The IPO is dying - Marc Andreessen

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bogle2013
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The IPO is dying - Marc Andreessen

Post by bogle2013 »

http://www.vox.com/2014/6/26/5837638/th ... plains-why
The result of all that is the effective death of the IPO. The number of public companies in the US has dropped dramatically. And then correspondingly, growth companies go public much later. Microsoft went out at under $1 billion, Facebook went out at $80 billion. Gains from the growth accrue to the private investor, not the public investor.

Most American retirement savings is invested in the public stock market. Most Americans can't invest in private companies and most Americans can't invest in venture capital and private equity funds. They're actually prohibited from doing so by the SEC. If you both prohibit them from investing in private growth and wire the market so they can't get into public growth, then you can't be invested in growth. That raises the societal question of how are we going to pay for retirements. That's the question that needs to be asked that nobody asks because it's too scary.
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Ketawa
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Re: The IPO is dying - Marc Andreessen

Post by Ketawa »

IPOs are notorious for having terrible returns, so it doesn't bother me much to miss out on investing in them.
steve_14
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Re: The IPO is dying - Marc Andreessen

Post by steve_14 »

I remember the wild west IPO '90s. I think the additional controls, responsibilities, and transparency of Sarbanes Oxley far, far outweigh the cost.
garlandwhizzer
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Re: The IPO is dying - Marc Andreessen

Post by garlandwhizzer »

About what you'd expect the head of a venture capital fund to say: make it easier for unsophisticated investors to buy my products.

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prudent
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Re: The IPO is dying - Marc Andreessen

Post by prudent »

Well, as a venture capitalist, Marc is a part owner of those "private" businesses. Although he said he does not need to, he could push them to go public sooner, couldn't he? If he wants the public to be able to invest in these firms sooner in their growth cycle, then what's stopping him from pushing for it?
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dmcmahon
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Re: The IPO is dying - Marc Andreessen

Post by dmcmahon »

Well there are regulatory hassles that many such companies view as an unnecessary headache and expense when they're small.
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Re: The IPO is dying - Marc Andreessen

Post by KyleAAA »

prudent wrote:Well, as a venture capitalist, Marc is a part owner of those "private" businesses. Although he said he does not need to, he could push them to go public sooner, couldn't he? If he wants the public to be able to invest in these firms sooner in their growth cycle, then what's stopping him from pushing for it?
That's hardly a systemic solution. Besides, he probably has a fiduciary duty to do what's best for his investors despite his personal beliefs.
harikaried
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Re: The IPO is dying - Marc Andreessen

Post by harikaried »

It seems that part of the concern is that there are fewer new public companies than before, and these would-have-been-public companies would fall into Growth, so people investing broadly or focused on Growth would be missing out.

But Marc also pointed out how public companies like Google are buying these private companies, so are people not missing out on much if they're already diversified?
DVMResident
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Re: The IPO is dying - Marc Andreessen

Post by DVMResident »

Seems like a trend that large mega-corps are buying up smaller companies.

In Biotech, this is especially true. VC have fled the sector and big pharma has taken up the reigns, even hiring former Biotech VCs to lead capital investment projects. I don't know if this is a permanent shift or big-business trying to find a place for their giant cash reverses besides under the mattress. As large caps buy up small companies that might have gone the IPO route, the mega-corp now owns the small growth company.

Random thought: by owning large cap who buy small growth companies, the average investor (unintentionally) gains access to IPO stocks. For example, buying Apple would give you exposure to Beats (assuming the deal goes through). Thoughts?
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Re: The IPO is dying - Marc Andreessen

Post by bnes »

Ketawa wrote:IPOs are notorious for having terrible returns, so it doesn't bother me much to miss out on investing in them.
IPO's have terrible returns, in part because someone already took the gains. That was Mark's point.
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Ketawa
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Re: The IPO is dying - Marc Andreessen

Post by Ketawa »

bnes wrote:
Ketawa wrote:IPOs are notorious for having terrible returns, so it doesn't bother me much to miss out on investing in them.
IPO's have terrible returns, in part because someone already took the gains. That was Mark's point.
Are you claiming that IPOs were good investments before 2000? His point was that something changed then, not that there has always been a problem with the IPO system. As far as I know, IPOs have always had terrible returns.
There's been an absolutely dramatic change. What you say is exactly right. Twenty years ago, IPOs had gotten democratized. You had Microsoft able to go public at less than $1 billion valuation. If you invested in Microsoft's IPO and held you had the prospect in the public market of a 1,000-times gain. There were a whole bunch of other comparable situations over the years. With Oracle, most of the gain was in the public market. In prior eras, the same was true of IBM and Hewlett Packard. These companies primarily grew up in the public market.

