Latest news with #JayRitter
Yahoo
7 days ago
- Business
- Yahoo
Recent IPO Stock Gains Suggest a 'Spillover' Effect Could Boost Upcoming Debuts
Key Takeaways This year's cohort of new issues are popping on their first trading day, with some closing at more than double their IPO prices. Well-received IPOs tend to spawn other pops, University of Florida business professor Jay Ritter says. The median first-day performance of U.S. IPOs that raised $100 million or more was about 19% so far this year, the highest since 2020, according to Renaissance demand for initial public offerings is putting the shine in 2025's newest stocks. The median first-day performance of US IPOs—those that raised at least $100 million—was about 19% so far this year, the highest since 2020's median of 33%, according to Renaissance Capital, a provider of pre-IPO research and related ETFs. The firm's index of larger new listings that have been public for less than three years, tracked by the US IPO ETF (IPO), was up 12% through the Friday's close, ahead of the S&P 500's 8.6% gain. Firefly Aerospace (FLY), WhiteFiber (WYFI), and HeartFlow (HTFL), which priced last week, were included in those figures. Hot first-day performance can effect subsequent deals in what University of Florida business professor Jay Ritter calls a "spillover" effect. Companies waiting in the wings to go public could bask in the afterglow of NewsMax (NMAX), FatPipe (FATN), Circle Internet Group (CRCL), AIRO Group Holdings (AIRO) and Figma (FIG), all of which doubled their IPO prices, or better, over their respective trading debuts. More IPOs are on the way. Crypto exchange and CoinDesk owner Bullish is set to debut today under the ticker "BLSH." Tickets provider StubHub, which delayed its IPO plans following Liberation Day stock volatility, is reportedly kicking off its roadshow after Labor Day and will make its public debut in late September. There is no crystal ball for how well a new stock will do, but the ones that tend to outperform have things in common. "The vast majority of those with big run-ups are venture-capital backed. Lots are tech stocks. They're hard to value," Ritter told Investopedia, citing examples like Netscape in 1995 or Airbnb (ABNB) in 2020. Of the top 10 VC exits via US IPOs in value terms, which include Figma (FIG), Chime Financial (CHYM), and Circle (CRCL), according to PitchBook data, only one didn't pop on Day 1: CoreWeave (CRWV), which priced its IPO also under its marketed range. Its shares have subsequently risen almost 250% since its March debut. Figma, which went on a blistering rally as soon as it listed on July 31, has since declined about 25%. New stocks generally experience mean reversion. "Those that double or more on the first day have average long-term returns below IPOs that had less-than-enthusiastic first-day receptions," according to Ritter, who defines "long-term" as three years. The issue with the companies that tend to rocket up on their trading day, is that they then have a very high price-to-sales ratio. "It's difficult for a company to meet expectations when there's so much optimism built into the price," he said. Read the original article on Investopedia Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
CNBC
03-07-2025
- Business
- CNBC
IPO market gets boost from Circle's 500% surge, sparking optimism that drought may be ending
For over three years, venture capital firms have been waiting for this moment. Tech IPOs came to a virtual standstill in early 2022 due to soaring inflation and rising interest rates, while big acquisitions were mostly off the table as increased regulatory scrutiny in the U.S. and Europe turned away potential buyers. Though it's too soon to say those days are entirely in the past, the first half of 2025 showed signs of momentum, with June in particular producing much-needed returns for Silicon Valley's startup financiers. In all, there were five tech IPOs last month, accelerating from a monthly average of two since January, according to data from CB Insights. Highlighting that group was crypto company Circle, which more than doubled in its New York Stock Exchange debut on June 5, and is now up sixfold from its IPO price for a market cap of $42 billion. The stock got a big boost in mid-June after the Senate passed the GENIUS Act, which would establish a federal framework for U.S. dollar-pegged stablecoins. Venture firms General Catalyst, Breyer Capital and Accel now own a combined $8 billion worth of Circle stock even after selling a fraction of their holdings in the offering. Silicon Valley stalwarts Greylock, Kleiner Perkins and Sequoia Capital are set to soon profit from Figma's IPO, after the design software vendor filed its public prospectus on Tuesday. Since its $20 billion acquisition agreement with Adobe was scrapped in late 2023, Figma has been one of the most hotly anticipated IPOs in startup land. It's "refreshing and something that we've been waiting for for a long time," said Eric Hippeau, managing partner at early-stage venture firm Lerer Hippeau, regarding the exit environment. "I'm not sure that we are confident that this can be a sustained trend yet, but it's been very encouraging." Another positive sign for the industry the past couple months was the performance of artificial infrastructure provider CoreWeave, which