“The business of capital formation has been changing dramatically right before our eyes. For years when companies were formed, founders had dreams of going public and growing world-changing organizations. That dream has all but disappeared as rules, over-reactive regulations…

…and entrepreneurs’ impression of those rules have cut the number of public companies from more than 8,000 to about 3,700 and shrinking. The response to this decline has been for companies over the past 10 or so years to raise more and more money through private offerings.”, The Wall Street Journal Notable & Quotable: Mark Cuban, January 22, 2016

Opinion
Notable & Quotable

Notable & Quotable: Mark Cuban

‘Rules, over-reactive regulations and entrepreneurs’ impression of those rules have cut the number of public companies from more than 8,000 to about 3,700.’

unnamed (4)

Mark Cuban at The Wall Street Journal Digital Live conference in Laguna Beach, Calif., Oct. 20. PHOTO: REUTERS

From entrepreneur Mark Cuban’s essay for the inaugural issue of the Catalyst, a journal of ideas from the George W. Bush Institute published this month:

The business of capital formation has been changing dramatically right before our eyes. For years when companies were formed, founders had dreams of going public and growing world-changing organizations. That dream has all but disappeared as rules, over-reactive regulations and entrepreneurs’ impression of those rules have cut the number of public companies from more than 8,000 to about 3,700 and shrinking.

The response to this decline has been for companies over the past 10 or so years to raise more and more money through private offerings. This has led to tens of billions, if not hundreds of billions, of dollars tied up in private companies with no liquidity or exit opportunities. This is obviously not good for investors in those companies.

It is even worse for our country as those companies that might have gone public in the past now find themselves having to sell to industry leaders at valuations lower than the public markets would have offered them, or in many cases unable to raise capital and going out of business. Both reduce competition, employment and innovation.

I bring this up because it’s where I see an opportunity for a remix.

The time is ripe to reinvent the IPO market for small companies. There never was a real rational reason for companies to not pursue an IPO. What happened instead was that investment banks felt like they couldn’t make enough money doing smaller IPOs. So they got out of that business. Nobody stepped into pick up the slack.

Where there is change there is opportunity.

I am working with several banks to try to create a market for small IPOs. The time is right for the hundreds of quickly growing, profitable companies in this country to be able to raise $20 million to $50 million in capital in the public markets.

That will give those companies capital to grow when they need it most. It will give investors the ability to have liquidity in their investments rather than having it tied up for years and years. It will give fast-growing companies the ability to access secondary financing markets faster and less expensively than private capital. All of which will help our economy.

Posted on January 25, 2016, in Postings. Bookmark the permalink. Leave a comment.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: