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The IPO is dying – Marc Andreessen explains why

124 points by ascertain 12y ago

powera 12y ago
This is a bit of a flippant dismissal, but the interview reads as if it's Mitt Romney answering the questions, not someone in the tech community.
- _delirium 12y ago
  It's been many years since Andreessen's day-to-day concerns have been tech-related, rather than finance-related. Not too surprising he would have opinions common among people in the finance sector, considering that's what he lives and breathes (this doesn't mean they're right or wrong, just that they are unsurprising for someone coming from finance culture). It probably doesn't help that he's in business and daily contact with Ben Horowitz, who is even more sucked into the norms of that culture (check out the comments on https://news.ycombinator.com/item?id=7191642 https://news.ycombinator.com/item?id=7191642).
  - dgreensp 12y ago
    Can you give examples of which opinions you consider "finance sector norms" rather than a more neutral or individual viewpoint?
- gyardley 12y ago
  Right, because no one at all in the 'tech community' agrees with Mitt Romney.
wpietri 12y ago
I have enormous respect for Andreessen when he's talking on topics of his expertise, as in the first half of the article. And it's not just his talk, either; A16Z is a deeply impressive operation. But so far I find his take on Piketty shallow and unpersuasive; it strikes me more as the view that is convenient for him to have, rather than one of deep study and experience. I'd rather he stuck to what he knows.
- reason 12y ago
  I follow Andreessen and a few of the other a16z folks on twitter, and every day they are tweetstorming what appear to be very insightful opinions and predictions on a whole slew of industries. And then I wonder if these guys are actually orders of magnitudes more intelligent than me and others, and have truly valid and well thought-out opinions, or if a good amount of what they say is nothing more than speculative bullshit that's hardly contested due to their reputation and success. I've got enormous respect for them, too, but I'm beginning to think that the breadth and depth of expertise and foresight they display shouldn't be taken too seriously.
  - beachstartup 12y ago
    no doubt andreessen is smarter, both in raw intelligence and financial wisdom, than you or i or the next guy, but the billions of dollars at his command to assist in manifesting his will helps quite a bit. and so does being at the nexus of the tech industry and seeing the entire ecosystem from the inside-out, "behind the curtain" so to speak. they have a lot of insider information, not the least of which is basically every single pitch that comes across every other VC's desk in town, and the actual financial health of funded companies operating in the marketplace. they all share information, that's why they don't sign NDAs.
    - droopyEyelids 12y ago
      I always wonder, assuming a person had all the benefits, the perfect genetics, the perfect upbringing, the perfect luck in industry, how much smarter or better informed, or capable could they be than the average person? We have the meme that a great programmer is 10x better than a lacking peer. I think that is the absolute maximum upper bound on how much better someone can be, and that is in a limited, specific pursuit. When it comes to predicting the future shape of society, we're talking about the average of many, many disciplines- not a discrete thing like programming ability. So I really think at best it'd be like a 2x-3x factor of improvement. And with something as difficult as understanding the future, 2-3x isn't much, because you're multiplying a standard ability of near 0.
    - 12y ago
ahomescu1 12y ago
My favorite part (pure gold): This is so powerful in the conventional wisdom right now. I love the Daily Show like everyone else does. But literally [Jon Stewart's] answer to every issue is Congress should pass a law. [People think you can] solve any problem by passing enough laws.
- muzz 12y ago
  People generally applaud things they already agree with, be it Jon Stewart's audience or Marc Andreessen's.
  - ahomescu1 12y ago
    I don't get your point. The relevant part of that quote is [People think you can] solve any problem by passing enough laws, not the Jon Stewart reference. You can be a member of both audiences. Edit: I think this is an interesting discussion well worth having. From my experience talking to people, many believe that if government introduces exactly the right laws, we'll wind up with a utopia, which is IMHO very naive. Very few people consider the drawbacks and unintended consequences of each law.
mjburgess 12y ago
He blames the SOX act for decreasing the number of IPOs but they were already down from 100s/year in the 80s to 80 in 2001 (before sox) and this trend continued. He seems to be performing the slight-of-hand anti-regulatory BS that accompanies the right these days: "over here there is a problem - over there is some regulation; wink wink nudge nudge".
- frandroid 12y ago
  Are you seriously taking the post-dotcom-bubble crash as the boundary to compare the 80s to? I still agree with you, even with your own sleight of hand. :)
  - mjburgess 12y ago
    No, just two end points to draw a negative correlation between that keeps going today. It isnt hilly. So the introduction of SOX as an explanation for decreasing IPOs is BS.
betadreamer 12y ago
I wished these articles concentrated more on the solution. It is easy to say what is not working. He mentions that public company is not going to grow as much, but then where should we put our retirement money in?
- ahomescu1 12y ago
  I think he hints at the solution: reduce regulation (he names Sarbanes-Oxley as one problem).
  - api 12y ago
    If we did that, wouldn't people just run more Enron-type scams? Fraudsters and con men have been engaged in a Red Queen's race against investor intelligence and government regulation since there has been economies. https://en.wikipedia.org/wiki/Red_Queen%27s_Hypothesis https://en.wikipedia.org/wiki/Red_Queen%27s_Hypothesis These regulations might be messy but they contain valuable information that has been learned from this arms race. They're patches to try to prevent the same thing from happening again. It's much like computer security, where OSes and network protocols are constantly patched or re-engineered to be resistant to newer attacks. "Attacks only get better." It may however be possible to improve Sarbox by reducing its complexity, thereby reducing the complexity tax that harms smaller companies and discourages growth IPOs.
    - ArkyBeagle 12y ago
