The U.S. economy is the most powerful and formidable in the world—and lots can be done to improve it. While economists focus on inflation and interest rates and politicians consider options through the lens of an election year, there’s a worrying trend that needs reversing if we are to maintain U.S. dominance and continue enjoying the benefits of our economy: There are fewer public companies in the U.S. than ever before.
JPMorgan CEO Jamie Dimon raised this issue in his annual letter a couple of weeks ago. In the mid-1990s, there were nearly 8,000 public companies listed in the U.S. Today, there are half as many, and at the current rate, we’ll see that number halved again by 2044. “The total should have grown dramatically, not shrunk,” Dimon wrote.
This reduction has been staggering in speed and scale, and it must be addressed, so entrepreneurship and innovation can flourish. Exit opportunities are critical to the promise of American innovation, and neglecting them will be to our collective detriment. It’s not only changing private markets but it’s also bad for our economy at large. It’s high time we reopen our public markets and incentivize the sort of innovation on which our economy depends.
Addressing the decline
Several factors have precipitated this decline: mergers and acquisitions among public companies, increased regulatory hurdles and compliance costs, and the availability of more capital to allow companies to stay private for longer and avoid the pressure to deliver short-term results that comes with being public. The market is just not producing new listings quickly enough to keep pace—and it needs to make a stronger case for why companies should choose to go public instead of continuing along alternative paths.
The 2022 IPO market represented a 32-year low, and 2023 wasn’t any better (despite recent high-profile IPOs such as Ibotta, Reddit, and Astera Labs). But exit opportunities must exist. Young companies must build with the knowledge that public markets are open and promise lucrative returns. If that hope dims, the best and the brightest will turn their attention away from innovation. It’s worth noting that the EU is experiencing similar declines, while Asian exchanges are growing.
We need tools to help companies go public in the $1-to-5 billion range, which used to be common and is now all but impossible. Without proper measures, America’s reputation as the best region to do business and change the world through technology will be at risk.
Several proposals have emerged to offer solutions to this decline. The SEC is currently contemplating a change that would force companies with a certain number of investors to publicly list their securities, even if the companies wouldn’t benefit from doing so. SPACs were also heralded as a potential solution (an IPO-lite process designed for small companies), and the market initially met them with excitement, but in recent years, they’ve been overburdened with regulations that all but obviate their intended purpose.
Preserving the democratic component of the U.S. economy
There’s a fundamentally American value present in our public markets: they’re available to everyone. With public markets, we can all have a stake in our shared economy—and we all benefit when more people and entities can access the wealth-creation opportunities public markets provide. By neglecting our public markets, we are denying an essential democratic component of our economic structure. (We recognize that many Americans lack the auxiliary income required to begin investing, and we’d like that to change as well.)
So let’s act swiftly. We can reprioritize business in this country, starting with loosening some of the regulatory hurdles (many of which were introduced in the 2002 Sarbanes–Oxley Act) that make going public all but impossible.
We can build upon the 2012 JOBS Act to let companies test the waters more easily and at more modest valuations with room to grow. We can introduce scaled compliance requirements for smaller companies so they don’t have to do excessive reporting immediately, and instead work up to full disclosure, and we can reduce compliance costs writ large. We can offer tax incentives or other financial benefits to make going public a more appealing option for companies that could otherwise stay private. We can shorten lock-up periods for early investors post-IPO—these windows haven’t kept up with information acceleration and are too long to normalize pricing effectively. We can educate institutional and retail investors on the benefits of long-term thinking in the public markets, encouraging a culture of patient capital and generational value creation. Increasing financial literacy will help to improve investor confidence. These measures, enacted in collaboration across policymakers, regulators, investors, and the business community, will help enormously.
But most of all, private investors must do a better job of explaining to the market and the general public that business innovation is the greatest equalizer we have. Without taking the right measures to allow companies to grow and prosper in the public markets, America could lose that edge.
Eric Hippeau is Managing Partner at Lerer Hippeau.
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