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Comment by beefman | Hacker News Reader

We haven't had a recession in 8 years, and the postwar average time between recessions is 6 years.[1] The stock market's overall PE ratio is well above average.[2] With Box and Snap, the market demonstrated it is starving for tech IPOs -- even if a company is losing money and entirely based on a millennial fad.

So why in the name of sweet baby Jesus would investors, founders, or anyone else delay an IPO at this point? Can anyone explain it?

[1] http://www.nber.org/cycles.html [2] http://www.multpl.com

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I think the founders AirBnb and Uber are afraid to transition to being legit companies. The lack of IPO is just a part of it.

If you're a profitable private company, aren't you legit?

In some sense, yes, but check out Sarbanes-Oxley: https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act. Public companies are under much more scrutiny in terms of compliance, and they have a certain type of pressure to post good quarterly results that private companies don't.

What is the incentive to go public in today's environment other than an initial fundraising, and an unpredictable monetary bonus for employees?

Edit: Appended another question.

That is how most investors cash out and turn a theoretical return into an actual one.

It also makes the value of your corporate equity much clearer which can enable acquisitions.

Depends. I think with the increased scrutiny as a public company, you have much less wiggle room for creative accounting tricks.

Public listings or lack thereof are orthogonal to corporate legitimacy. Cf. Enron and SAS.

Not an answer to your question but semi-relatedly Scott Sumner had a post this week where he predicts that recessions will be significantly rarer in the future.

http://www.themoneyillusion.com/?p=32350

It's interesting to think about.

It is interesting, but "this time it's different" is a song I have heard before. I am deeply disconcerted at extending the time between recessions; would much prefer shallower corrections more frequently.

These predictions are pointless. Economy is not driven by extrapolating past charts, it's driven by outlier events. The thing about outlier events is that no one can predict what they would be, except that they are bound to happen. A magnitude 9 earthquake in Northwest, fraud in big company, scandal in administration, or war with Iran - all these can totally change economic outlook.

His assertion is that the Fed is now better at controlling the money supply to more quickly respond appropriately to outlier events.

Recessions are always and everywhere a monetary phenomena.

I would think that being well overdue for a recession and being in an objectively overvalued market would be a good reason to not want to get in now lest you be the one to IPO a week before judgement day. I heard on NPR today that one, if not the only, bull market to last longer than the current one ended with the dot com crash.

Because statistics are not laws of the universe? Because you may be misinterpreting the statistics? Because they're waiting their price to get higher in maybe 1 year, or maybe 7 years?

I would guess that its a combination of Sarbanes-Oxley and the glut of private capital available.

Is there a good explanation of the Sarbanes-Oxley issue somewhere? I tend to doubt procedural stuff like that could really be responsible.

I don't know of any good resources off the top of my head, but IIRC from law school, one of the main objectives of Sarbanes-Oxley is to get executives on the hook for the accuracy of the financial statements they sign, and I believe it also requires that they sign the financial statements.

I don't know enough to have an opinion about whether it's affecting IPO decisions, but I think it's more than just procedural stuff.

Sarbanes-Oxley isn't solely responsible but it's one factor weighing on the scales. There is extra administrative overhead which costs real money, plus it exposes the company's leaders to more potential liability.

The bill was well intentioned. But it has had the unintended side effect of locking retail investors out of many of the highest returning investments. There is overall a shrinking number of companies publicly traded on US markets as more companies merge, go bankrupt, go private, or never go public in the first place. This is a growing problem for defined-contribution retirement plans.

> locking retail investors out of many of the highest returning investments

maybe there's a narrative that by preventing retail investors from investing in high return investments they have also protected retail investors from high-risk investments (if we believe the returns are proper risk premia!)

Maybe the smart money is on a market shock in the next several months and IPOs are leery of something terrible happening during the window between announcement and implementation. We do, after all, have a very strange political situation.

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