      There's a big problem generalizing from Enron. Enron was more complex than that. There were two basic defects with Enron: 1) The energy traders were rogue by virtue of poor governance. The problem was baked into the compensation scheme there and could not be undone. 2) Skilling was rogue, but his sort of SPE manipulation was actually quite common. The rest of the company is believed to have been fundamentally sound. Enron was the big hero until they basically put CALPERS at risk. Then the story changed. I watched as the California energy deregulation unfolded. It was apparent that it would fail exactly as it did. There's a larger background of boom-bust globally but especially concentrated in the US for ( I think ) path-dependent reasons. See "Nation of Deadbeats" for a semi-historical treatise on the subject. This goes back to John Law and the Mississippi Bubble - but each is different. I don't get the feeling the whole subject is clearly understood. The dominant "left-right" beliefs are not helpful. The left believes regulation can fix it; the right thinks ... something else will ( usually a bland nod towards competition). Thinking about stability is quite new. It's not clear we know what we're doing.
credo 12y ago
Marc Andreessen is being true to form when he attacks regulations, attacks Piketty and suggests that IPOs will flourish if we remove (what he describes as) "burdensome" regulations, "Regulation Fair Disclosure" etc. However, he seems to be totally glossing over the fact that IPO regulations have already been weakened in recent years. This has resulted in less transparency and increased secrecy and that is exactly what people like Andreessen have been asking for. It is questionable whether this increased secrecy actually benefits the economy or the average investor (of course, it is clear that the lack of transparency does benefit powerful interests in the country and that is why a bipartisan majority in our dysfunctional congress was able to miraculously come together and pass a bill to reduce regulations and cut down on IPO transparency). http://takingnote.blogs.nytimes.com/2013/09/13/the-twitter-i-p-o-investor-beware/ http://takingnote.blogs.nytimes.com/2013/09/13/the-twitter-i... touched on this topic in the context of Twitter's IPO.
mr_luc 12y ago
I'd love to ask Andreessen, (or anyone here, really) a question informed by a book on pg's reading list: I, too, am dubious about Pikkety's thesis. But I'd like to call out a distinction between the concentration of wealth, and the static nature of the oligarchy. One will continue to happen, the other Pikkety could be dead wrong about. Andreessen says (paraphrasing) in the interview, 'Pikkety says wealth and oligarchies will happen, but look at the Forbes 400 and you see lots of churn, where is this supposed stability that will happen with rich people cementing their gains'. It's true that Pikkety presents a view of social mobility becoming increasingly static, and reverting to a supposed historical norm. But one lovely book I have pg to thank for reading, "The World We Have Lost", talks about how things were in England according to an analysis of actual data (county records etc). One chapter, 'The One-Class Society' ('gentlemen' were the class, the only class that mattered), speaks of how there actually was a large amount of 'churn' in the gentleman class -- even outside of cities and the merchant classes, it was possible for a father to become a substantial yoeman, and his heir to become a gentleman. Families went up, families went down. But despite a certain amount of mobility being possible, all effective wealth and power that mattered was still very concentrated, as it has been for much of recorded human history, for many reasons. This was momentarily interrupted by the usefulness of humans as wet robots that were briefly able to exert the political and economic leverage necessary to drive hard collective bargains about their compensation. That was temporary. (Offshore wet robots, and eventually dry robots, taking the place of the less-needed troublemakers). Wealth, even if mobile, will inevitably become more concentrated due simply to better technology and efficiency -- how can this not be so? It seems self-evident. So, I guess the question is: If technology magnifies individual differences in productivity, and if we accept as a given that attempting to tax away the resulting fruits of that productivity is on the whole economically injurious to an economy, how can wealth not become more concentrated over time? (Yes, of course, there will be churn and disruption, and wealth will change hands. Even as it did among the gentleman class in England in the 1500s; families came up and families went down. But because of technological magnification of productivity it should tend to go to fewer people. This just seems like a natural law.)
- paletoy 12y ago
  One answer would be that russian communism and other communistic countries inspired by it are just one pretty bad type of collective society , and we really haven't enough variations to say collectivism has failed. But you won't hear something like that from marc, even if there were decent evidence to support this view(the nordic countries might be one such evidence).
drawkbox 12y ago
He does make excellent points about the public market, it is in a tough spot and something does have to be done. SOX was a nightmare reaction in the wrong direction and we can see the effects a decade later. Crowdfunding might even be a side effect of this sideways investment market. Maybe the stock market needs more risk tiers with differing levels of regulation, even a growth market where regulations are relaxed for smaller companies, essentially private investment open to public. One size fits all of the public market will regulate all the growth out, it is not even really an option for small-medium business to even try anymore like he says.
mfringel 12y ago
In general, predictions from influential people can be translated as "My life will get a whole lot more convenient if x happens."
- muzz 12y ago
  Agreed. Not sure why more people don't question when someone says something will benefit the "middle class" are they just saying that out of their own self-interest?
justin66 12y ago
There are a few genuinely odd statements about the stock market, including pretty much all the bits that involve the word "growth." I wonder if he knows about the Fama-French model and that value usually performs much better for investors. Maybe acknowledging that would mean acknowledging that for a while there, valuations were just nutty. I never know what to make of that kind of complaining about shorts. The "The returns degrade down to S&P 500 levels" statement about investment managers was strange. Often those guys don't match S&P 500 returns and so that level wouldn't be a degradation... The whole thing has a feel that makes me wonder if he was misquoted or something.
mmaunder 12y ago
