Speaker 1: Bloomberg Audio Studios, podcasts, radio news. I'm Stephen Carroll, and
Speaker 1: this is Here's Why, where we take one new story
Speaker 1: and explain it in just a few minutes with our
Speaker 1: experts here at Bloomberg. The legendary investor Warren Buffett once wrote,
Speaker 1: if you aren't willing to own a stock for ten years,
Speaker 1: don't even think about owning it for ten minutes. But
Speaker 1: what if you can't buy the stock in the first place.
Speaker 2: Some tech companies, maybe a lot of tech companies, go
Speaker 2: public a bit too early.
Speaker 1: Some of the world's most exciting companies are remaining in
Speaker 1: private hands. Take the example of payments giants Stripe, valued
Speaker 1: at about seventy billion dollars. The co founder and CEO
Speaker 1: John Collison says they're in no rush to go public.
Speaker 2: We still see tons of opportunity to change and grow
Speaker 2: the business quite a lot. You look at analysts following
Speaker 2: public companies and obsessing over guidance and what'll be this
Speaker 2: quarter and things like that. Culturally, we've ended up I
Speaker 2: think in a bit more of a world where public
Speaker 2: companies are suited for the extract stage of the sigmoid
Speaker 2: curve rather than the expand stage.
Speaker 1: And stripes not alone. SpaceX cemented its status as the
Speaker 1: world's most valuable private startup with a share sale that
Speaker 1: valued it at about three hundred and fifty billion dollars,
Speaker 1: and at open Aiy's last fundraising round, it was valued
Speaker 1: at one hundred and fifty seven billion. So here's why
Speaker 1: companies are staying private for longer. Joining me now to
Speaker 1: discuss is the person at Bloomberg who specializes in covering
Speaker 1: how companies go public, Bailey Lipschaltz. Billy, thanks for joining us.
Speaker 1: Does this mean you're out of a job? How widespread
Speaker 1: is this trend of companies staying private?
Speaker 3: So far, not out of a job, but it definitely
Speaker 3: makes you want to find some other areas to write about.
Speaker 3: But it is a widespread trend that has been really
Speaker 3: taking place over the last two two and a half decades.
Speaker 3: When you look at the US alone, the number of
Speaker 3: publicly traded companies has been cut in half from about
Speaker 3: seventy five hundred to four thousand. So this is something
Speaker 3: that has been a real ce shift that has been
Speaker 3: taking place. Again really when you go back to the
Speaker 3: mid two thousands, with companies preferring to stay private after
Speaker 3: the fallout of the dot com.
Speaker 1: Bubble, So why are they making this decision? Why are
Speaker 1: they chasing to stay privus.
Speaker 3: Easier access to capital. We've seen such a big push
Speaker 3: from some of the biggest investors to wanting to get
Speaker 3: a piece of some of these companies earlier. You also
Speaker 3: don't have to deal with activist investors, deal with journalists
Speaker 3: kind of digging through filings and financial updates. And also
Speaker 3: it costs a lot of money to be public. So
Speaker 3: if you can be data Bricks who just raised ten
Speaker 3: billion dollars at a sixty two billion dollar valuation. You
Speaker 3: mentioned SpaceX, Open AI to a number of other companies,
Speaker 3: they really, when you talk to management, an IPO could
Speaker 3: be the path at some point, but they prefer to
Speaker 3: stay private just because they can continue to give investors,
Speaker 3: early investors, employees access to liquidity, ability to sell some
Speaker 3: of their shares, to actually turn paper profits into real cash,
Speaker 3: and they're not dealing with the headache that come with
Speaker 3: being a public company.
Speaker 1: But it seems like in a lot of cases these
Speaker 1: companies are sort of keeping the option open that they
Speaker 1: could go public at some point down the line. Do
Speaker 1: we have any idea of how much money is tied
Speaker 1: up in these private companies that could, in theory list
Speaker 1: if they wanted to.
Speaker 3: So we've seen data with private equity owned companies alone,
Speaker 3: there's about two point nine trillion dollars worth of value
Speaker 3: that needs to be either sold through a sale or
Speaker 3: brought public through an IPO, and you have a number
Speaker 3: that's pretty similar on the venture capitalist side of things.
Speaker 3: So this is trillions of dollars in terms of companies
Speaker 3: that are tied up in these private investments. It's just
Speaker 3: a question of when they would go public, what that
Speaker 3: would look like, and whether valuations make sense for venture capitalists,
Speaker 3: private equity firms, or if they want that branding event
Speaker 3: where they're ringing the bell at the Stock Exchange here
Speaker 3: in New York and have the ability to point to
Speaker 3: a ticker that trades on the New York Stock Exchange
Speaker 3: or on the Nasdaq.
Speaker 1: And we mentioned valuations there. How reliably can we value
Speaker 1: a company that stays privates.
Speaker 3: It's a hotly contested debate because when you look at
Speaker 3: companies like open Ai being valued to one hundred and
Speaker 3: fifty seven billion dollars, that means they found enough investors
Speaker 3: who thought that that was worth writing a check for.
