IPO-Killing Regs Reducing Employee Wealth

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IPO-Killing Regs Reducing Employee Wealth

What if one of the largest problems facing the US economy isn't even being discussed by anyone? What if there is a solution, right under our noses that hasn't been thought about?

We tend to think of IPOs as something that happens in waves. the 1990s and the then in the past five years or so.

The challenge is, there just aren't as many IPOs lately as there have been in the past. Thanks to increased regulatory and other government-created issues, startups are opting to sell to larger companies instead of going public.

As a result, current, large public companies need to spend far less on R&D and can nab new companies with exciting technology, just when they start to get interesting. Best of all, they can pay lower prices than they might have to when competing with public investors.

Increased regulation of Wall Street in other words has decreased the desire of companies to access public markets and as a result, Americans working at these companies have lost access to potentially 1.5 billion dollars of liquid net worth!

And here is the final tragedy... The acquiring company can pay for the transaction by firing people!

Mark Cuban penned an eye-opening piece about this very concept and he is dead on. In it he says:

  1. As a point of reference, here is an article that says that more than half of America has a net worth of less than 25k.  So by working for a company that goes public, you immediately increase your chances of having a net-worth greater than half the country. To me, that is a big deal.
  2. Replicate the wealth impact each year and we can do more for the net-worth of hard-working Americans than any government policy or tax change.  Nothing else can add thousands of people a year to the roles of the  Top 50pct’ers like a revitalized IPO market.
Sometimes, it seems like the tech industry creates wealth even faster than the Federal Reserve can print money. So many people have become millionaires thanks to companies like Microsoft, Facebook and others.

The challenge is these companies are effectively becoming monopolies (Scott Galloway video). Google in search, Amazon in cloud and ecommerce. Apple in devices. Facebook in social. You get the idea.

Waze would have dramatically reduced the need for Google Maps and was on track to become a force in local advertising so Google purchased the company. Instagram was on target to become a "Facebook light" so they were acquired by Facebook.

As we head into election season - a record number of people - especially college educated are unemployed or under-employed. One political party wants to increase Wall Street regulation which has been shown to favor the large companies who are able to cope with the regulation by hiring armies of lawyers. The other side - at least some of the candidates, wants to unleash free markets in order to drive the tremendous growth we've seen in past decades. the end result could be more growth and IPOs.

It will be very interesting to see which vision the country will embrace. Of course timing is everything. Today, a day after Cuban penned his piece, USA Today wrote Bye-Bye Internet bubble 2.0. In other words, it may take some time before what Mark has observed will change for the better.

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