Over the past 40 years the investing landscape has vastly changed; for businesses and investors. At the heart of this change is the shift towards companies staying private for longer. This trend marks a departure from the traditional trajectory where successful startups would eventually go public, offering shares to investors through initial public offerings (IPOs). Instead, many companies are opting to remain private for extended durations, sometimes indefinitely. This phenomenon is not just a reflection of changing business strategies but also mirrors broader economic shifts impacting business size, capital markets, regulation, and risk management.
These statistics starkly illustrate the outcomes of this shift:
- In 1980, the median age of a company at its IPO was 6 years, whereas in 2021, the median age was 11.
- In 1980, the median market value of a company at its IPO (adjusted for inflation) was $105 million. In 2021, the median market value was $1.33 billion.
- From 1980 to 2000, there were more than 6,500 IPOs. From 2001 to 2022, there have been fewer than 3,000.
The Evolution of the Private Economy
Historically, the IPO was seen as a crucial milestone for emerging businesses. Going public provided access to vast pools of capital, facilitated growth, and offered liquidity for early investors and employees. However, in recent years, the IPO route has become less attractive for certain companies due to several key factors:
1. Access to Private Capital
One of the primary reasons companies are staying private longer is the availability of substantial private capital. Venture capital (VC) firms, private equity (PE) funds, and sovereign wealth funds are increasingly willing to invest large sums in private companies. This influx of private funding allows businesses to scale without the immediate pressures and scrutiny that come with being publicly traded.
2. Regulatory Environment
The regulatory environment surrounding public companies has become more stringent over time. Compliance with regulations and increased scrutiny from regulators have made the IPO process more complex and costly. By staying private, companies can avoid these regulatory burdens, focusing instead on growth and operational efficiency.
3. Risk Management
Remaining private allows companies to maintain greater control over their strategic direction and operational decisions. It also shields them from the short-term pressures of quarterly earnings expectations and stock price volatility, which can sometimes hinder long-term planning and innovation.
4. Changing Investor Preferences
Investors themselves have shifted their preferences towards investing in private markets. The allure of potentially higher returns, greater flexibility in investment structures, and the ability to participate in cutting-edge technologies and disruptive business models have drawn significant capital away from public markets.
This is where Syndex comes in….
Syndex has always aimed to enhance the investibility of the private markets.
For investment managers, we offer an unparalleled investment management solution designed to support business professionalisation and scalability. Our integrated platform consolidates capital raising, share registry management, and investor communications into a unified system.
Private companies are often at the forefront of innovation, driving technological advancements and creating new jobs. By remaining private, these companies can focus on long-term innovation strategies without the pressures of short-term profitability. The Syndex model supports this dynamic and seeks to ease the operational burden for managers and offer investors access to investments formally the privilege of institutional investors.