Whether or not you agree with Marc, I'm always impressed at how persuasive he is and I come away with new data and new additions to my reading list. He talks about the drop in the number of US public companies being caused by the lack of new IPO's. It's also fueled by private equity delisting public companies, Dell being a prime example in October of last year. The benefits of staying private are not just due to the onerous regulatory requirements. Delisting has tax benefits. It also concentrates ownership and provides flexibility in executive compensation - and both of these resolve some conflicts of interest between public investors and the exec team. Staying private or going private also provides you with defensibility against takeover - one less thing for the exec team to worry about so they can get on with the job. There's also less transparency in the organization which can give you a competitive advantage.
deleted 12y ago
[deleted]
lifeisstillgood 12y ago
""" It's technically illegal to manipulate the market. But there are hardly ever any cases [enforcing these laws]. Basically the hedge funds run absolutely wild and do whatever they want.""" There's your problem right there. There is a great TED podcast from one of the regulators on savings and loans ("how to rob a bank from the inside") that said basically "we failed to stop either crash but we jailed 9,000 people the last time - this time not one got prosecuted." I think we have lost our willingness to prosecute big business. I mean Madoff was prosecuted because he was just nakedly fraudulent, but an entire industry pretended liars loans was just a phrase. So, want a better stock market, want smaller IPOs, want stronger financial system. Hire cops and let them do their work. We don't prevent murder or robbery - we prosecute it. Same here.
- pekk 12y ago
  Pathetically, a large part of this is partisan. The Republican party was never, in recent decades, happy to prosecute big business for this kind of crime. It's the Democratic party which ever in recent memory had any willingness to prosecute big business, and largely lost that, because it hurts in elections. Democrats automatically lose independents without some message of non-partisanship (perverse that white-collar criminals have a party). So we get these weak moves which are then further blunted by the Republican party, so the Democrats can symbolically do something and the Republicans can symbolically label them as Communist Nazis without doing anything. The Tea Party and mainstream, Ron Paul Libertarian Party are focused on eliminating Democrats (i.e., Communist Nazis) and starting an armed revolution to ensure permanent right-wing rule any day now, but maybe not just yet until they get a few more votes - no declarations of non-partisanship required for these - but even if you could get them down to it, they wouldn't be willing to prosecute big business either. And many of the rest, including a lot of people involved in startups, are temporarily embarrassed millionaires voting reflexively against words like regulation and taxes even though that kind of policy is unlikely to ever benefit them. But even if anyone was willing to be seen "punishing wealth creators" and "discouraging business" and "killing jobs" in this partisan climate, nobody of any party will want to face the political blowback for expanding bureaucracy and spending more money. There is a strong, non-partisan general allergy of the voting public to regulation, enforcement, and government in general.
tptacek 12y ago
Is it just a little disingenuous to suggest that the public is prevented from enjoying the benefit of company growth because they aren't allowed to invest in venture capital funds? They can't, of course. But they can invest in other vehicles that can. Individual investors can't directly benefit from Facebook's appreciation the way they could Microsoft's. But their retirement fund sure can. Meanwhile, there's probably a strong case to be made that in the large, individual investors shouldn't try to hit these kinds of home runs, because they're outgunned by institutional investors and they don't have the capacity to diversify as well as institutional investors can.
- Jd 12y ago
  I think just the opposite is the case. Individuals are better poised to diversify if they can drop investments across a large number of projects with tickets in the sub $1K range. Imagine what would happen if you could really micro-invest, $10/day in 10 different projects. You'd even have kids actually learning to invest from age 10 that could beat the "pros" by the time they are in high school.
  - tptacek 12y ago
    That might work if you had most of your portfolio dedicated to early-stage companies, but that in itself is a bad investment strategy. Consider: it's the strategy behind venture capital funds, and venture capital as an asset class tends to underperform --- if you're thinking about Microsoft and Facebook but not Murpli and Foozblap, you're a victim of survivorship bias.
- gaadd33 12y ago
  Are there many funds from Vanguard or Fidelity that are regular participants in Series D/E rounds of funding? Or do you mean that an entity like CALPERS can invest some amount in the various VC funds? In the latter case, I think its been shown that VC as an asset class (invested in that manner) significantly underperforms the public market.
  - tptacek 12y ago
masterjack 12y ago
These are some great points about the challenges of going public, but I wonder how much of it is just a deliberate logical decision to reap the most benefits. There's an incredible amount of capital flowing around (to the extent that in many cases it doesn't seem to be the limiting factor as in classical economic theory. And remember when YC decided to decrease the investment for practicality reasons?) so why would you IPO as Facebook at 1B when you get both more attractive private offers and also you can get enough new investment until the IPO value is at 100B.
bsaul 12y ago
Maybe someone who's read piketty book can explain something to me ? From what i've read, It claims that wealth growth is superior to economic growth, in the long term. But how can this be possible, since wealth growth is a part of economic growth ? I mean, if a big family own a lot of real estates, and that real estate gains value, then doesn't this increase of value also makes the general economy grow as well ? It can't be as trivial, so there's probably something i'm missing in the definitions. Anyone ?
- frandroid 12y ago
  I haven't read the book, but since the book is on inequality, it seems obvious to me that the problem is that the wealth growth is unevenly distributed, i.e. going mostly to the super-rich. So we have GINI-coefficients that grow rapidly around the world, especially in China and India, where globalization has also lifted tons of people out of poverty, and in the United States, which is still by a socialist government, if you listen to Republicans.
- kjjw 12y ago
  What is economic growth here? Piketty discussed the return on capital versus earnings. He doesn't claim one is superior to the other, or even that in the long run one will certainly trump the other. He simply argues based on the evidence that it is likely that in the long run, because it appears that the long trend is negligible economic and demographic growth, there is no intrinsic law within capitalism that ensures capital returns will not become so important that inequality can reach massive levels.