Speaker 3: If you're publicly traded, you're getting kind of marked to
Speaker 3: market every second that a market is open for trading,
Speaker 3: So it's a bit opaque. It's a bit of a
Speaker 3: black box in terms of how some of these valuations
Speaker 3: end up. But presumably the investors, the thrive capitals of
Speaker 3: the world, the venture capitalists of these private equity firms
Speaker 3: who take these companies private, they have an expectation and
Speaker 3: kind of a specialization that those numbers do make sense.
Speaker 3: But the big debate we've been seeing and why we've
Speaker 3: seen such a dearth of offerings and really the last
Speaker 3: three years partly has been companies were either taken private
Speaker 3: by private equity or have remained private in venture capital,
Speaker 3: and they don't like what they would get if they
Speaker 3: were to go public and sell shares to public investors
Speaker 3: and have to deal with being kind of re rated
Speaker 3: on an ongoing quarterly basis.
Speaker 1: Are there regulatory concerns involved here as well? If we
Speaker 1: have companies that are this valuable, talking about some that
Speaker 1: are hun ndreds of billions of dollars that aren't subject
Speaker 1: to the same oversize that publicly listed firms are.
Speaker 3: I don't think so. The expectation it depends kind of
Speaker 3: who your stakeholders are. Securities regulations are there to protect
Speaker 3: unsophisticated investors, So you have to be an incredited investor,
Speaker 3: you have to actually have access to buying a SpaceX,
Speaker 3: and you have to kind of have the ability to
Speaker 3: get in the door with an open AI to actually
Speaker 3: write a check. So there are some regulatory walls put
Speaker 3: up in terms of investing in some of these companies.
Speaker 3: And just broadly speaking, as it relates to reporting, if
Speaker 3: you're publicly listed, you obviously have to have earnings every
Speaker 3: quarter and have to be kind of in the books
Speaker 3: and have lawyers and consultants and other people on the payroll.
Speaker 3: If you're private, you can kind of operate at least
Speaker 3: to some extent how you would like.
Speaker 1: Broadly speaking, is it a problem if these companies don't
Speaker 1: ever go public? You know, we think about some of
Speaker 1: the really high profile ones like SpaceX or open AI.
Speaker 3: It depends who you talk to if you are a company,
Speaker 3: or if I talk to lawyers and investors. As long
Speaker 3: as the earlier stage investors or employees have the ability
Speaker 3: to take advantage of the equity they've built up in
Speaker 3: the company, then there's really no reason to go public.
Speaker 3: When I talk to advisors, the question when they're talking
Speaker 3: to management teams are why do you want to go
Speaker 3: to public? What do you gain from being publicly listed?
Speaker 3: The downside, though, is if you don't have a strong
Speaker 3: public markets, you don't have that transparency that you mentioned,
Speaker 3: you don't have the ability to kind of hold some
Speaker 3: companies accountable, and you also don't have the ability for
Speaker 3: people to actually buy some of these companies. So by
Speaker 3: the time open AI or to go public via IPO,
Speaker 3: by the time SpaceX could go public or Starling could
Speaker 3: go public, a lot of that valuation and kind of
Speaker 3: growth could be sapped out of the market. And now
Speaker 3: you're bringing a company that already is one of the
Speaker 3: biggest companies in the world straight to the public markets
Speaker 3: and investors at least in the public markets who don't
Speaker 3: have the ability to have access to it or can't
Speaker 3: afford to pay someone for those private investments. Is joining
Speaker 3: the party late?
Speaker 1: Is this becoming a question of prestige, Is it just
Speaker 1: a sort of badge of honor to be a public company,
Speaker 1: or is even that dwindling?
Speaker 3: It feels like that is dwindling depending who you talk to. Obviously,
Speaker 3: the exchanges want companies to continue listing. But if open
Speaker 3: ai can be valued one hundred and fifty seven billion dollars,
Speaker 3: if SpaceX can get its funding round, and employees, according
Speaker 3: to Elon Musk, don't want to sell shares. Everyone knows
Speaker 3: who some of these companies are. There is still a
Speaker 3: branding event with being publicly listed. There is some validity
Speaker 3: depending on the industry you operate in, where you can
Speaker 3: talk to customers and clients and say, hey, we're publicly listed.
Speaker 3: We trade on New York Stock Exchange. Here are our
Speaker 3: quarterly results. But for some of these name brand companies,
Speaker 3: some of the top kind of upper echelon firms, the
Speaker 3: question really is what would be the reason to go public?
Speaker 3: And if there's not a good business reason, then for
Speaker 3: all intensive purposes, staying private makes a lot of sense.
Speaker 1: Okay, Bloomberg's Billy Lipshellz thanks very much for joining us.
Speaker 1: For more explanations like this from our team of twenty
Speaker 1: nine hundred journalists and analysts around the world. Search for
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Speaker 1: Stephen Carol, this is here's why. I'll be back next
Speaker 1: week with more. Thanks for listening,