million dollars. Source:
[http://www.brookings.edu/research/essays/2014/saving-
horatio...](http://www.brookings.edu/research/essays/2014/saving-horatio-
alger)

------
imjk
The VC model is more conducive to the Greater fool theory:
[http://en.wikipedia.org/wiki/Greater_fool_theory](http://en.wikipedia.org/wiki/Greater_fool_theory).
While social psychology and public sentiment certainly plays into the
valuation of public companies, being a public company typically restricts
valuation to more standardized valuation models and scrutiny; it's much more
transparent overall.

------
jnks
It appears there's only room for 11 or 12 big IPOs per year. If the current
trend holds and late-stage investors are creating more private unicorns than
the public can bear, we have a problem. The fallout from this mismatch
wouldn't look like a tanking stock market. Just a lot of formerly impressive
companies quietly being acquired for a relative firesale. I suspect Box and
Square are both in this situation.

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prostoalex
Raising money in public markets nowadays makes the company significantly less
agile. Marc Andreessen has been advocating staying private for as long as
possible in quite a few places, including here

[http://www.vox.com/2014/6/26/5837638/the-ipo-is-dying-
marc-a...](http://www.vox.com/2014/6/26/5837638/the-ipo-is-dying-marc-
andreessen-explains-why)

~~~
timr
Being a company that's large enough to go public makes a company significantly
less agile. But of course, I'm totally shocked that a venture investor would
argue for companies doing things that benefit venture investors.

~~~
prostoalex
Well, before he was a venture investor he ran a company. And, generally
speaking, VCs tend to be supportive of IPOs.

------
emo_tards_on_hn
But, if you don't IPO, how do you exit, leaving the muppets with the stock,
whilst you run with the cash? Staying private means actually building
something? Of value? That is not simply another shitty Rails site, or tries to
skirt around regulations and pretends to be 'disrupting' things? Oh dear, this
won't go down well at all with the chattering classes on HN!