rayiner 12y ago
Here's an interesting presentation with some statistics: http://www.sec.gov/info/smallbus/acsec/acsec-090712-ritter-slides.pdf http://www.sec.gov/info/smallbus/acsec/acsec-090712-ritter-s.... Here's the associated paper: http://fisher.osu.edu/supplements/10/12092/Where%20Have_April_3_2012.pdf http://fisher.osu.edu/supplements/10/12092/Where%20Have_Apri.... Section 6-7 of the paper are most relevant. Section 6 analyzes the question of whether SOX is causing a decrease in IPO's using estimations of SOX compliance costs. It concludes that: "[w]e find the effect of paying the compliance cost on the profitability for small firms to be limited." They also look at whether SOX compliance is driving U.S. companies to other countries that don't have such a regulatory regime: "[i]f SOX is an important reason for why companies, especially small companies, are not listing in the U.S., we might observe many U.S. companies going public abroad." They do not find that effect to exist. They present the alternative hypothesis: that there is an increasing benefit to being part of a large firm (being acquired via M&A) than there is to being a small, independent public firm (doing an IPO). They analyze this hypothesis in section 7, by looking at the post-IPO behavior of companies. They hypothesize that if the burden of regulation is the driving force, we might see many companies go private after IPO-ing. Alternative, if it's the increased advantages of scale, we will see companies be acquired post-IPO. They find evidence of an increasing number of companies being acquired within three years of an IPO. They conclude: "We posit that there has been a fundamental change in many sectors of the economy whereby the importance of bringing products to market quickly has increased. This hypothesized change has resulted in lower profits for independent small companies relative to the potential profits generated as part of a larger organization that can realize economies of scope and rapidly expand production. If this explanation is correct, fewer firms are going public and staying independent because value is being created in a sale to a strategic buyer in the same or related industry."
- tptacek 12y ago
  This is why so many networking companies sell to Cisco, and why Cisco's business strategy depends so much on M&A: Cisco's great asset isn't IOS, but instead that it runs one of the world's most powerful enterprise sales operations. If you sell network equipment, the basic concept of comparative advantage almost guarantees that Cisco can do a better job extracting value from it than you can.
al2o3cr 12y ago
"It suggests you're going to have a gigantic productivity boom. Isn't that the world we want to live in?" Depends. If the future is like the last 30 years, we'll see another "productivity boom" but zero rise in real wages.
- ArkyBeagle 12y ago
  There were rises in real wages from 1980 until 2000 - but they weren't in all the places they were looked for. You had large populations of high-wage earners wiped out - steel, autos, that sort of thing. In 1980, being an IT worker was basically a $10 an hour job.
  - frandroid 12y ago
    Yeah, that person was talking about the sum total of real wages, and you're talking about a sector by sector comparison...
    - ArkyBeagle 12y ago
      How would you go about even comparing them, really?
      - _delirium 12y ago
        Often what people quote is the median real wage, across the whole economy. There are other measures as well, but it's one fairly simple one that gives a trend for whether the middle portion of the workforce is seeing wage growth. Rather than looking at wage changes within sectors, shifts between sectors, etc., it just looks at the aggregate end result: do all these changes add up to the the 50th-percentile American wage earner getting more or less money?
        ArkyBeagle 12y ago
        That is indeed one way. I am just unsure it's all that meaningful.
lifeisstillgood 12y ago
There is a good LSE podcast of a Pikkety lecture - hard to follow in his accent but interesting. Anyway, he mentions Europe has the greatest accumulation of wealth yet, but does not mention the massive tax windfall that will be inheritance tax after the baby boomer generation pass on - it may be that instead of using income tax to adjust inequality we simply uE inheritance tax to redistribute the wealth "each generation should earn their own way" could be Pikkety new and less attractive call to arms
dreamfactory2 12y ago
Erm, he is claiming that companies don't go public due to unchecked market rigging and that somehow regulation rather than lack of it is to blame - the doublethink is strong in this one. And I've no idea why somebody who is in investment wouldn't be well aware that secular bear markets are typically longer than 10 years (http://www.tradingonlinemarkets.com/Articles/Trend_Following_Strategies/History_of_Stock_Market_Cycles.htm http://www.tradingonlinemarkets.com/Articles/Trend_Following...). He seems to be a complete buffoon from this interview.
- bitdiddle 12y ago
  +1
- ScottBurson 12y ago
  He is arguing that the force of that regulation falls unfairly on public companies, against whom it can be enforced effectively, and not on individuals starting rumors, who are numerous and hard to track down. That's not a silly claim.
  - dreamfactory2 12y ago
    The problem he is talking about is market manipulation. Let's be clear, disclosure is precisely to prevent market rigging by insider trading and indirection (as the notion of a free market depends on all participants having equal information). He's in fact advocating going back to an insider's club and trying to dress it up as the opposite. I don't know if he's just stupid or he thinks the readers are.
adventured 12y ago
Some data points for the discussion. There were more IPOs in the first quarter of 2014, than in the first quarter of 1999 (which makes sense given the market highs): http://www.marketwatch.com/story/us-ipos-partying-like-its-1999-again-2014-04-02 http://www.marketwatch.com/story/us-ipos-partying-like-its-1... And this year is tracking to be the best year since 1999 / 2000: http://www.renaissancecapital.com/ipohome/press/ipopricings.aspx http://www.renaissancecapital.com/ipohome/press/ipopricings....
trhway 12y ago
Today's late stages financing rounds eclipse IPOs of yesterday's. One reason is inflation - more than 2 times during the last 10 years. Another is that the game has moved one step upstream. In the first boom people inside were caching in at the IPO thus leaving IPO buyers to hold the bug. These buyers think that they have learned the lesson and now they are getting in at the late stages before IPO - thus letting the inside people to cache in and leave these buyers to hold the bug.
cyphunk 12y ago
Marc Andreesson, the same person that believes Snowden is a traitor. Just cant get past his logic

