According to research from The Atlantic, there are half as many public companies listed on US stock exchanges today as there were in 1997.
In other words, despite a few widely publicized IPOs, most companies rely on private investment to grow — creating a system where VCs can profit from the startup economy, but average investors cannot.
The first reason companies choose not to IPO is simple: It ain’t cheap. IPOs cost an average of $4.2m in fees (plus 5% of fundraising proceeds) — and a recurring $1.5m in annual fees after that.
But, more importantly, there are other readily available ways to raise money: Private investment assets rose from $1T in 2000 to more than $5T last year.
So, when a hot new scooter startup needs a quick $300m, all it needs to do is ask a VC like Sequoia.
Fledgling companies used to set their sights on IPOs. Today, 90% of VC-backed companies seek acquisition.
Institutional investors can privately invest in startups and make huge profits when they’re acquired, but normal investors are often barred from private markets.
When startups do make it to an IPO, they’ve often been squeezed dry of profits by VC firms, leaving small returns for normal investors.
There may not be as many public companies, but now they’re huge: Today’s public companies add up to about the same percentage of US GDP as they did 20 years ago even though there are 1/2 as many.
But since public companies now need to be huge, a startup’s lucrative days of massive growth are often long gone by the time it IPOs.
Airbnb’s user growth slowed from 44.4% in 2016 to 13.2% today and is expected to drop to 7.2% by 2019, when it plans to IPO.