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.
Pointer from Tyler Cowen.
When you need a lot of physical capital to expand (think of a steel company 100 years ago), you have to offer a high return to public investors. When you can expand by adding more web servers, you might as well keep the company private. Going public does not mean raising funds for expansion. Instead, it just means converting some of your future profits into present cash, courtesy of public investors.
My point is that for information-intensive companies, the balance of power has shifted away from public investors, including large mutual funds, and toward private investors. It may have less to do with Sarbanes-Oxley or other factors that Andreessen cites. The service sector, which is growing as a share of the economy, may be inherently less dependent on outside capital than the goods-producing sector.
By the way, I always thought that Microsoft went public as a political defense strategy. In the absence of political threats, their optimal approach would have been to remain private. But having lots of shareholders gave more people a stake in their success, which helped to reduce the incentive for government predation against them.
Andreessen points out that the stock market has been flat for 15 years. But that takes as your starting point the late stage of the Internet Bubble.
The Internet companies told investors that they were raising money in order to survive without profits while they built up market share. The theory was that network effects and path-dependency were so powerful that once you established your brand you could basically generate profits at will.
We now know that a money-losing online pet store is just a money-losing online pet store, not a future exploiter of network effects and path dependency. To exploit network effects and path dependency, you have to be more like Facebook. But private investors had enough confidence in Facebook to take a large share of its value.
Furthermore, we are now in a world where mobile phones are the leading-edge platform. Who needs to raise hundreds of millions of dollars to create an app?
It seems highly unlikely that MS went public as a political defense, since their IPO was in 1986 and as of 1998 went their antitrust case started they had basically no political presence whatsoever. No lobbyists, no donations to politicians or parties. In 1986 they would have had no reason to expect government predation.
I wouldn’t discount SarbOx as a disincentive either. The compliance costs are ENORMOUS, and why bother if you can take another round of VC instead?
There is a significant sense in which IPOs are not at all about raising money to grow the business, but rather about the founders and early employees collecting their winnings.