Everyone from hedge funds to mutual fund managers to retail investors has been wading deeper into the private markets, buying shares of startups that have yet to go public. So perhaps it should come as no surprise that former New York Stock Exchange CEO Duncan Niederauer has found greener pastures in the world of venture capital fundraising and private stock offerings.
Niederauer announced today that he will become the fourth managing director of Battery East, a Silicon Valley deal-making startup that officially launched last month. Formed by veterans of BlackRock and two venture capital firms, Battery East already has helped broker more than $300 million in transactions. That total includes both secondary sales of private stock and primary fundraising rounds for startups like ad-tech platform Turn and stock trading platform IEX.
“This was one of the things I wanted to do, given the opportunities in the private companies that we’ve all been thinking about,” says Niederauer, who spent his last days at the NYSE “pitching in” on Alibaba’s (BABA) record-breaking IPO. “My future is going to be looking for opportunities in the private market as well.”
While in the 1990s it was common for companies to go public at valuations of just a few hundred-million dollars, today’s tech startups are choosing to ripen longer in private, before going public at multi-billion dollar valuations that would make even Amazon (AMZN) and Microsoft’s (MSFT) IPOs look tiny. Thanks to regulations that made it harder for companies to go public (the Sarbanes-Oxley Act of 2002) and easier to stay private (the Jumpstart Our Business Startups, or JOBS, Act of 2012), American stock exchanges have been seeing potential clients resist their overtures.
Although U.S. IPOs have rebounded fiercely since the recession, with about 227 in the first three quarters of this year, according to data from Ernst and Young and NASDAQ, that is still far from the 429 IPOs that U.S. exchanges totaled in 2000—the year the dotcom bubble burst.
And rather than lose business while waiting twice as long for companies to go public, the major stock exchanges themselves have begun dabbling in the private market. For example, Nasdaq earlier this year opened the Nasdaq Private Market, where companies that are not yet ready to go public allow vested employees to sell portions of their equity.
At the NYSE, Niederauer says he increasingly dealt with private companies on various initiatives and worked on the JOBS Act regulations to make the IPO process friendlier to entrepreneurs—an effort he wrote about for Fortune.com in 2012. But he also encountered companies that were dead set against going public, causing angst for their employees and early shareholders, as well as would-be investors. “That confluence of variables has never been in play before, and that’s why we think there’s an opportunity,” he says. “I tried to do this at the exchange and I don’t think this is really that different.”
Indeed, as firms like Battery East work to increase liquidity in private investments, it may become less important—to investors, and to employees—whether a company is public or private at all.