124 points by ascertain 12y ago

This is a bit of a flippant dismissal, but the interview reads as if it's Mitt Romney answering the questions, not someone in the tech community.

_delirium 12y ago
It's been many years since Andreessen's day-to-day concerns have been tech-related, rather than finance-related. Not too surprising he would have opinions common among people in the finance sector, considering that's what he lives and breathes (this doesn't mean they're right or wrong, just that they are unsurprising for someone coming from finance culture). It probably doesn't help that he's in business and daily contact with Ben Horowitz, who is even more sucked into the norms of that culture (check out the comments on https://news.ycombinator.com/item?id=7191642 https://news.ycombinator.com/item?id=7191642).
- dgreensp 12y ago
  Can you give examples of which opinions you consider "finance sector norms" rather than a more neutral or individual viewpoint?
gyardley 12y ago
Right, because no one at all in the 'tech community' agrees with Mitt Romney.

wpietri 12y ago

I have enormous respect for Andreessen when he's talking on topics of his expertise, as in the first half of the article. And it's not just his talk, either; A16Z is a deeply impressive operation. But so far I find his take on Piketty shallow and unpersuasive; it strikes me more as the view that is convenient for him to have, rather than one of deep study and experience. I'd rather he stuck to what he knows.

reason 12y ago
I follow Andreessen and a few of the other a16z folks on twitter, and every day they are tweetstorming what appear to be very insightful opinions and predictions on a whole slew of industries. And then I wonder if these guys are actually orders of magnitudes more intelligent than me and others, and have truly valid and well thought-out opinions, or if a good amount of what they say is nothing more than speculative bullshit that's hardly contested due to their reputation and success. I've got enormous respect for them, too, but I'm beginning to think that the breadth and depth of expertise and foresight they display shouldn't be taken too seriously.
- beachstartup 12y ago
  no doubt andreessen is smarter, both in raw intelligence and financial wisdom, than you or i or the next guy, but the billions of dollars at his command to assist in manifesting his will helps quite a bit. and so does being at the nexus of the tech industry and seeing the entire ecosystem from the inside-out, "behind the curtain" so to speak. they have a lot of insider information, not the least of which is basically every single pitch that comes across every other VC's desk in town, and the actual financial health of funded companies operating in the marketplace. they all share information, that's why they don't sign NDAs.
  - droopyEyelids 12y ago
    I always wonder, assuming a person had all the benefits, the perfect genetics, the perfect upbringing, the perfect luck in industry, how much smarter or better informed, or capable could they be than the average person? We have the meme that a great programmer is 10x better than a lacking peer. I think that is the absolute maximum upper bound on how much better someone can be, and that is in a limited, specific pursuit. When it comes to predicting the future shape of society, we're talking about the average of many, many disciplines- not a discrete thing like programming ability. So I really think at best it'd be like a 2x-3x factor of improvement. And with something as difficult as understanding the future, 2-3x isn't much, because you're multiplying a standard ability of near 0.
  - 12y ago

ahomescu1 12y ago

My favorite part (pure gold): This is so powerful in the conventional wisdom right now. I love the Daily Show like everyone else does. But literally [Jon Stewart's] answer to every issue is Congress should pass a law. [People think you can] solve any problem by passing enough laws.

muzz 12y ago
People generally applaud things they already agree with, be it Jon Stewart's audience or Marc Andreessen's.
- ahomescu1 12y ago
  I don't get your point. The relevant part of that quote is [People think you can] solve any problem by passing enough laws, not the Jon Stewart reference. You can be a member of both audiences. Edit: I think this is an interesting discussion well worth having. From my experience talking to people, many believe that if government introduces exactly the right laws, we'll wind up with a utopia, which is IMHO very naive. Very few people consider the drawbacks and unintended consequences of each law.

mjburgess 12y ago

He blames the SOX act for decreasing the number of IPOs but they were already down from 100s/year in the 80s to 80 in 2001 (before sox) and this trend continued. He seems to be performing the slight-of-hand anti-regulatory BS that accompanies the right these days: "over here there is a problem - over there is some regulation; wink wink nudge nudge".

frandroid 12y ago
Are you seriously taking the post-dotcom-bubble crash as the boundary to compare the 80s to? I still agree with you, even with your own sleight of hand. :)
- mjburgess 12y ago
  No, just two end points to draw a negative correlation between that keeps going today. It isnt hilly. So the introduction of SOX as an explanation for decreasing IPOs is BS.

betadreamer 12y ago

I wished these articles concentrated more on the solution. It is easy to say what is not working. He mentions that public company is not going to grow as much, but then where should we put our retirement money in?

ahomescu1 12y ago
I think he hints at the solution: reduce regulation (he names Sarbanes-Oxley as one problem).
- api 12y ago
  If we did that, wouldn't people just run more Enron-type scams? Fraudsters and con men have been engaged in a Red Queen's race against investor intelligence and government regulation since there has been economies. https://en.wikipedia.org/wiki/Red_Queen%27s_Hypothesis https://en.wikipedia.org/wiki/Red_Queen%27s_Hypothesis These regulations might be messy but they contain valuable information that has been learned from this arms race. They're patches to try to prevent the same thing from happening again. It's much like computer security, where OSes and network protocols are constantly patched or re-engineered to be resistant to newer attacks. "Attacks only get better." It may however be possible to improve Sarbox by reducing its complexity, thereby reducing the complexity tax that harms smaller companies and discourages growth IPOs.
  - ArkyBeagle 12y ago
    There's a big problem generalizing from Enron. Enron was more complex than that. There were two basic defects with Enron: 1) The energy traders were rogue by virtue of poor governance. The problem was baked into the compensation scheme there and could not be undone. 2) Skilling was rogue, but his sort of SPE manipulation was actually quite common. The rest of the company is believed to have been fundamentally sound. Enron was the big hero until they basically put CALPERS at risk. Then the story changed. I watched as the California energy deregulation unfolded. It was apparent that it would fail exactly as it did. There's a larger background of boom-bust globally but especially concentrated in the US for ( I think ) path-dependent reasons. See "Nation of Deadbeats" for a semi-historical treatise on the subject. This goes back to John Law and the Mississippi Bubble - but each is different. I don't get the feeling the whole subject is clearly understood. The dominant "left-right" beliefs are not helpful. The left believes regulation can fix it; the right thinks ... something else will ( usually a bland nod towards competition). Thinking about stability is quite new. It's not clear we know what we're doing.

