We need a better mechanism for companies to go public. The traditional IPO is a ripoff and SPACS are scams. It's great that companies like MariaDB are able to raise money in public markets, though.
Don't forget that things are the way they are for good reasons, or at least historically good reasons. At least with next-quarter-itis you're holding execs accountable for delivering _something_ relatively soon. It's an imperfect check-and-balance.
Are you excited by the fact that Mark Z doesn't suffer from this disease with Meta and is spending $25B/yr on a virtual reality platform that won't provide returns for many years, if at all?
Quarterly reporting (and the inevitable over-weighting of it) is there to PROTECT small-time investors.
As you said, the relationship between shareholders and the C-suite is a check-and-balance.
Meta's structure basically makes Zuckerberg unoustable. He can continue to toss money into the ether chasing a particularly bad idea.
Conversely, it's possible to have voting power so diluted that nobody who has a long-term vision has any way to promote it.
Broad ownership allows people to call bullshit, but maybe something like a capital-gains surtax on shares held less than 5 years would make it too expensive to dive-bomb into a company just long enough to sabotage its long-term future.
In the United States we have "long-term gains" which are taxed preferentially at much lower rates. How about we just stop doing that.
Also for carried interest.
Also also the "never mind about those taxes at all" stepped-up basis for your heirs when you die.
All of these things simply distort the overall market as people modify their plans to account for these tax breaks.
If you don't like to see higher taxes, then replace these distorting, selective tax-breaks with lower overall rates to make up the difference. Or if you like higher taxes then don't do that.
But for gosh sakes can't we please get rid of these behavior-distorting tax laws?
We need a new exchange that focuses on driving profits for shareholders over a longer term especially ones with wider goals. I think there is a market desire for companies that have positive social or public goals but still make sense organized as a for-profit. What we might get is less pan-flash/hyper-growth-startup-IPO and more organically grown companies with a certain amount of staying power and positive social or public goals.
Our current model of “must have quarter over quarter growth” is a good a check in theory but it’s too easy to cut corners in the short term instead of solving systemic, organizational problems which just kicks the can down the road.
Wonder if something like a one year lock in period would work.
The fundamental change seems to have been circa 1960’or so, when stocks went from being things that earned a dividend - and the dividend is where most of the return came from, to most companies reducing and then stopping dividends altogether.
I would say that remains to be seen. I think the goal is to ultimately asking incentives to longer term views instead of quarterly ones, which may end up taking a different form down the road.
We need a law that says that CEOs and C-suite writ large and board members can't receive stock/options/RSU. Otherwise, we'll always be stuck in Goodhart's law. Maybe they make enough already and don't need bonuses. The "bonus" is keeping your job not getting a golden parachute.
Why do we need a law telling private holders of equity how they can or can't distribute that equity as incentives?
If shareholders think the C-suite and/or board are overcompensated, they can vote for a different decision. And if they don't have the majority to get their way they can sell, buying into a company that better reflects their priorities.
I'm not sure I see the case for further regulation of what are, essentially, private decisions and transactions.
Not giving management of a company shares is a very bad idea. A company's soul purpose is to serve its shareholders and to keep management and the shareholders on the same page, management should be given shares in the company.
My impression is that the incentives leading to "next-quarter-itis" are primarily executive compensation and investor's own timelines (influenced by long term cap gains only requiring one year).
Keeping companies private just limits who can own them and doesn't help.
The bar is too high and there are huge numbers of really decent companies that need some kind of liquidity.
We're just not set up for it. Maybe it's a matter of just bringing more attention to small caps, I don't know.
Or another vehicle.
There are just too many truly great value creating business out there whereupon it's very difficult for founders to get their accumulated value out of it. People have devoted their lives to doing some good thing, but it's pointless if it's hard to market the company. This absolutely has effects on the industry because it's literally not worth the devotion required to do so many things if there can be no upuside even a good scenario of making a decent company.
It leaves way too much money in the hands of bankers and speculators and not those to took the biggest risks, made it work and likely created surpluses for everyone.
The bar for direct listings is not because of the model its because of the costs to go public and be public. Small cap stocks are not what they used to be, and it seems like some process for reducing regulation on small cap stocks seems like it would benefit everyone.
The very high bar for IPO (aka sarbanes-oxley, layers, bankers) is part of the 'model'.
Aside from expenses, there is a kind of 'stock populism' - big stocks get a lot of noise, which is a form of demand gen for the stock.
Companies with popular CEO's get a huge boost for example.
Both retail and bigger investors tend to prefer the bigger stocks.
This is part of the model which might possibly be improved.
We could adjust the taxation rules maybe, or, change listing rules, or literally just convince the banks that there is a huge opportunity in smallcap that's overlooked.
There are 100x mid-sized business opportunities for every big one - I see them literally every day.
I have told countless entrepreneurs that they have great businesses that are not suitable for VC because the growth and market is not there. And then what?
It's more economically efficient for them to nerd-out and compete for a 'Google Job' because they have all the power in the system.
Indirectly - there may be a bit opportunity with scale and regionality.
Large brands get a natural advantage in advertising as well, which doesn't work well for little regional shops.
I just bought a pair of winter boots on the high street out my door but totally by fluke - the are too small of an op to compete online.
There might be some taxation or international regs that we might want to put in place.
Perhaps I'm suggesting a bunch of adjustments that streamline financing for SMB and recognize the disproportionate power of conglomerates that it not always economically efficient. Often it is, but not always.
Especially since companies can, as of recently, issue new shares to sell as part of the listing (like they would in an IPO) instead of relying on insiders to provide the liquidity.
IPOs feel like more of a rip-off if you have easy access to private money and so don’t really need to IPO to raise more. Maybe there won’t be as much easy private money going forwards and raising from public markets will look more attractive.
I’m also not very convinced that IPOs are a rip-off FWIW.
That only leads to the inevitable next-quarter-itis that has taken down once great companies like HP and Bell Labs.