Earlier this month, Barry Silbert of SecondMarket spoke at the Stanford Technology Ventures Program on his new vision for capital markets.
A key 5 minute segment of that was about the “long, slow death of the IPO.” During that segment, Silbert asserted that "I don’t think a lot of people realize that over the last 10 years, the IPO market has been dying a slow death”.
(Actually, most of us who study entrepreneurship are at least dimly aware of this, as are entrepreneurs. A year ago I asked if we had seen the “end of the IPO anomaly.”)
Silbert provided specific evidence of this death. He showed a chart with the IPO rate down by 75% during this century, and almost complete disappearance of small IPOs (under $50m).
He attributes the end of the IPO to:
- end of research on small cap companies due to
- end of full-service brokerages (at the hands of Charles Schwab, eTrade etc.)
- shift from fractional to decimal pricing and thus the end of the bid/offer spread
- successful litigation against big 10 brokerages by then-NY AG Elliot Spitzer to end incentive compensation for stock researchers
- Sarbanes-Oxley increase in regulation and costs
- an explosion strike price class action litigation
Of course, as the CEO of a secondary financial market Silbert has a stake in all this. The IPO traditionally achieved four goals for young companies.
- raise capital
- provide liquidity to investors (an exit event)
- allow the stock to be used as a currency for acquisitions and employee compensation
- and as a branding event
The rest of the talk is, naturally, why the audience should believe in SecondMarket.
Hat tip: VentureBeat