credo 12y ago

Marc Andreessen is being true to form when he attacks regulations, attacks Piketty and suggests that IPOs will flourish if we remove (what he describes as) "burdensome" regulations, "Regulation Fair Disclosure" etc. However, he seems to be totally glossing over the fact that IPO regulations have already been weakened in recent years. This has resulted in less transparency and increased secrecy and that is exactly what people like Andreessen have been asking for. It is questionable whether this increased secrecy actually benefits the economy or the average investor (of course, it is clear that the lack of transparency does benefit powerful interests in the country and that is why a bipartisan majority in our dysfunctional congress was able to miraculously come together and pass a bill to reduce regulations and cut down on IPO transparency). http://takingnote.blogs.nytimes.com/2013/09/13/the-twitter-i-p-o-investor-beware/ http://takingnote.blogs.nytimes.com/2013/09/13/the-twitter-i... touched on this topic in the context of Twitter's IPO.

mr_luc 12y ago

I'd love to ask Andreessen, (or anyone here, really) a question informed by a book on pg's reading list: I, too, am dubious about Pikkety's thesis. But I'd like to call out a distinction between the concentration of wealth, and the static nature of the oligarchy. One will continue to happen, the other Pikkety could be dead wrong about. Andreessen says (paraphrasing) in the interview, 'Pikkety says wealth and oligarchies will happen, but look at the Forbes 400 and you see lots of churn, where is this supposed stability that will happen with rich people cementing their gains'. It's true that Pikkety presents a view of social mobility becoming increasingly static, and reverting to a supposed historical norm. But one lovely book I have pg to thank for reading, "The World We Have Lost", talks about how things were in England according to an analysis of actual data (county records etc). One chapter, 'The One-Class Society' ('gentlemen' were the class, the only class that mattered), speaks of how there actually was a large amount of 'churn' in the gentleman class -- even outside of cities and the merchant classes, it was possible for a father to become a substantial yoeman, and his heir to become a gentleman. Families went up, families went down. But despite a certain amount of mobility being possible, all effective wealth and power that mattered was still very concentrated, as it has been for much of recorded human history, for many reasons. This was momentarily interrupted by the usefulness of humans as wet robots that were briefly able to exert the political and economic leverage necessary to drive hard collective bargains about their compensation. That was temporary. (Offshore wet robots, and eventually dry robots, taking the place of the less-needed troublemakers). Wealth, even if mobile, will inevitably become more concentrated due simply to better technology and efficiency -- how can this not be so? It seems self-evident. So, I guess the question is: If technology magnifies individual differences in productivity, and if we accept as a given that attempting to tax away the resulting fruits of that productivity is on the whole economically injurious to an economy, how can wealth not become more concentrated over time? (Yes, of course, there will be churn and disruption, and wealth will change hands. Even as it did among the gentleman class in England in the 1500s; families came up and families went down. But because of technological magnification of productivity it should tend to go to fewer people. This just seems like a natural law.)

paletoy 12y ago
One answer would be that russian communism and other communistic countries inspired by it are just one pretty bad type of collective society , and we really haven't enough variations to say collectivism has failed. But you won't hear something like that from marc, even if there were decent evidence to support this view(the nordic countries might be one such evidence).

drawkbox 12y ago

He does make excellent points about the public market, it is in a tough spot and something does have to be done. SOX was a nightmare reaction in the wrong direction and we can see the effects a decade later. Crowdfunding might even be a side effect of this sideways investment market. Maybe the stock market needs more risk tiers with differing levels of regulation, even a growth market where regulations are relaxed for smaller companies, essentially private investment open to public. One size fits all of the public market will regulate all the growth out, it is not even really an option for small-medium business to even try anymore like he says.

mfringel 12y ago

In general, predictions from influential people can be translated as "My life will get a whole lot more convenient if x happens."

muzz 12y ago
Agreed. Not sure why more people don't question when someone says something will benefit the "middle class" are they just saying that out of their own self-interest?

justin66 12y ago

There are a few genuinely odd statements about the stock market, including pretty much all the bits that involve the word "growth." I wonder if he knows about the Fama-French model and that value usually performs much better for investors. Maybe acknowledging that would mean acknowledging that for a while there, valuations were just nutty. I never know what to make of that kind of complaining about shorts. The "The returns degrade down to S&P 500 levels" statement about investment managers was strange. Often those guys don't match S&P 500 returns and so that level wouldn't be a degradation... The whole thing has a feel that makes me wonder if he was misquoted or something.

mmaunder 12y ago

Whether or not you agree with Marc, I'm always impressed at how persuasive he is and I come away with new data and new additions to my reading list. He talks about the drop in the number of US public companies being caused by the lack of new IPO's. It's also fueled by private equity delisting public companies, Dell being a prime example in October of last year. The benefits of staying private are not just due to the onerous regulatory requirements. Delisting has tax benefits. It also concentrates ownership and provides flexibility in executive compensation - and both of these resolve some conflicts of interest between public investors and the exec team. Staying private or going private also provides you with defensibility against takeover - one less thing for the exec team to worry about so they can get on with the job. There's also less transparency in the organization which can give you a competitive advantage.

