“The average timeframe for companies to go public has extended from 3–4 years to over 12 years,” [driven by regulatory changes, and equity structuring innovations like double-trigger RSUs, and abundant growth capital]. “If SpaceX does a tender and they're 10x oversubscribed, that is billions and billions of dollars of demand," [reflecting the growing secondary market for private companies as they scale without ann IPO].
—Christian Garret, Partner at 137 Ventures
Over the past two decades, there has been a dramatic decline in the number of companies going public, which has reshaped the entire investment landscape.
In 1996, the U.S. had over 8,000 publicly listed companies, but recent years have seen this number drop to approximately 3,700.
Companies are increasingly opting to remain private, fundamentally altering how average investors can participate in high-growth opportunities.
Why Companies Are Staying Private Longer
"The empire, long divided, must unite; long united, must divide. Thus has it ever been”
Regulatory costs and complexities associated with going public are substantial.
Public companies must comply with Securities and Exchange Commission (SEC) reporting requirements, leading to high expenses, increased scrutiny, and reduced operational flexibility.
Of course, the counter-factual to this is that public companies are held to a higher standard of disclosure and reporting, so it can provide a scaffolding for a scaling company to operationalize their best practices.
So if its not just onerous regulations, what gives?
The new status symbol of Silicon Valley is small, mighty teams. “Wow, you did that with how many people?” As the head count shrinks, so will the need or desire to go public, especially with the availability of private capital, which has surged dramatically over the past decade.
Global venture capital funding increased from about $50 billion in 2012 to more than $600 billion by 2021, reducing the need for companies to rely on public markets.
Christian Garrett, Partner at 137 Ventures, highlighted these dynamics during his appearance on the podcast with
.Regulatory adjustments such as the JOBS Act, innovations like double-trigger RSUs, and abundant private capital have significantly extended the average timeframe for companies to go public, from 3–4 years historically, to over 12 years today.
The Emergence and Growth of VC Secondary Markets
As fewer companies choose public markets for liquidity, venture capital secondary markets have risen to fill the gap.
Secondary markets involve transactions of existing private shares, rather than the issuance of new shares typically seen in primary investments.
This market segment provides liquidity to early investors and employees seeking to monetize their shares without a traditional IPO.
In plain English, this means that an equity holder (read startup employee), can sell some of their equity in a tender offer (read company sanctioned sell off period), to accredited investors or institutions.
In 2024 alone, the VC secondary market exceeded $100 billion in transactions.
We can already track the impact this has had on the private market.
Companies have extended their private status’, with the median age of late-stage startups now reaching nearly 10 years. This extended private duration leads to increased secondary market activity as investors or employees seek liquidity.
There has also been a surge in tender offers by high-value startups.
These buybacks, frequently in the billions of dollars, allow early investors and employees an opportunity to liquidate their holdings, before an IPO, and before they get diluted off the cap table. (Poor Chamath).
Limited Accessibility
Despite their growth and attractiveness to institutional investors, secondary markets remain largely inaccessible to average retail investors.
Participation in secondary transactions typically require significant capital and involve facilitation through specialized, private platforms like Palico, Nasdaq Private Market, TerraNova Capital, Moonfare, and Hiive.
This exclusivity restricts retail investors, preventing them from accessing potentially lucrative investments in innovative private companies.
Consequently, retail investors face reduced opportunities to diversify their investment portfolios, particularly retirement accounts, where high alpha is preferred early in one’s career.
Access to the public markets limit investment options, although power law outcomes are still possible there as well.
Broader Market Implications of the Shift
Private companies do not face the rigorous disclosure requirements public firms must adhere to, potentially reducing transparency. Decreased transparency can limit accountability, possibly impacting corporate governance and investor confidence.
It can also make a scaling company less competitive, as the company begins to enjoy the benefits of increased distribution, but the downsides of less agility and more bloat.
Going public can act as a forcing function to get your house in order and run a lean company that is under constant scrutiny.
Economically, public markets typically allow widespread participation, enabling wealth generation across various socioeconomic groups. As fewer companies go public, fewer individuals and households can benefit from the profits and growth of successful firms.
The S&P 500, for example, is a market-cap-weighted index of the top 500 leading U.S.-based companies that anyone can invest in. But if the top 10 most profitable companies are private, retail investors won’t be able to repeat the same rewards as institutional investors.
Institutional investors would enjoy exclusive access to high alpha private company investments, while retail investors would remain restricted to traditional public market options. Such a bifurcation could result in a significant imbalance, influencing civil unrest and a tale of two Americas.
But it’s possible for you to invest in a private company, even without being an accredited investor. Want to know how?
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