went public in late March. The stock was relatively stagnant for its first month on the market but shot up 170% in May and another 47% in June. For venture firms, long considered the lifeblood of risky tech startups, IPOs are essential in order to generate profits for the university endowments, foundations and pension funds that allocate a portion of their capital to the asset class. Without handsome returns, there's little incentive for limited partners to put money into future funds. After a record year in 2021, which saw 155 U.S. venture-backed IPOs raise $60.4 billion, according to data from University of Florida finance professor Jay Ritter, every year since has been relatively dismal. There were 13 such offerings in 2022, followed by 18 in 2023 and 30 last year, collectively raising $13.3 billion, Ritter's data shows. The slowdown followed the Federal Reserve's aggressive rate-hiking campaign in 2022, meant to slow crippling inflation. As the lower-growth environment extended into years two and three, venture firms faced increasing pressure to return cash to investors. In its 2024 yearbook, the National Venture Capital Association said that even with a 34% increase in U.S. VC exit value last year to $98 billion, that number is 87% below the 2021 peak and less than half the average for the four years from 2017 through 2020. It's a troubling dynamic for the 58,000 venture-backed companies that have raised a total of $947 billion from investors, according to the annual report, which is produced by the NVCA and PitchBook. "This backlog of liquidity drought risks creating a 'zombie company' cohort — businesses generating operational cash flow but lacking credible exit prospects," the report said. Other than Circle, the latest crop of IPOs mostly consists of smaller and lesser-known brands. Health-tech companies Hinge Health and Omada Health are valued at about $3.5 billion and $1 billion, respectively. Etoro, an online trading platform, has a market cap of just over $5 billion. Online banking provider Chime Financial has a higher profile due largely to a years-long marketing blitz and is valued at close to $11.5 billion. Meanwhile, the highest valued private companies like SpaceX, Stripe and Databricks remain on the sidelines, and AI highfliers OpenAI and Anthropic continue to raise massive amounts of cash with no intention of going public anytime soon. Still, venture capitalists told CNBC that there are plenty of companies with the financial metrics to be public, and that more of them are readying for the process. "The IPO market is starting to open and the VC world is cautiously optimistic," said Rick Heitzmann, a partner at venture firm FirstMark in New York. "We are preparing companies for the next wave of public offerings." There are other ways to make money in the meantime. Secondary sales, a process that involves selling private shares to new investors, are on the rise, allowing early employees and investors to get some liquidity. And then there's what Mark Zuckerberg is doing, as he tries to position his company at the center of AI innovation and development. Last month, Meta announced a $14 billion bet on Scale AI, taking a 49% stake in the AI startup in exchange for poaching founder Alexandr Wang and a small group of his top engineers. The deal effectively bought out half of the stock owned by investors, leaving them with the opportunity to make money on the rest of their holdings, should a future acquisition or IPO take place. The deal is a big win for Accel, which led Scale AI's Series A round in 2017, and is poised to earn more than $2.5 billion in the transaction. Index Ventures led the Series B in 2018, and Peter Thiel's Founders Fund led the Series C the following year at a valuation of over $1 billion. Investors now hope the Federal Reserve will move toward a rate-cutting campaign, though the central bank hasn't committed to one. There's also ongoing optimism that regulators will make going public less burdensome. Last week, Reuters reported, citing sources familiar with the matter, that U.S. stock exchanges and the SEC have discussed loosening regulations to make IPOs more enticing. Mike Bellin, who heads consulting firm PwC's U.S. IPO practice, said he anticipates a diversity of IPOs across sectors in the second half of the year. According to data from PwC, pharma and fintech were among the most active sectors for deals through the end of May. While the recent trend in IPO activity is an encouraging sign for investors, potential roadblocks remain. Tariffs and geopolitical uncertainty delayed IPO plans from companies including Klarna and StubHub in April. Neither has provided an update on when they plan to debut. FirstMark's Heitzmann said the path forward is "not at all clear," adding that he wants to see a strong quarter of economic stability and growth before confidently saying that the market is wide open. Additionally, other than CoreWeave and Circle, recent tech IPOs haven't had big pops. Hinge Health, Chime and eToro have seen relatively modest gains from their offer price, while Omada Health is down. But virtually any activity beats what VCs were experiencing the last few years. Overall, Hippeau said recent IPO trends are generally encouraging. "There's starting to be kind of light at the end of the tunnel," Hippeau said.
