One of the dreams of many entrepreneurs is to come up with a killer idea, start a company around that idea, pour your heart and soul into the company, and hopefully have the company go public at some point down the road. Going public used to be the big prize, the ultimate sign that you made it, your company was successful, the market believed. Not any longer.
Ben Howe, the CEO of America's Growth Capital, wrote a piece for the Boston Business Journal that I include below with his permission. The IPO market has just about completely evaporated for a variety of reasons. This isn't just bad for entrepreneurs, it's bad for job creation, it's bad for the economy, it's bad for the country.
Ben does a great job of outlining the problem and suggesting some solutions. Enjoy.
A rejuvenation of the IPO market for emerging growth companies is more important
now than ever before. With the massive buildup of venture capital and private
equity-funded companies, due to the illiquidity in the market and record levels
of fundraising, these firms have the largest number of portfolio companies in
history. Many of the funds have reached or are near their
end, yet most funds have not generated much, if any, liquidity or distributions
to their investors. The combination of many funds nearing their end, record
levels of portfolio inventories, and a better economic environment for liquidity
will cause M&A and potentially IPO activity to take off in 2010.
The Obama IPO Challenge
The once powerful U.S. IPO market for emerging growth companies has devolved
into a long-shot consideration for investors and entrepreneurs. The U.S.
averaged roughly 500 IPOs annually during the '90s but only 150 annually over
the last seven years. Approximately two-thirds of the U.S. IPO market has
vanished, and along with it have gone hundreds of thousands of jobs. Where
would America’s competitive position be were it not for the most effective and
vibrant IPO market in the world, which allowed access to public capital for
promising young companies, entrepreneurs, and eventual tech giants like Apple,
Cisco, Google, Intel, Microsoft, and Oracle?
Spurred on by the Internet and clean tech revolutions, there are thousands of
growth companies whose prospects could be greatly enhanced if the U.S. had a
vibrant, sub-$300 million market cap IPO market today. Highly knowledgeable
investors in the U.S. and across the globe — who collectively oversee trillions
of dollars — are interested in investing in companies of this size and growth
trajectory.
Today, four main impediments exist for a U.S.-based emerging growth IPO market:
The new administration can revive this once powerful economic vehicle.
Deregulation may be contrary to current sentiment — but it makes sense in this
case. Nurturing innovative growth companies on U.S. exchanges would provide a
significant spark to the domestic economy, huge employment opportunities, a
market stimulus, and dissuade young companies from selling to large,
multinational buyers too early. Furthermore, it would rejuvenate the US venture
capital industry, a critical enabler of emerging growth company formation. The
U.S. Government and the powerful private equity, hedge fund and venture equity
participants need to collectively rejuvenate the U.S. IPO market with the
following medicine:
By pursuing the steps outlined above, we can overcome these main obstacles and
bring back the U.S. IPO market. There will be strong interest by venture
investors and entrepreneurs, and a variety of growth investors, who would prefer
to have this market opened up than wait for Cisco or IBM to buy these companies,
or Goldman Sachs or Morgan Stanley to bring them public.
Best Regards,
M. Benjamin Howe
Chief Executive Officer
America's Growth Capital
now than ever before. With the massive buildup of venture capital and private
equity-funded companies, due to the illiquidity in the market and record levels
of fundraising, these firms have the largest number of portfolio companies in
history. Many of the funds have reached or are near their
end, yet most funds have not generated much, if any, liquidity or distributions
to their investors. The combination of many funds nearing their end, record
levels of portfolio inventories, and a better economic environment for liquidity
will cause M&A and potentially IPO activity to take off in 2010.
The Obama IPO Challenge
The once powerful U.S. IPO market for emerging growth companies has devolved
into a long-shot consideration for investors and entrepreneurs. The U.S.
averaged roughly 500 IPOs annually during the '90s but only 150 annually over
the last seven years. Approximately two-thirds of the U.S. IPO market has
vanished, and along with it have gone hundreds of thousands of jobs. Where
would America’s competitive position be were it not for the most effective and
vibrant IPO market in the world, which allowed access to public capital for
promising young companies, entrepreneurs, and eventual tech giants like Apple,
Cisco, Google, Intel, Microsoft, and Oracle?
Spurred on by the Internet and clean tech revolutions, there are thousands of
growth companies whose prospects could be greatly enhanced if the U.S. had a
vibrant, sub-$300 million market cap IPO market today. Highly knowledgeable
investors in the U.S. and across the globe — who collectively oversee trillions
of dollars — are interested in investing in companies of this size and growth
trajectory.
Today, four main impediments exist for a U.S.-based emerging growth IPO market:
- Wall Street investment banks have grown so large that they are neither well suited, nor economically motivated, to bring emerging growth companies public.
- The cost of regulation makes going and staying public prohibitively expensive.
- CEOs who once viewed their IPO as a badge of honor and an opportunityto access growth capital and raise their company’s visibility now see an IPO as a litigious, highly stressful, economically meager and illiquid proposition.
- Many of the institutional investors of the ‘80s and ’90s have gotten so large that sub-$300 million market cap IPOs are outside of their charter or area of interest.
The new administration can revive this once powerful economic vehicle.
Deregulation may be contrary to current sentiment — but it makes sense in this
case. Nurturing innovative growth companies on U.S. exchanges would provide a
significant spark to the domestic economy, huge employment opportunities, a
market stimulus, and dissuade young companies from selling to large,
multinational buyers too early. Furthermore, it would rejuvenate the US venture
capital industry, a critical enabler of emerging growth company formation. The
U.S. Government and the powerful private equity, hedge fund and venture equity
participants need to collectively rejuvenate the U.S. IPO market with the
following medicine:
- Providing a tax credit of $20 million for companies going public in 2009 and 2010. With a mere $5B, the government could turbo charge 250 of the fastest growing U.S. companies into the IPO market in 2009. The stimulus dollars would be put rapidly to work employing highly-skilled U.S. workers.
- Establishing regulations that are suited for the sub-$300 million revenue companies as opposed to Sarbanes-Oxley, which is suited for the multi-billion dollar giants like Enron.
- Modifying the SEC requirements for smaller companies to go public, such that the IPO candidate could file a simplified S-1 for a directed initial public offering and eventually complete a public follow-on offering with a much broader investor base.
- Promoting the return of the boutique investment banks. With the demise of many of Wall Street’s powerhouses, it will be imperative to modernize IPO regulation in order to enable boutique investment banks to once again bring small, emerging growth companies to market.
By pursuing the steps outlined above, we can overcome these main obstacles and
bring back the U.S. IPO market. There will be strong interest by venture
investors and entrepreneurs, and a variety of growth investors, who would prefer
to have this market opened up than wait for Cisco or IBM to buy these companies,
or Goldman Sachs or Morgan Stanley to bring them public.
Best Regards,
M. Benjamin Howe
Chief Executive Officer
America's Growth Capital
Comments