Private investors (think VCs and private equity firms) as well as government owned funds (think funds that are run by a government) are growing. As they gain assets, companies look to them for investments rather than going to the public market through an initial public offering (where we could then buy the stock).
For companies, raising money from private investors is usually always preferred first. Once that’s tapped out, they head to the public markets. Once your company is public, so are your financials.
So getting more money from private investors (vs. issuing stock in your company) inevitably means fewer IPOs.
“Last year, 111 companies went public on US exchanges, raising $24.2 billion, a dollar-volume drop of 33% from the previous year and the lowest dollar volume since 2003, according to Dealogic.”
The bad part about this is that the public doesn’t get to participate in the potential upside of these stocks. The only people who participate in the upside are the original investors, say, if the company is acquired for a purchase price bigger than the current value.
The good part is you have fewer people (the public) investing in stocks that they don’t understand, which never has a good ending.
Some are saying there’s a bubble in the private markets. I have no clue.
But who cares.
“The beauty of the VC (private investing) business is you don’t have to be right that often, as long as you are right about something big. Which leads to going out on a limb and taking risks.” – AVC.
Originally published in the Ms. Cheat Sheet newsletter. See more from Kathryn Cicoletti at Ms. Cheat Sheet here.