You also had a relatively benign regulatory environment, pre-Sarbanes-Oxley [corporate governance legislation enacted in the wake of the Enron scandal] and before all the other kind of corporate reforms that had taken place. In that environment it was actually quite hospitable [to be a public company].

Basically that all started to change after 2000. A whole set of "closing the barn door after the horse had run out" kind of things happened. Sarbanes-Oxley happened. The irony of Sarbanes-Oxley was that it was intended to prevent more Enrons and Worldcoms but it ended up being a gigantic tax on small companies.
freddie
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Re: The IPO is dying - Marc Andreessen

Post by freddie »

Marcs point is that it doesn't make sense for small companies to go public. For small caps, the overhead of compliance is too high and that cost is largely fixed (i.e. doesn't matter if your market cap is 1 billion or 10 billion). It is easy to say great you avoid pets.com. But you also miss out on the apples, googles, dells, Microsoft, aols and the rest of the companies that do make it. Of course this may have also been one of the reasons that small cap growth was a black hole of investing :)

prudent wrote:Well, as a venture capitalist, Marc is a part owner of those "private" businesses. Although he said he does not need to, he could push them to go public sooner, couldn't he? If he wants the public to be able to invest in these firms sooner in their growth cycle, then what's stopping him from pushing for it?
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telemark
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Re: The IPO is dying - Marc Andreessen

Post by telemark »

And AOL bought Netscape. Is AOL still around? Not sure I'd count that as a missed opportunity.
freddie
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Re: The IPO is dying - Marc Andreessen

Post by freddie »

Really? You think turn 11 bucks into about ~5000 isn't a missed opportunity? A small cap fund would have bought in early and sold 4 years later after the stock was up 20x. Figuring out what the stock would be worth today is hard but I would be willing to bet that you would have a lot more cash than you would of gotten by investing in lets say a S&P 500 fund. Granted for every AOL there were a dozen of Pets.com.

The IPO market has gone away but now there are things like second market where you can buy these companies that used to go public if your an accredited investor. I have no clue if that is a net win for society as a whole.

telemark wrote:And AOL bought Netscape. Is AOL still around? Not sure I'd count that as a missed opportunity.
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bogle2013
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Re: The IPO is dying - Marc Andreessen

Post by bogle2013 »

One of the major benefits of indexing is diversification, so I can't imagine having more successful companies staying private is a net positive.
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StoppedOut
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Re: The IPO is dying - Marc Andreessen

Post by StoppedOut »

This may be true, but crowd sourced funding is the new IPO - once the SEC formalizes the rules for this new type of investing and people become comfortable with it. You can already invest in commercial real estate with companies like Fundrise. It's regulated and only accepts investment from citizens of states where they are regulated.

For those not familiar, crowd funded investments were authorized by the JOBS act.

Obviously, since this will largely be early-stage financing, it will be high-risk, high-reward and vice-versa. But at least the legal and financial barriers will be lower such that many more people outside of the 1% will be able to participate directly in some of the best growth opportunities.
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Re: The IPO is dying - Marc Andreessen

Post by 3CT_Paddler »

Andreessen is always trying to promote The Next Big Thing through tech publications as if he is an impartial observer... and its nearly always a product or idea that he has a financial interest in. I wouldn't mind it as much if he actually pointed out this conflict of interest, or stopped talking about his time at Netscape 20 years ago.

Edit:
There have been studies on private equity returns, and I think the numbers are actually better for publicly traded small cap stocks. This looks like much ado about nothing.
The loop we're in now is that people are getting upset and disappointed by the stock market. There are no growth stocks, which means there's no growth. Stock market returns have been weak for 15 years, which is exactly what you'd expect if you took all the growth out. Everyone is upset the stock market isn't performing. The worse the results get, the more regulation you get. It's in its own kind of doom loop. Unless something happens to shock the system a lot, our assumption is it gets worse, not better.
Hmmm... if you have been disappointed by the growth of the stock market over the last five years, you have not been paying attention...
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