4 ms·

3 major reasons: 1 - After a certain point in time (based on # of shareholders) it becomes more onerous to be private, and you wind up with all the reporting r

3 major reasons: 1 - After a certain point in time (based on # of shareholders) it becomes more onerous to be private, and you wind up with all the reporting responsibilities of being public. 2 - It's easier for a public company to engage on both sides of M&A. There's less quibbling about theoretical valuations since the company has a price. (When one private firm buys another with stock, there's 2 theoretical prices that need to be negotiated) 3 - For enterprise deals (not Snapchat) some customers prefer the stability of public ownership.

entee 11y ago
Cool, thanks! That said I wonder if 1 will always be that big an issue. What if you structure it so that you have a small number of large shareholders that represent larger groups? For example, in the case of stock options, a sort of labor union owns the stock, sits on the board and is responsible for distributing dividends to employees following a schedule of percentages. 2 is clearly troublesome, but perhaps more in the M than the A. If you acquire small companies, you may be able to do it in cash or again as some sort of contract entitling people to percentages of dividends. After all, that's kind of what a stock certificate used to be in practice, not just theory (yes oversimplification, but it seems people care far more about stock price than dividend these days). I wonder whether these issues will always be as troublesome. As these kinds of mega deals become more common, it seems quite possible that a sort of parallel private market could emerge. Anyway, thanks for the reasoning!
- mathattack 11y ago
  The trend is against all three of these, but it's a slow trend. On #1 - the issue is individual employees each have shares tied to their hire date. It's possible that someone could do some kind of financial engineering to make it look like 1, but this hasn't been done yet. This is the issue that forced Facebook to go public. On #2 - If it's a cash purchase, the problem is less an issue. It gets tricky when the acquirer is significantly away from a funding event. The values of many high tech firms can be +500% or -80% just 6 months after a prior event. This has a massive impact on share-based acquisitions. Less of an issue with more mature companies. All this said, it's fairly easy to see a world 20 years from now where there are much fewer public firms.
  - entee 11y ago
    My guess is for these things to change (if they ever do) there would have to be a crisis event. Maybe after the next crash employees will be more reticent to take pure stock and will go for an alternate arrangement. Maybe the structures built for those arrangements will allow contracts for acquisitions to be structured differently. It's going to be interesting to see how long this private valuation explosion will last and what the fallout will be after it pops.
    - mathattack 11y ago
      A fully private market isn't great either. There's a lot of value for the investment community in general to know what the daily value of a given stock is. If you try to get this transparency via off-market transactions, aren't you just recreating the public market?
      - entee 11y ago
        Oh totally. I think it would be a bad thing overall, but that doesn't mean it won't happen. If you have enough capital in a relatively small number of private entities, perhaps they will find it to their advantage to compromise a little on clarity, in exchange for more control or less regulation. Overall, I suspect a shadow market would be a bad thing, but it's hard to argue that for the moment there isn't something like a shadow market in silicon valley. I don't think it's a sustainable one, and it certainly is opaque (what's in those term sheets?), I'm just thinking of whether something similar could exist in a more permanent form.
  - philsnow 11y ago
    > This is the issue that forced Facebook to go public. I thought they had to go public not because of how many employee shareholders they had, but because of how many employees had sold shares on secondary markets.
kchoudhu 11y ago
I'm having a bit of a laugh here trying to imagine what an enterprise version of Snapchat might look like.
- mathattack 11y ago
  It could be very useful. People may be more willing to share opinions if they know it won't be kept on record forever.
  - entee 11y ago
    Possibly also illegal though from a document preservation perspective.

entee 11y ago

Cool, thanks! That said I wonder if 1 will always be that big an issue. What if you structure it so that you have a small number of large shareholders that represent larger groups? For example, in the case of stock options, a sort of labor union owns the stock, sits on the board and is responsible for distributing dividends to employees following a schedule of percentages. 2 is clearly troublesome, but perhaps more in the M than the A. If you acquire small companies, you may be able to do it in cash or again as some sort of contract entitling people to percentages of dividends. After all, that's kind of what a stock certificate used to be in practice, not just theory (yes oversimplification, but it seems people care far more about stock price than dividend these days). I wonder whether these issues will always be as troublesome. As these kinds of mega deals become more common, it seems quite possible that a sort of parallel private market could emerge. Anyway, thanks for the reasoning!

mathattack 11y ago
The trend is against all three of these, but it's a slow trend. On #1 - the issue is individual employees each have shares tied to their hire date. It's possible that someone could do some kind of financial engineering to make it look like 1, but this hasn't been done yet. This is the issue that forced Facebook to go public. On #2 - If it's a cash purchase, the problem is less an issue. It gets tricky when the acquirer is significantly away from a funding event. The values of many high tech firms can be +500% or -80% just 6 months after a prior event. This has a massive impact on share-based acquisitions. Less of an issue with more mature companies. All this said, it's fairly easy to see a world 20 years from now where there are much fewer public firms.
- entee 11y ago
  My guess is for these things to change (if they ever do) there would have to be a crisis event. Maybe after the next crash employees will be more reticent to take pure stock and will go for an alternate arrangement. Maybe the structures built for those arrangements will allow contracts for acquisitions to be structured differently. It's going to be interesting to see how long this private valuation explosion will last and what the fallout will be after it pops.
  - mathattack 11y ago
    A fully private market isn't great either. There's a lot of value for the investment community in general to know what the daily value of a given stock is. If you try to get this transparency via off-market transactions, aren't you just recreating the public market?
    - entee 11y ago
      Oh totally. I think it would be a bad thing overall, but that doesn't mean it won't happen. If you have enough capital in a relatively small number of private entities, perhaps they will find it to their advantage to compromise a little on clarity, in exchange for more control or less regulation. Overall, I suspect a shadow market would be a bad thing, but it's hard to argue that for the moment there isn't something like a shadow market in silicon valley. I don't think it's a sustainable one, and it certainly is opaque (what's in those term sheets?), I'm just thinking of whether something similar could exist in a more permanent form.
- philsnow 11y ago
  > This is the issue that forced Facebook to go public. I thought they had to go public not because of how many employee shareholders they had, but because of how many employees had sold shares on secondary markets.

kchoudhu 11y ago

I'm having a bit of a laugh here trying to imagine what an enterprise version of Snapchat might look like.

mathattack 11y ago
It could be very useful. People may be more willing to share opinions if they know it won't be kept on record forever.
- entee 11y ago
  Possibly also illegal though from a document preservation perspective.