Silicon Valley’s Long-Term Stock Exchange finally lists its first companies: Twilio and Asana
Eric Ries feels vindicated.
A decade ago, the serial tech entrepreneur dreamed up the Long-Term Stock Exchange (LTSE) at the back of his bestseller, The Lean Startup. Ries, whose book became an unofficial textbook for tech entrepreneurs, had envisioned an exchange built for the “next generation of great companies.” It would mandate that executive compensation be tied to a business’s long-term performance, crack down on speculative trading, and allow management teams to retain enough power to freely pursue long-term ideas—all in the name of alleviating the day-to-day pressures public companies had grown used to, Ries wrote.
When the San Francisco–based LTSE launched in 2020, the idea of a stock exchange focused on anything other than trading was met with little initial interest from Wall Street. As noble as the concept of LTSE was, corporate listings remain a two-player game between the New York Stock Exchange and Nasdaq. Board members would never entertain the notion of a company listing elsewhere in the U.S., as the risks were too high, skeptics alleged.
Or so they thought. In the first of what LTSE hopes will be many, the stocks of Asana and Twilio started dually listing on the bourse Thursday, marking a critical juncture for the fledgling exchange backed by some of Silicon Valley’s biggest investors. “The universe has finally made it happen,” Ries told Fortune. “The idea of an actually honest-to-God new model of governance that’s being adopted is a rare event.”
Backed by the likes of Andreessen Horowitz, Founders Fund, and other venture capital elites, LTSE opened as a national securities exchange a year ago come September. It may not be the exact venue Ries imagined a decade ago, but the idea has remained the same: a stock exchange built to create a market focused on the long-term future. To do that, LTSE requires its issuers to comply with the standards of the exchange, which include publicly detailing what stakeholders they consider to be critical, their impact on the environment, and how executive and board compensation plans align with the companies’ long-term vision. If the standards are not met, the companies could be delisted, LTSE warns in its rulebook.
For Ries, the accountability of an exchange listing standard around such environmental, social, and governance considerations is critical at a time when many have failed to live up to their promises. Take stakeholder capitalism, for example. Recent research from Harvard Law School has indicated that the Business Roundtable’s 2019 statement on rethinking the purpose of corporations was “mostly for show,” even though it dominated the news cycle and was championed by some of the most well-known corporate executives. “The pandemic has been a brutal and serious test” of who takes such commitments to heart, Ries said.
The exchange is only accepting dual listings at the moment, meaning both Asana and Twilio will retain their spots at NYSE in addition to joining LTSE. Dual listings are most well known in the cases of foreign companies like Shopify or Sony that are listed in their home markets as well as in the U.S. Ries described the decision as a key part of building the market’s confidence in LTSE, with its next stage focused on dual listings for IPOs. Once LTSE has demonstrated its ability to successfully list those companies, then it will finally move to pursuing primary listings.
How long that will take is unclear. It has already been a long road just to get to where it is today. Corporate listing is a hard enough business for stock exchanges like NYSE and Nasdaq, which spend years developing relationships with startups in hopes of eventually being able to list their stocks. When they do lock down those commitments, NYSE and Nasdaq both have robust trading markets beneath them that corporate boards have historically felt comfortable about listing their stocks on. (Stocks in the U.S. can trade on any national securities exchange, dark pool, or other venue, no matter where they are listed.)
Trading on LTSE, on the other hand, has been minuscule up to now. On Wednesday, for example, about 3,500 shares were traded at LTSE. Nasdaq’s largest exchange, meanwhile, handled more than a billion trades.
“Any brand-new, unproven exchange that wants to make a living off of listings is going to starve,” Georgetown University finance professor Jim Angel told Fortune.
LTSE ultimately views itself more as a software company, though. Its LTSE Equity business, for example, offers companies help with hiring planning and cap table management. The company says its software is used by one in five venture-backed companies, ranging from their seed to Series C rounds. But Ries has a grander goal in mind.
Short-termism may not be a new issue in corporate America. For years, some of the biggest names in finance have been raising concerns about how much business leaders are focused on quarterly profits and projections, often to the detriment of their companies’ long-term success. “Short-term–oriented capital markets have discouraged companies with a longer-term view from going public at all, depriving the economy of innovation and opportunity,” JPMorgan’s Jamie Dimon and Berkshire Hathaway’s Warren Buffett wrote in an op-ed published by the Wall Street Journal in 2018, on the same day of the Business Roundtable’s announcement.
But now, at a time when investors are undergoing an awakening about the long-term risks and opportunities that companies face from less traditional factors like climate change, Ries is betting that LTSE is a model built for today and the future, one that can help create a “more sustainable and inclusive economy” by bringing public companies that align with its own mission.
“This is an urgent moment,” Ries said. “Our society needs new institutions, new founders, [and] a new and more stable economy.”
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