Comment by lkrubner | Hacker News Reader

Comment by lkrubner | Hacker News Reader

The reliance on the stock markets is mostly a phenomena of the English speaking countries. It is supported by aspects of law, some of which go back to English Common Law, and most of which were shaped by the evolution of that law during the 20th century, especially as the law related to debt, fraud, and financial transparency.

Most developed countries take a different approach. In both Germany and France, and also in Japan, it is common for businesses to rely on close relationships with banks to get the financing they need.

Because of all this, I object to the tone of this paragraph, which makes it sound as if there is no way forward for business, except for the stock market:

"Why take it public ? Because the stock market was a source of cash that could help you grow. It was a marketing and validation opportunity that told customers and prospects you had arrived. It was a liquidity opportunity that while not guaranteed, if you could continue to grow the company over the long haul, would value your company at a multiple of earnings and allow me, my investors (many who were close friends) and my employees to increase our net-worth and cash holdings."

There is an alternate way to interpret the changes of law and finance during the last 25 years: that the USA is converging toward a model that has similarities to that used in other developed countries. There is nothing wrong with this trend. There may a lot of positives to this trend. Merely focusing on the end of the old system by no means proves that the new system is bad.

> The reliance on the stock markets is mostly a phenomena of the English speaking countries

That should be corrected to say: the massive benefit of stock markets was mostly first realized in English speaking countries, and then was increasingly adopted by everyone else (recently Myanmar) because it was so blatantly beneficial.

That weakness on the part of France (probably the most stagnate major economy of the last 50 years), Japan (25 years of backward progress) and Germany (no growth in eight years) has resulted in immense stagnation when it comes to entrepreneurial business activity and innovation. It's why so much of the German, French and Japanese economies are dominated by old family controlled businesses, that pass down their ownership through the generations instead of giving their wealth to charity, while the opposite is overwhelmingly true of America. Very few of the biggest companies in the US are extremely old, and very few are still controlled by stagnate clans (Walmart for example is merely 53 years old). The US approach has resulted in far greater turn-over among the giant companies. Amazon.com exists courtesy of the IPO and very receptive public market, which funded Amazon's build-out and has enabled them to begin destroying Walmart.

It's why those nations are so behind the US when it comes to venture capital and technology companies (which need to move especially fast). Slow moving, risk averse banks are a terrible choice compared to a properly functioning IPO market (the sort that the US had prior to recent regulations).

> The reliance on the stock markets is mostly a phenomena of the English speaking countries

I know more about how it works in the US than in other English-speaking countries.

That listed US non-financial corporations attain capital via stock issuances, initial or subsequent, is a kind of mythology. From a century back until now, less than 5% of US non-financial corporate capital expenditures are from capital raised by stock issuances.

If you look at the numbers, it mostly works in the US in the same manner as Germany, France, Japan etc. To raise capital, corporations reinvest profits, they go to the banks, they sell bonds. The idea that stock exchanges are heavily involved with companies raising capital is a widespread one, but that has more to do with the aptitude of stock exchange PR departments than reality.

You can't go to a bank for advertising money or to write code. wanna buy a building got 20%-40% down and a revenue stream for the last 2 years to pay for no problem. equipment maybe.

I would say part of this can be chalked up to a cultural difference. Germans and Japanese are risk-averse (as a generalization) and don't like risky entrepreneurial ventures. You want to take a nice business plan to a bank for debt financing, instead. Think of all the big public German companies like SAP, Bayer, Siemens: they're all in boring, bog-standard industries.

In contrast, other cultures with a greater threshold for risk have more of an appetite for the stock market. This goes hand-in-hand with innovation/startup culture.

> and also in Japan, it is common for businesses to rely on close relationships with banks to get the financing they need.

This works if you're a megacorp (or maybe an "established" company). Japanese banks are really stingy when it comes to making loans* and it might be neigh impossible if you're a tech startup. Actually, even opening a business bank account might be tricky.

* Apparently that's why government is threatening them with negative interest rates (more than threatening: they're here and without limits on how negative is the latest comment!); i.e lend the money to someone or pay!

Reply on news.ycombinator.com