The Death of the IPO
theatlantic.com
theatlantic.com
Forget about whether it's good for the market as a whole for the moment: is there a solution for the average tech employee?
It’s actually an interesting thing you mention. I’d you take a below-market rate but your employer doesn’t “exist” longer than necessary, there’s a lot less actual sunken cost. Nowadays they ask you to take a below market rate and try as long as possible to stay private.
Not really. Working at a startup is almost certainly going to result in lower compensation than working at an established company that grants RSUs or options.
The decline in IPOs is a net negative for engineers who work at startups. At the same time this has been happening, larger companies have been increasing compensation for engineers.
The situation is now like this: you can work at a startup for several years and hope to make a big windfall if you get in early enough to get a lot of shares and there is an acquisition or an IPO, or you can work at a FAANG company for 5 years and make a million dollars or more with none of the risk, better benefits, and probably better work-life balance.
Some people are passionate about startup culture, and they should probably go work at startups, but for everyone else startup work is becoming an increasingly larger sacrifice.
It is inconvenient for those looking to IPO for a windfall, but keep in mind that most startups aren't looking to IPO but to be bought out. Only a tiny fraction of the unicorns IPO. Most startups are usually bought by other companies.
The software security startup I worked for didn't IPO. It was bought out by another more established startup. Which was bought out by some hedge fund or something a few years later.
Most ( but not all ) tech billionaires are created by these huge IPOs. But by far, most millionaires in the tech world are created by being bought out, not IPOing.
Non-public companies are often bad investments for ordinary people, most startups fail, ICOs are sometimes outright scams, etc.
The crazy behavior ordinary people engaged in during the dot-com boom was harmful to themselves and the market, and in some ways the reduction of IPOs is good because it helps prevent that kind of behavior from happening as much as it did then.
[1] https://blog.icoalert.com/sto-is-the-new-ipo-6b194a9b57cb
Granted, some companies need an exit event for their employees and other stakeholders (if they're still unprofitable at the time of IPO). You can also argue that, in the past, going public instilled a sense of discipline in young companies. But is it still worth the hassle?
Access to capital and liquidity for insiders. The spate of unicorns shows that not everybody needs to be public for the former, but I’m not sure about the latter — is there a reasonable secondary market for slack or uber common shareholders? I doubt it...but I don’t doubt the big banks are stepping up to make it worth the execs’ time to do these huge private deals.
Note that if you have enough shareholders (like a lot of employees holding small amounts equity) you’re essentially “public” as far as the SEC is concerned, you just may not be listed.
Should only the rich be allowed to take risks with their own money?
Either we get rid of welfare, or ban people from partaking in risky investments. Which do you think is better?
This argument taken to its logical conclusion leads to serfdom. You might even say it's The Road to Serfdom.
Investing in a high risk startup could theoretically be done for like $100 to buy .0001% if regulations encouraged this sort of thing.
It's the ease of access to things people don't understand and could lose all their money on that these regulations are meant to combat. I feel like your argument is very "assume spherical cow", but I take a more pragmatic "this is what would probably happen 99% of the time" approach to this.
And "either end welfare, or ban risky investments" is a nuanced study of the spectrum?
The rich don't get handouts when they fail, they get handouts the entire time they're succeeding. They pay 15% on capital gains while the rest of us pay 30% on income.
They'll pass a special tax cut for your one specific company. You can pay your workers the min wage, but not the living wage, and let everyone else (in the form of benefits) pick up the slack.
You can even get a handout for promising to create jobs or do stuff, and then never actually do it, or if you do 20% of it, blame the failure to deliver the complete promise on something hand-wavy.
But yeah the poor are the problem.
Not to mention that even if the companies aren't any more lucrative, they can still help the average investor reduce their portfolio risk via diversification. If the universe of public stocks shrinks, your portfolio is going to face greater volatility, even if your absolute returns remain constant. Diversification is the only free lunch out there.
The ICO mechanism for fundraising is novel and with some light regulation and heavy curation might have the best of both worlds.
The "trend" pattern is cyclical.
[1] https://www.statista.com/statistics/270290/number-of-ipos-in...
Wall Street is not keen to underwrite companies with valuations 20x+ revenue.
This makes less than no sense and my head hurts just trying to figure out how this could possibly work.