I've noticed that fundraising and liquidity are common problems for startup founders, and it seems to me that the public stock market could solve many of those problems. What if all startups were publicly traded entities right after incorporation?
Some of the benefits you would gain as a founder:
- A larger pool of potential investors. You would have access to investment from anyone instead of just accredited investors. For example, it would be interesting if early adopters could invest in startups that they support just as easily as they can buy stock in Apple because they love Apple products.
- Liquidity. You could buy and sell your shares of the company at any point. If you're a startup founder investing 100% of your time and capital into a business, it makes sense for you to diversify your assets at some point and not put all of your eggs into one basket.
- Better incentives. If your company was publicly traded from Day 1, you would still be incentivized to raise the value of your business because you still own shares. Better yet, now you don't have to worry about building a billion dollar business to satisfy the economics of your investors, you can sell shares of your $20M business so you're not worrying about your exit strategy all the time.
There's been a lot of activity in this space with the new crowdfunding bill, the SEC loosening up requirements for small companies, and things like ICOs. Has anyone else ever considered doing this with their startups? Just curious to hear what others think.
I have been thinking about the same thing, and I agree with the benefits you have stated.
In my part of the world (Sweden) we have two market places for quite small companies, Nasdaq First North and Akitetorget.
Akitetorget is somewhat strange, I think it is formally not regulated as a stock market, and that the companies listed there does not need to be "publicly listed". Like the grey markets for non-public companies I've read about, but perhaps less grey.
First North however is a "real" stock market that works the same way as its big brother Nasdaq OMX, but with lesser demands and cheeper entry.
Still, even First North is probably to expensive to list a startup right at incorporation.
I think the biggest hurdle to overcome is to balance the requirements of public disclosure and quarterly reports etc. with cost of listing. If almost no requirements would be set, it would be very cheap to list but also very hard to safely trade on the exchange (alá ICO's). On the other hand, with too stringent requirements it would be too expensive to list as an early stage startup.
There is a market for this, the OTC or pink sheets. At initial listing and if the company itself or its insiders or affiliates are selling, there are required financial disclosures.
I think there's resistance to public trading however because it generally requires more structured accounting (GAAP vs cash accounting), and invites external scrutiny and pressure.
> requires more structured accounting (GAAP vs cash accounting), and invites external scrutiny and pressure.
aren't all these good things? Prevents both scamming, as well as ensuring that the founders take a careful look at their business, and that it isn't purely fueled by stock/investment, but is generating profit?
If I'm an investor, I want comparable accounting which means GAAP; if I'm a founder, maybe I just want to know what's in the bank account and don't want to deal with deferring recognition of income for long term contracts.
External scrutiny and pressure is a mixed bag. It probably reduces the chances of doing something stupid that destroys the company, but it also reduces the chances of doing something stupid that changes the world.
They are in many cases. But they can also be prohibitively time consuming and expensive for a small business - be it your corner bodega or the 5-person startup working out of your neighbors basement.
This is a real scenario where I think cryptos will change the ecosystem in the next few years. There is a LOT to figure out in this space (ICO Madness), but I believe once the dust settles, this is a real problem that could be solved.
agreed - what we're seeing is essentially a peer distributed stock market or "blockchain-like" linking of salaries to perf and voting to stock (proof of stake).
I view it as a good first step, but I am expecting an ethereum-based platform to one-up this idea in a few years.
I've noticed that fundraising and liquidity are common problems for startup founders, and it seems to me that the public stock market could solve many of those problems. What if all startups were publicly traded entities right after incorporation?
Some of the benefits you would gain as a founder:
- A larger pool of potential investors. You would have access to investment from anyone instead of just accredited investors. For example, it would be interesting if early adopters could invest in startups that they support just as easily as they can buy stock in Apple because they love Apple products.
- Liquidity. You could buy and sell your shares of the company at any point. If you're a startup founder investing 100% of your time and capital into a business, it makes sense for you to diversify your assets at some point and not put all of your eggs into one basket.
- Better incentives. If your company was publicly traded from Day 1, you would still be incentivized to raise the value of your business because you still own shares. Better yet, now you don't have to worry about building a billion dollar business to satisfy the economics of your investors, you can sell shares of your $20M business so you're not worrying about your exit strategy all the time.
There's been a lot of activity in this space with the new crowdfunding bill, the SEC loosening up requirements for small companies, and things like ICOs. Has anyone else ever considered doing this with their startups? Just curious to hear what others think.