Bloomberg Audio Studios, podcasts, radio news. I'm Stephen Carroll, and this is Here's Why, where we take one new story and explain it in just a few minutes with our experts here at Bloomberg. The legendary investor Warren Buffett once wrote, if you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes. But what if you can't buy the stock in the first place.
Some tech companies, maybe a lot of tech companies, go public a bit too early.
Some of the world's most exciting companies are remaining in private hands. Take the example of payments giants Stripe, valued at about seventy billion dollars. The co founder and CEO John Collison says they're in no rush to go public.
We still see tons of opportunity to change and grow the business quite a lot. You look at analysts following public companies and obsessing over guidance and what'll be this quarter and things like that. Culturally, we've ended up I think in a bit more of a world where public companies are suited for the extract stage of the sigmoid curve rather than the expand stage.
And stripes not alone. SpaceX cemented its status as the world's most valuable private startup with a share sale that valued it at about three hundred and fifty billion dollars, and at open Aiy's last fundraising round, it was valued at one hundred and fifty seven billion. So here's why companies are staying private for longer. Joining me now to discuss is the person at Bloomberg who specializes in covering how companies go public, Bailey Lipschaltz. Billy, thanks for joining us.
Does this mean you're out of a job? How widespread is this trend of companies staying private?
So far, not out of a job, but it definitely makes you want to find some other areas to write about. But it is a widespread trend that has been really taking place over the last two two and a half decades. When you look at the US alone, the number of publicly traded companies has been cut in half from about seventy five hundred to four thousand. So this is something that has been a real ce shift that has been
taking place. Again really when you go back to the mid two thousands, with companies preferring to stay private after the fallout of the dot com.
Bubble, So why are they making this decision? Why are they chasing to stay privus.
Easier access to capital. We've seen such a big push from some of the biggest investors to wanting to get a piece of some of these companies earlier. You also don't have to deal with activist investors, deal with journalists kind of digging through filings and financial updates. And also it costs a lot of money to be public. So if you can be data Bricks who just raised ten
billion dollars at a sixty two billion dollar valuation. You mentioned SpaceX, Open AI to a number of other companies, they really, when you talk to management, an IPO could be the path at some point, but they prefer to stay private just because they can continue to give investors, early investors, employees access to liquidity, ability to sell some of their shares, to actually turn paper profits into real cash, and they're not dealing with the headache that come with being a public company.
But it seems like in a lot of cases these companies are sort of keeping the option open that they could go public at some point down the line. Do we have any idea of how much money is tied up in these private companies that could, in theory list if they wanted to.
So we've seen data with private equity owned companies alone, there's about two point nine trillion dollars worth of value that needs to be either sold through a sale or brought public through an IPO, and you have a number that's pretty similar on the venture capitalist side of things. So this is trillions of dollars in terms of companies
that are tied up in these private investments. It's just a question of when they would go public, what that would look like, and whether valuations make sense for venture capitalists, private equity firms, or if they want that branding event where they're ringing the bell at the Stock Exchange here in New York and have the ability to point to a ticker that trades on the New York Stock Exchange or on the Nasdaq.
And we mentioned valuations there. How reliably can we value a company that stays privates.
It's a hotly contested debate because when you look at companies like open Ai being valued to one hundred and fifty seven billion dollars, that means they found enough investors who thought that that was worth writing a check for. If you're publicly traded, you're getting kind of marked to market every second that a market is open for trading, So it's a bit opaque. It's a bit of a black box in terms of how some of these valuations
end up. But presumably the investors, the thrive capitals of the world, the venture capitalists of these private equity firms who take these companies private, they have an expectation and kind of a specialization that those numbers do make sense.
But the big debate we've been seeing and why we've seen such a dearth of offerings and really the last three years partly has been companies were either taken private by private equity or have remained private in venture capital, and they don't like what they would get if they were to go public and sell shares to public investors and have to deal with being kind of re rated on an ongoing quarterly basis.
Are there regulatory concerns involved here as well? If we have companies that are this valuable, talking about some that are hun ndreds of billions of dollars that aren't subject to the same oversize that publicly listed firms are.
I don't think so. The expectation it depends kind of who your stakeholders are. Securities regulations are there to protect unsophisticated investors, So you have to be an incredited investor, you have to actually have access to buying a SpaceX, and you have to kind of have the ability to get in the door with an open AI to actually write a check. So there are some regulatory walls put up in terms of investing in some of these companies.
And just broadly speaking, as it relates to reporting, if you're publicly listed, you obviously have to have earnings every quarter and have to be kind of in the books and have lawyers and consultants and other people on the payroll. If you're private, you can kind of operate at least to some extent how you would like.
Broadly speaking, is it a problem if these companies don't ever go public? You know, we think about some of the really high profile ones like SpaceX or open AI.
It depends who you talk to if you are a company, or if I talk to lawyers and investors. As long as the earlier stage investors or employees have the ability to take advantage of the equity they've built up in the company, then there's really no reason to go public. When I talk to advisors, the question when they're talking to management teams are why do you want to go to public? What do you gain from being publicly listed?
The downside, though, is if you don't have a strong public markets, you don't have that transparency that you mentioned, you don't have the ability to kind of hold some companies accountable, and you also don't have the ability for people to actually buy some of these companies. So by the time open AI or to go public via IPO, by the time SpaceX could go public or Starling could go public, a lot of that valuation and kind of
growth could be sapped out of the market. And now you're bringing a company that already is one of the biggest companies in the world straight to the public markets and investors at least in the public markets who don't have the ability to have access to it or can't afford to pay someone for those private investments. Is joining the party late?
Is this becoming a question of prestige, Is it just a sort of badge of honor to be a public company, or is even that dwindling?
It feels like that is dwindling depending who you talk to. Obviously, the exchanges want companies to continue listing. But if open ai can be valued one hundred and fifty seven billion dollars, if SpaceX can get its funding round, and employees, according to Elon Musk, don't want to sell shares. Everyone knows who some of these companies are. There is still a
branding event with being publicly listed. There is some validity depending on the industry you operate in, where you can talk to customers and clients and say, hey, we're publicly listed. We trade on New York Stock Exchange. Here are our quarterly results. But for some of these name brand companies, some of the top kind of upper echelon firms, the question really is what would be the reason to go public?
And if there's not a good business reason, then for all intensive purposes, staying private makes a lot of sense.
Okay, Bloomberg's Billy Lipshellz thanks very much for joining us. For more explanations like this from our team of twenty nine hundred journalists and analysts around the world. Search for quick take on the Bloomberg website or Bloomberg Business app. Stephen Carol, this is here's why. I'll be back next week with more. Thanks for listening,