Yahoo
16-06-2025
- Business
- Yahoo
US IPO Shares Doubling on Their First Day at Fastest Pace Since 2021
(Bloomberg) -- Stocks of newly-public companies are surging in their first sessions at the fastest pace in three and a half years, enthralling traders and heating up the market for US first-time share sales. Shuttered NY College Has Alumni Fighting Over Its Future As Part of a $45 Billion Push, ICE Prepares for a Vast Expansion of Detention Space As American Architects Gather in Boston, Retrofits Are All the Rage Drone maker Airo Group Holdings Inc. ended Friday with a gain of 140%, a day after raising $60 million in its initial public offering, and coming barely a week after stablecoin issuer Circle Internet Group Inc. surged 168.5% immediately following its $1.2 billion IPO. With conservative cable channel Newsmax Inc.'s wild 735% opening gain in March, following its $75 million offering, three companies raising at least $50 million on US exchanges this year have more than doubled on their first trading day, according to data compiled by Bloomberg. That's the most since nine US-listed debutantes managed the feat in 2021's IPO boom. These spectacles may be thrilling to watch, but history shows extreme day-one pops rarely reward investors in the long run. Professional traders and retail investors often drive a first-day rally, snapping up the stock as early as they can and riding the momentum. Most of these buyers weren't able to get their hands on the shares during the IPO itself, however. That's because companies prefer to allocate shares sold in IPOs to mutual funds that base their investment strategies on a fundamental view of a company's prospects, and that, notionally at least, have committed to remain long-term backers. Not surprisingly, outsized first-day performances fueled by momentum and retail buying offer a poor guide to a company's long-term prospects. Between 1980 and 2023, there were 316 companies listing on US exchanges whose shares doubled in their first day of trading, excluding those with offer prices below $5 per share, units and American depositary receipts, according to data compiled by Jay Ritter, professor of finance at the University of Florida. Nearly 90% of these IPOs had negative three-year buy-and-hold returns versus the price at which they closed their opening session, and the average loss was a painful 46%, Ritter's data showed. A cluster of first-day doubles usually coincides with market peaks like the Internet bubble of 1999 and 2000, when more than 100 companies that doubled in price, though most faded into obscurity, Ritter said. Firms likely to pop include fast-growing companies with retail-investor enthusiasm, Ritter said, citing Newsmax as a recent example. 'What's true about most of these companies is that they are not mature and they are hard to value.' Early Optimism Numerous companies that rewarded investors richly on debut ran into financial difficulties that made a mockery of investors' early optimism. Online used car retailer Vroom Inc., which returned 118% in its first day of trading post-IPO in June of 2020, is a representative example. The company filed for Chapter 11 last year, and emerged in January after completing a recapitalization that included an arrangement similar to a one-for-five reverse stock split. Living up to the promise implied by stunning day-one pops can prove hard even for corporate titans. Airbnb Inc. and Snowflake Inc. were the highest profile of the nine 2021 IPOs that doubled in their first session, but their shares now trade a little below that day-one closing price. A few companies with day-one doubles do become lasting winners. Chipotle Mexican Grill Inc. did so well in the years since its debut in 2006 that it announced a 50-for-one split last year. In Airo's case, some of it was good timing. The IPO came just days after President Donald Trump issued executive orders to promote the domestic drone business, and as an escalating conflict in the Middle East underscored the value of cutting-edge drone technology. 'I don't think we expected it to go up that much,' Chirinjeev Kathuria, Airo's executive chairman and co-founder, said in an interview with Bloomberg News on Friday. The company also allocated 70% of the 6 million shares to just five investors, people familiar with the offering have said. 'We went with a smaller offering size to bring in long-only investors that believe in the story,' Kathuria said. Relative Calm After April's extreme volatility that brought the market for first-time share sales to a halt, a few weeks of relative calm helped revive enthusiasm for IPOs. Companies were looking to take advantage of an open market window that could close quickly, according to Greg Martin, the managing director of private markets trading platform Rainmaker Securities. The current crop of IPOs were generally coming at attractive discounts relative to peers, Martin said. Still, it remains to be seen how long the US IPO market can keep delivering big early wins, particularly with ongoing trade tensions and the conflict between Iran and Israel. Some companies that produced big initial gains in the past month have already pulled back substantially from their day-one close. Newsmax is only 24.2% above its IPO price as of Friday. Shares of digital health firm Omada Health Inc. finished last week down 10% from its IPO price despite debuting up 21.1% on June 6. Adtech firm MNTN Inc. rose 64.8% in its first session but ended last week up just 15.7%. 'There's still a question mark as to whether we return to a more chaotic environment,' Rainmaker's Martin said. American Mid: Hampton Inn's Good-Enough Formula for World Domination The Spying Scandal Rocking the World of HR Software How a Tiny Middleman Could Access Two-Factor Login Codes From Tech Giants New Grads Join Worst Entry-Level Job Market in Years As Companies Abandon Climate Pledges, Is There a Silver Lining? ©2025 Bloomberg L.P. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