deleted 12y ago

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lifeisstillgood 12y ago

""" It's technically illegal to manipulate the market. But there are hardly ever any cases [enforcing these laws]. Basically the hedge funds run absolutely wild and do whatever they want.""" There's your problem right there. There is a great TED podcast from one of the regulators on savings and loans ("how to rob a bank from the inside") that said basically "we failed to stop either crash but we jailed 9,000 people the last time - this time not one got prosecuted." I think we have lost our willingness to prosecute big business. I mean Madoff was prosecuted because he was just nakedly fraudulent, but an entire industry pretended liars loans was just a phrase. So, want a better stock market, want smaller IPOs, want stronger financial system. Hire cops and let them do their work. We don't prevent murder or robbery - we prosecute it. Same here.

pekk 12y ago
Pathetically, a large part of this is partisan. The Republican party was never, in recent decades, happy to prosecute big business for this kind of crime. It's the Democratic party which ever in recent memory had any willingness to prosecute big business, and largely lost that, because it hurts in elections. Democrats automatically lose independents without some message of non-partisanship (perverse that white-collar criminals have a party). So we get these weak moves which are then further blunted by the Republican party, so the Democrats can symbolically do something and the Republicans can symbolically label them as Communist Nazis without doing anything. The Tea Party and mainstream, Ron Paul Libertarian Party are focused on eliminating Democrats (i.e., Communist Nazis) and starting an armed revolution to ensure permanent right-wing rule any day now, but maybe not just yet until they get a few more votes - no declarations of non-partisanship required for these - but even if you could get them down to it, they wouldn't be willing to prosecute big business either. And many of the rest, including a lot of people involved in startups, are temporarily embarrassed millionaires voting reflexively against words like regulation and taxes even though that kind of policy is unlikely to ever benefit them. But even if anyone was willing to be seen "punishing wealth creators" and "discouraging business" and "killing jobs" in this partisan climate, nobody of any party will want to face the political blowback for expanding bureaucracy and spending more money. There is a strong, non-partisan general allergy of the voting public to regulation, enforcement, and government in general.

tptacek 12y ago

Is it just a little disingenuous to suggest that the public is prevented from enjoying the benefit of company growth because they aren't allowed to invest in venture capital funds? They can't, of course. But they can invest in other vehicles that can. Individual investors can't directly benefit from Facebook's appreciation the way they could Microsoft's. But their retirement fund sure can. Meanwhile, there's probably a strong case to be made that in the large, individual investors shouldn't try to hit these kinds of home runs, because they're outgunned by institutional investors and they don't have the capacity to diversify as well as institutional investors can.

Jd 12y ago
I think just the opposite is the case. Individuals are better poised to diversify if they can drop investments across a large number of projects with tickets in the sub $1K range. Imagine what would happen if you could really micro-invest, $10/day in 10 different projects. You'd even have kids actually learning to invest from age 10 that could beat the "pros" by the time they are in high school.
- tptacek 12y ago
  That might work if you had most of your portfolio dedicated to early-stage companies, but that in itself is a bad investment strategy. Consider: it's the strategy behind venture capital funds, and venture capital as an asset class tends to underperform --- if you're thinking about Microsoft and Facebook but not Murpli and Foozblap, you're a victim of survivorship bias.
gaadd33 12y ago
Are there many funds from Vanguard or Fidelity that are regular participants in Series D/E rounds of funding? Or do you mean that an entity like CALPERS can invest some amount in the various VC funds? In the latter case, I think its been shown that VC as an asset class (invested in that manner) significantly underperforms the public market.
- tptacek 12y ago

masterjack 12y ago

These are some great points about the challenges of going public, but I wonder how much of it is just a deliberate logical decision to reap the most benefits. There's an incredible amount of capital flowing around (to the extent that in many cases it doesn't seem to be the limiting factor as in classical economic theory. And remember when YC decided to decrease the investment for practicality reasons?) so why would you IPO as Facebook at 1B when you get both more attractive private offers and also you can get enough new investment until the IPO value is at 100B.

bsaul 12y ago

Maybe someone who's read piketty book can explain something to me ? From what i've read, It claims that wealth growth is superior to economic growth, in the long term. But how can this be possible, since wealth growth is a part of economic growth ? I mean, if a big family own a lot of real estates, and that real estate gains value, then doesn't this increase of value also makes the general economy grow as well ? It can't be as trivial, so there's probably something i'm missing in the definitions. Anyone ?

frandroid 12y ago
I haven't read the book, but since the book is on inequality, it seems obvious to me that the problem is that the wealth growth is unevenly distributed, i.e. going mostly to the super-rich. So we have GINI-coefficients that grow rapidly around the world, especially in China and India, where globalization has also lifted tons of people out of poverty, and in the United States, which is still by a socialist government, if you listen to Republicans.
kjjw 12y ago
What is economic growth here? Piketty discussed the return on capital versus earnings. He doesn't claim one is superior to the other, or even that in the long run one will certainly trump the other. He simply argues based on the evidence that it is likely that in the long run, because it appears that the long trend is negligible economic and demographic growth, there is no intrinsic law within capitalism that ensures capital returns will not become so important that inequality can reach massive levels.

