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Why can't liquidity of existing stocks be provided without becoming public? Seems like easier task than going public and coming under myriad of different rules.

lozenge 8y ago
When you have over a certain number of shareholders you have to follow strict reporting rules, giving your company all of the costs of being public but none of the benefits.
deleted 8y ago
[deleted]
ves 8y ago
Providing enough liquidity at scale is hard without the public market.
sjjshzvuiajhz 8y ago
A public market gives you access to millions of potential buyers, so you get the best price, with minimal fees. That’s liquidity. A private company could try to provide something like that without using the public market, but it won’t be nearly as good.
epa 8y ago
They can, that is what's called "Private Equity". Private equity companies (similar to how Warren Buffet operates), usually want control, which changes a lot of how the Company may be run. Public companies are generally controlled by a group of investors, none of which has majority control.
- phamilton 8y ago
  Until the activist investors show up.
- btilly 8y ago
  Um, no. Private equity is not what you're describing, and is the opposite of how Warren Buffett operates. Private equity specializes in leveraged buyouts of companies. The typical deal is that the private equity partners put their own money into a fund, that they then get others to invest in. This fund puts up a downpayment on a company with the bulk of the loan being taken out by the company, and then buys out the current owners. The private equity folks then try to "put lipstick on the pig" by making the company generate what looks to be good numbers, and then flip it to someone else. The profit is then shared with the fund as returns. Sometimes the deal goes wrong and the private equity partners have to run the company for longer than expected. Sometimes the deal goes very wrong, and the company goes out of business. Like happened to Toys "R" Us. Even when the deal goes wrong, the private equity partners typically make their investment back between the fee for setting up the deal, and fees for running the company. This leaves the investors in their fund and the bank holding the bag as everything crashes and burns. But hey, that outcomes just proves how much smarter the private equity guys were than everyone else all along! Compare and contrast to Warren Buffett's approach of buying whole companies cash, keeping current management in place, and running them for long term returns.
  - AmericanChopper 8y ago
    Private Equity describes any trading in non-listed companies. Private Equity funds sometimes do the things you’ve described, but private equity just means the shares aren’t traded publicly, it doesn’t denote any particular investment strategy. There’s pros and cons on each side, but if you want liquidity, then you’re going to struggle getting it through private equity investment.
    - Aeolun 8y ago
      Isn’t pretty much all startup investment private investment? Doesn’t seem like they have any issues gaining liquidity.
      - AmericanChopper 8y ago
        Yes it is. But liquidity in terms of trading volume, not in terms of money the company has in the bank. Liquidity in terms of how many shares are traded each day. If you have shares in a private company, and you want to sell them, you’re going to have to arrange a private transaction, and rely on somebody elses valuation. Going public is one way of addressing that problem.
airstrike 8y ago
> Why can't liquidity of existing stocks be provided without becoming public? Who do you propose employees sell their shares to?
- megaman8 8y ago
  Whenever possible you want to diversify. Having tens of thousands of dollars worth of shares in a single company is almost never a good idea, especially if that company is your employer too!

lozenge 8y ago

When you have over a certain number of shareholders you have to follow strict reporting rules, giving your company all of the costs of being public but none of the benefits.

deleted 8y ago

[deleted]

ves 8y ago

Providing enough liquidity at scale is hard without the public market.

sjjshzvuiajhz 8y ago

A public market gives you access to millions of potential buyers, so you get the best price, with minimal fees. That’s liquidity. A private company could try to provide something like that without using the public market, but it won’t be nearly as good.

epa 8y ago

They can, that is what's called "Private Equity". Private equity companies (similar to how Warren Buffet operates), usually want control, which changes a lot of how the Company may be run. Public companies are generally controlled by a group of investors, none of which has majority control.

phamilton 8y ago
Until the activist investors show up.
btilly 8y ago
Um, no. Private equity is not what you're describing, and is the opposite of how Warren Buffett operates. Private equity specializes in leveraged buyouts of companies. The typical deal is that the private equity partners put their own money into a fund, that they then get others to invest in. This fund puts up a downpayment on a company with the bulk of the loan being taken out by the company, and then buys out the current owners. The private equity folks then try to "put lipstick on the pig" by making the company generate what looks to be good numbers, and then flip it to someone else. The profit is then shared with the fund as returns. Sometimes the deal goes wrong and the private equity partners have to run the company for longer than expected. Sometimes the deal goes very wrong, and the company goes out of business. Like happened to Toys "R" Us. Even when the deal goes wrong, the private equity partners typically make their investment back between the fee for setting up the deal, and fees for running the company. This leaves the investors in their fund and the bank holding the bag as everything crashes and burns. But hey, that outcomes just proves how much smarter the private equity guys were than everyone else all along! Compare and contrast to Warren Buffett's approach of buying whole companies cash, keeping current management in place, and running them for long term returns.
- AmericanChopper 8y ago
  Private Equity describes any trading in non-listed companies. Private Equity funds sometimes do the things you’ve described, but private equity just means the shares aren’t traded publicly, it doesn’t denote any particular investment strategy. There’s pros and cons on each side, but if you want liquidity, then you’re going to struggle getting it through private equity investment.
  - Aeolun 8y ago
    Isn’t pretty much all startup investment private investment? Doesn’t seem like they have any issues gaining liquidity.
    - AmericanChopper 8y ago
      Yes it is. But liquidity in terms of trading volume, not in terms of money the company has in the bank. Liquidity in terms of how many shares are traded each day. If you have shares in a private company, and you want to sell them, you’re going to have to arrange a private transaction, and rely on somebody elses valuation. Going public is one way of addressing that problem.

airstrike 8y ago

> Why can't liquidity of existing stocks be provided without becoming public? Who do you propose employees sell their shares to?

megaman8 8y ago
Whenever possible you want to diversify. Having tens of thousands of dollars worth of shares in a single company is almost never a good idea, especially if that company is your employer too!