Sorry, Dan Primack: Going public doesn't help the country. Building great companies does
Listen up founders. If your company is still private, Fortune's Dan Primack has got a bone to pick with you. In Dan’s world – you know, the world where he’s good friends with bankers and hedge funds from Wall St. to Greenwich, and in which he’s never run a company a day in his life – companies are waiting too long to IPO.
But it’s not some strategic argument Dan’s making about how a company really is better off in the public markets. Where some might cite access to capital, the ability to use your stock as a currency, and credibility as reasons to go public, Dan wants you to do it for your country. Good ole U S of A.
These startups are staying private longer, achieving more of their exponential growth for the benefit of a tiny shareholder base.
All this comes in the midst of a national debate about income inequality—one that’s particularly fervent in the San Francisco Bay Area, where high-paying tech jobs are causing apartment rents and home prices to skyrocket, forcing many longtime residents to seek new zip codes.
...CEOs also should recognize that going public can be more than just a financing event for the company or a way to begin cashing out early employees. It also can be a civic good—not a socialistic free ride, of course, but a symbiotic shareholder relationship that ultimately helps the company by enriching its surrounding community and country. Go public. For the public. In Dan’s days of yore, now great companies like Amazon went public at a market cap of just $345 million, a value that has since increased 444 times in 17 years. Even Google, he argues, went public at just a $23 billion market cap, before growing growing some 16-fold over the next 10 years. By contrast, as Dan points out, Uber just raised a private round at a better-than $17 billion valuation and shows no signs of entering the public markets any time soon.
You know who loses, in Dan’s mind? Ma and Pa Main St and, by extension, the country. Please.
Firstly, the notion that a for-profit company should make a financial decision of this magnitude for patriotic altruism is ludicrous. You know what’s good for the country? Building large, enduring companies that continue to employ high numbers of people and generate massive revenue on which they pay taxes.
Ignoring the potential benefits of being a public company, let’s be frank and admit that it’s a major burden as well. Compliance and reporting costs are enormous, not to mention the need to manage your business to the short-term-focused whims of the majority of public investors. The reality is, the public markets are no longer the domain of the small guy (not that they really ever were, but this is less true today than ever). The average stock is held for just 22 seconds, hardly the mark of a “symbiotic shareholder relationship that ultimately helps the company,” to use Dan’s words.
There comes a time in every company’s life when the balance of this scale tips and the benefits of being public outweigh the costs – or external factors like a growing shareholder base and/or liquidity demands therein force your hand – but there’s no good argument for a company to go public before management feels it’s in its best interest.
It’s hard to argue that Uber won’t be in a stronger position, with a more clear regulatory landscape around ride-sharing and a larger global footprint when going public in two or three more years than had it gone out this year. And Dropbox, for example, which raised privately at its own $10 billion valuation recently, is still building out the enterprise (read valuable) side of its business and was far from ready to face Wall St. scrutiny. Look no further than the brutal reaction to Box’s money-losing S-1 for evidence of what happens when you test the markets before your business is ready.
It’s disingenuous and misleading for Dan to point to Amazon and Google, two of the greatest outlier success stories of all time, as evidence for “the right way” to grow a company. In each of their eras there were literally thousands of companies that went public “early” by today’s standards that have since been beaten down by the markets, de-listed, or shuttered all together. It wasn’t because they went public that Amazon and Google succeeded – and “helped their countries” – it was because they are great businesses.
Uber, by contrast, is allowed to be a great business precisely because it is private at this stage. If Uber were public today, its stock price would be nauseatingly volatile, rising and falling with every TLC regulatory fight or isolated driver misconduct incident. But as the business matures, and these events become less threatening to its long-term success, it will be better able to weather the emotions of Wall St. Uber and its ilk will go public on their own terms and “the country” and our economy will be better off for it.
Secondly, if Uber (or any late-stage private company for that matter) were to have gone public instead of raising a large growth round, it wouldn’t have been retail investors who reaped the bulk of the benefits anyway. Dan knows this as well as anyone. After banks were done collecting their IPO commissions, it would be large institutions that were sitting on the bulk of the IPO shares. In the days, weeks, and years that follow the listing, it would again be large institutions that would drive the bulk of the trading volume. (Retail investors don’t trade stocks every 22 seconds.)
Wall St. would do well to acknowledge that this private market funding environment didn’t emerge in a vacuum. There have been years of warning signs that overly the onerous regulatory environment and capricious nature of the public markets makes founders want to delay going public as long as possible. A 2009 Grant Thornton piece titled “A Wake Up Call for America” and a similar 2010 Kauffman Foundation report by the name of “Choking the Recovery” both lay out this case clearly. Earlier this year, a Vox interview with (Pando investor) Marc Andreessen articulated why the IPO is Dying.
Wall St. (and regulators) has responded, by and large, by ignoring these concerns and saying, effectively, “you need to go public, you have no other option.” Well guess what, the market finds a way, and in this case growth stage venture and secondary markets for private shares like SecondMarket have become that other option.
It’s hard to tell if this column is Dan’s bad attempt at satire, or if he really believes this. As someone who’s covered the IPO markets as long (and as well) as anyone, he should know the above better than most. Maybe he’s being willfully baity, hoping to stoke the fires of debate. What he’s not doing, by any stretch of the imagination, is offering a viable or reasonable suggestion for how entrepreneurs can help their country.