rayiner 12y ago

Here's an interesting presentation with some statistics: http://www.sec.gov/info/smallbus/acsec/acsec-090712-ritter-slides.pdf http://www.sec.gov/info/smallbus/acsec/acsec-090712-ritter-s.... Here's the associated paper: http://fisher.osu.edu/supplements/10/12092/Where%20Have_April_3_2012.pdf http://fisher.osu.edu/supplements/10/12092/Where%20Have_Apri.... Section 6-7 of the paper are most relevant. Section 6 analyzes the question of whether SOX is causing a decrease in IPO's using estimations of SOX compliance costs. It concludes that: "[w]e find the effect of paying the compliance cost on the profitability for small firms to be limited." They also look at whether SOX compliance is driving U.S. companies to other countries that don't have such a regulatory regime: "[i]f SOX is an important reason for why companies, especially small companies, are not listing in the U.S., we might observe many U.S. companies going public abroad." They do not find that effect to exist. They present the alternative hypothesis: that there is an increasing benefit to being part of a large firm (being acquired via M&A) than there is to being a small, independent public firm (doing an IPO). They analyze this hypothesis in section 7, by looking at the post-IPO behavior of companies. They hypothesize that if the burden of regulation is the driving force, we might see many companies go private after IPO-ing. Alternative, if it's the increased advantages of scale, we will see companies be acquired post-IPO. They find evidence of an increasing number of companies being acquired within three years of an IPO. They conclude: "We posit that there has been a fundamental change in many sectors of the economy whereby the importance of bringing products to market quickly has increased. This hypothesized change has resulted in lower profits for independent small companies relative to the potential profits generated as part of a larger organization that can realize economies of scope and rapidly expand production. If this explanation is correct, fewer firms are going public and staying independent because value is being created in a sale to a strategic buyer in the same or related industry."

tptacek 12y ago
This is why so many networking companies sell to Cisco, and why Cisco's business strategy depends so much on M&A: Cisco's great asset isn't IOS, but instead that it runs one of the world's most powerful enterprise sales operations. If you sell network equipment, the basic concept of comparative advantage almost guarantees that Cisco can do a better job extracting value from it than you can.

al2o3cr 12y ago

"It suggests you're going to have a gigantic productivity boom. Isn't that the world we want to live in?" Depends. If the future is like the last 30 years, we'll see another "productivity boom" but zero rise in real wages.

ArkyBeagle 12y ago
There were rises in real wages from 1980 until 2000 - but they weren't in all the places they were looked for. You had large populations of high-wage earners wiped out - steel, autos, that sort of thing. In 1980, being an IT worker was basically a $10 an hour job.
- frandroid 12y ago
  Yeah, that person was talking about the sum total of real wages, and you're talking about a sector by sector comparison...
  - ArkyBeagle 12y ago
    How would you go about even comparing them, really?
    - _delirium 12y ago
      Often what people quote is the median real wage, across the whole economy. There are other measures as well, but it's one fairly simple one that gives a trend for whether the middle portion of the workforce is seeing wage growth. Rather than looking at wage changes within sectors, shifts between sectors, etc., it just looks at the aggregate end result: do all these changes add up to the the 50th-percentile American wage earner getting more or less money?
      - ArkyBeagle 12y ago
        That is indeed one way. I am just unsure it's all that meaningful.

lifeisstillgood 12y ago

There is a good LSE podcast of a Pikkety lecture - hard to follow in his accent but interesting. Anyway, he mentions Europe has the greatest accumulation of wealth yet, but does not mention the massive tax windfall that will be inheritance tax after the baby boomer generation pass on - it may be that instead of using income tax to adjust inequality we simply uE inheritance tax to redistribute the wealth "each generation should earn their own way" could be Pikkety new and less attractive call to arms

dreamfactory2 12y ago

Erm, he is claiming that companies don't go public due to unchecked market rigging and that somehow regulation rather than lack of it is to blame - the doublethink is strong in this one. And I've no idea why somebody who is in investment wouldn't be well aware that secular bear markets are typically longer than 10 years (http://www.tradingonlinemarkets.com/Articles/Trend_Following_Strategies/History_of_Stock_Market_Cycles.htm http://www.tradingonlinemarkets.com/Articles/Trend_Following...). He seems to be a complete buffoon from this interview.

bitdiddle 12y ago
+1
ScottBurson 12y ago
He is arguing that the force of that regulation falls unfairly on public companies, against whom it can be enforced effectively, and not on individuals starting rumors, who are numerous and hard to track down. That's not a silly claim.
- dreamfactory2 12y ago
  The problem he is talking about is market manipulation. Let's be clear, disclosure is precisely to prevent market rigging by insider trading and indirection (as the notion of a free market depends on all participants having equal information). He's in fact advocating going back to an insider's club and trying to dress it up as the opposite. I don't know if he's just stupid or he thinks the readers are.

adventured 12y ago

Some data points for the discussion. There were more IPOs in the first quarter of 2014, than in the first quarter of 1999 (which makes sense given the market highs): http://www.marketwatch.com/story/us-ipos-partying-like-its-1999-again-2014-04-02 http://www.marketwatch.com/story/us-ipos-partying-like-its-1... And this year is tracking to be the best year since 1999 / 2000: http://www.renaissancecapital.com/ipohome/press/ipopricings.aspx http://www.renaissancecapital.com/ipohome/press/ipopricings....

trhway 12y ago

Today's late stages financing rounds eclipse IPOs of yesterday's. One reason is inflation - more than 2 times during the last 10 years. Another is that the game has moved one step upstream. In the first boom people inside were caching in at the IPO thus leaving IPO buyers to hold the bug. These buyers think that they have learned the lesson and now they are getting in at the late stages before IPO - thus letting the inside people to cache in and leave these buyers to hold the bug.

cyphunk 12y ago

Marc Andreesson, the same person that believes Snowden is a traitor. Just cant get past his logic