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The Death of the IPO
- cft 8y agoIndeed. A government regulated economy does not need a public market.
- dang 8y agoPlease do not take HN threads on generic ideological tangents, especially not with unsubstantive bait. It leads to shallow, repetitive discussions, and often flamewars.
- momentmaker 8y agoICO is the new IPO
- seattle_spring 8y agoSo you're saying IPOs were all complete scams that provided no real value to anyone?
- chrisco255 8y agoNot all ICOs were scams...but also plenty of IPOs have been scams. The regulations put in place following the dot com crash are good in some respects but bad in others. The ICO mechanism for fundraising is novel and with some light regulation and heavy curation might have the best of both worlds.
- pmiller2 8y agoI'm surprised to see no discussion of pre-IPO stock options as (tech) employee compensation. It used to be the deal was you'd take a below market salary plus options, and the company would either IPO or go out of business in a reasonable time. That's no longer the case. Since the time to IPO is so much longer than the average tenure at a tech company, employees end up either forfeiting a bunch of equity after leaving, or sitting on illiquid shares for years after buying them. Longer post-termination exercise periods don't really help the situation, as employees are still being deprived of liquidity on a large portion of their compensation, and secondary markets offerings are still not the norm. Forget about whether it's good for the market as a whole for the moment: is there a solution for the average tech employee?
- dev_dull 8y ago> It used to be the deal was you'd take a below market salary plus options, and the company would either IPO or go out of business in a reasonable time. 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.
- twblalock 8y ago> Forget about whether it's good for the market as a whole for the moment: is there a solution for the average tech employee? 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.
- pmiller2 8y agoIf what you say is accurate (and, I admit, it’s a logical progression from the situation I mentioned), the Nash equilibrium is that only people who don’t know or don’t care their comp is going to be stunted will work at startups. That seems bad for the startup ecosystem, so VCs and founders ought to care about it, but they don’t seem to. That seems to point to a flaw in the chain of reasoning.
- jurassic 8y agoThere is also the reality that not everybody can work at FAANG. I know plenty of average engineers who know which way the economic wind is blowing but haven't been able to successfully make it through the process at big companies.
- matchagaucho 8y agoMarkets are cyclical. Subscribing to such absolute views never really pays in the long run.
- antonvs 8y agoWhat's the "absolute view"? This is identifying a trend. Since it's a trend that has implications for social inequality, it's worth paying attention to and deciding whether any changes should be made to address it.
- matchagaucho 8y agoLook at any graph [1]. The cycle of IPOs goes up and down. The "trend" pattern is cyclical. [1] https://www.statista.com/statistics/270290/number-of-ipos-in-the-us-since-1999/ https://www.statista.com/statistics/270290/number-of-ipos-in...
- xchaotic 8y agoYou're looking at historical data to infer the future. If it was so simple you could predict tomorrow's lottery our stock movements. In reality, circumstances have changed and there little incentive to go public, there's fixed costs and public scrutiny from unsophisticated investor and bystanders. Now is not the same as previous dip.
- matchagaucho 8y agoOr... are more private companies realizing their unicorn valuations are not justified on a GAAP basis? Wall Street is not keen to underwrite companies with valuations 20x+ revenue.
- googlemike 8y agoI do not really see why this means that "small investors are getting shut out of the most lucrative deals". One could phrase it as "small investors are not being exposed to the biggest risk". Mutual funds and managed investments make so much more sense for small time (mom and pop?) investors. Anything other than that, unless you a professional stock broker or finance expert, is just gambling.
- PostOnce 8y agoHow are you supposed to stop being small time if you can't take any amount of risk to get into the big time? Investing isn't "guaranteed free money", it's a calculated risk. Should only the rich be allowed to take risks with their own money?
- tryptophan 8y agoYes. When the rich fail they probably still have enough to live on. When the poor fail, they go on welfare and require money from others. Either we get rid of welfare, or ban people from partaking in risky investments. Which do you think is better?
- magila 8y agoSo you think only the rich should be allowed to start their own company too? Quitting a job without having another one lined up is also pretty risky. This argument taken to its logical conclusion leads to serfdom. You might even say it's The Road to Serfdom.
- tryptophan 8y agoStarting a company requires lots of money up-front, which poor people don't have anyways. 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.
- mjfl 8y agoThe obvious solution is to make private companies illegal.
- CamelCaseName 8y ago??? This makes less than no sense and my head hurts just trying to figure out how this could possibly work.
- Consultant32452 8y agoCommunism? That's my only guess.
- mjfl 8y agoI was being sarcastic
- jrk9nxkdi 8y agoInteresting parallel to the calls for death of the social safety net and tax breaks for the rich. The haves are finding all the ways to squeeze out the have nots.
- sjg007 8y agoI hope that ICOs or some other jobs act legislation will make it easier for ordinary investors to get early access to the market. I also hope for tax legislation that would make exercising options cheaper (e.g. pay the tax at a liquidity event, instead of based on the difference from fair market value at exercise when not liquid. These two things would dramatically improve the current situation.
- twblalock 8y agoI really hope the private equity markets stay restricted to accredited investors and other people who normally operate in them, and remain inaccessible to average investors. 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.
- sjg007 8y agoIt's more for de-risking startup employees. Having an option is the best way to generate wealth. That option though comes with trouble if you leave early and there is no liquidity event. With IPOs now taking 10+ years you have a lot of folks who are stuck, not to mention at the mercy of management. For the common man, it becomes difficult to get in early for the second wave of growth if IPOs are delayed. Having investments only run through a 401k imposes this arbitrary middle management tax. ICOs are an interesting opportunity in that you can completely bypass the stock market and the stock registry. You can even bypass the merchant banks. There should be a way to get into companies early.. at the moment everyone goes all in on real estate speculation, which makes no sense. It's better to focus growth in companies..
- elvirs 8y agoaren't ICOs like, dead?
- 8y ago
- muktaakash 8y agoNobody wants to hold their money at 90% for perpetual timelines without returns as the issuers plays 'Dirty' regulatory game of 'partially subscribed' gateway. Me lost precious investment under such scam (legit as law permits)- better buy shares direct from the market; when companies bleeds with outright /TITLE/, than waiting for the mercy of issuers. It was a rampant practice in 90ies and 2YK decades. We are still suffering.
- pdog 8y agoWhat's so great about being a public company in the first place? Shareholder meetings, quarterly filings, analyst recommendations, and the rest are all a big drag on actually running a company. 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?
- gumby 8y ago> What's so great about being a public company in the first place? 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.
- nickpsecurity 8y agoPeople with equity get rich when it goes public most of the time. The company also gets at lot of outside investment they can use to compete. Some go private again later, too.
- erik_seaberg 8y agoI keep hearing how burdensome it is to comply with SEC requirements but it seems to be about manually disclosing and verifying finances that are otherwise secret. Sometimes I wonder about a minimum viable public company that just published the real books. How much overhead is really required just to exist?
- greenleafjacob 8y agoPwC estimates that it costs $1.5 million per year. https://www.strategyand.pwc.com/media/file/Strategyand_Considering-an-IPO.pdf https://www.strategyand.pwc.com/media/file/Strategyand_Consi...
- spbaar 8y agoAgreed. For GE or P&G that have tons of vertically integrated moving parts and the complex accounting for it, I can intuitively understand that compliance and accounting would be huge and complex. But there are many billion dollar companies with a more streamlined and simple economic model, and the tools should exist to comply with the SEC as part of the normal workflow.
- tiktoktek 8y agosophisticated fraud, someone's loss is someone's gain.