10-06-2025
- Business
- Yahoo
The Circle IPO delivered the biggest two-day ‘pop' since 1980—but the crypto company left $3 billion on the table
By the close of Circle Internet Group's first trading day on Thursday, June 5, its stock had rocketed to $88, a 180% jump from the price institutional investors paid for their shares in the underwriting led by JP Morgan, Goldman Sachs, and Citigroup. The upshot: The company and insiders combined left a gigantic amount of money on the table by agreeing to a price far below what investors were willing to pay. As Fortune previously noted, that 'left on the table' figure was the seventh largest in the history of all IPOs since 1980, exceeded only by the debuts of Visa, Airbnb, Snowflake, Rivian, DoorDash and Coupang, the latter nicknamed 'The Amazon of South Korea.' Circle was just revving up. On Friday, June 6th, its stock jumped another nearly 30% to $107.5. That additional leap hurtled the issuer for the USDC stablecoin to an historic record. Jay Ritter—professor at the University of Florida and world's leading expert on IPOs—confirmed that for all go-public events since 1980 that raised $500 million or more, Circle's two day moonshot of nearly 250% ranks as by far the highest. The crypto favorite's showing easily eclipsed the 2nd place 'pop' sounded by software provider of 209% at its 2020 entry on the Nasdaq. All told, Circle sold 39 million shares, raising $1.145 billion after underwriting fees of $67 million. Had the shares fetched the $107.5 close on June 6 instead of the $31 (excluding fees) paid in the pre-sale by the likes of mutual and hedge funds, the company and insiders combined would have collected $4.144 billion. Hence, as of the second day of trading, the IPO had left a staggering $3 billion on the table. Put simply, for every $1 going to the sellers, $3 went in two-day gains flowed to the underwriters' Wall Street clients as a windfall. At a market cap of $22 billion, Circle's selling at 140 times earnings. Given that treacherous valuation and the onslaught of stablecoin rivals invading its space, Circle's the epitome of an ultra-high risk stock. Money that might have been sitting in its treasury as a buffer against tough times vanished in this mind-bending spectacle that only the confluence of crypto craziness and Wall Street's genius for underpricing IPOs could have staged. This story was originally featured on Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Forbes
08-06-2025
- Business
- Forbes
Have Reporting Burdens Led To More Firms Staying Private?
The best evidence for this hypothesis comes from micro-caps. Confounding trends and offsetting benefits of being public are often ignored by advocates for reducing reporting rules. The number of US public firms has fallen in recent times. Prof. Jay Ritter, who tracks these numbers, documents that we had 3,804 US listed firms at the end of 2024 relative to the peak of around 8000 in 1996. Remarkably we had 1,384 foreign firms listed at the end of 2024. Many blame higher costs reporting and auditing for the smaller number of US listed firms. They point to the cumulative onslaught of Sarbanes Oxley 2022, the 2003 Global Settlement that alleged made it harder for analysts to cover small firms, Dodd-Frank 2010, and the supposedly relentless pace of accounting and auditing regulation pushed by Congress, the SEC and the FASB. The question I want to address is whether there is any evidence for that claim. Trend depends on benchmark period In a research note, Vanguard points out that if we go back to 1972, the decline shrinks to a third. On top of that, 1972 was the year NASDAQ was set up and 3,000 odd new companies entered the public arena. Why the fall? Doidge, Karolyi, Shen and Stulz (2025) list two potential underlying reasons: (i) it is easier to stay private because restrictions on staying private have softened and it has become easier to raise funds for private firms, perhaps due to the low interest rate environment; and (ii) antitrust enforcement over the last decade has been relatively lax and product market competition has heated up leading to a greater number of mergers. They don't seem to devote much space to reporting cost burden. Acquisitions drive most of the decline A McKinsey piece shows that 95% of the exits from our markets are driven by acquisitions. Thus, the so-called missing companies have not left the investible universe for the US investor as the investor gets indirect exposure to the target via the acquirer's stock. Espen Eckbo makes the acquisition point more rigorously. However, the rate of entry and exit into public markets is not uniform across industries. We had more IPOs, relative to exits, in pharmaceutical and biotech industries. The number of IPOs, relative to exits, are more or less the same in retail, materials, consumer apparel and durables. Exits far exceed IPOs in banking, software, technology hardware, media and telecom. Any theory that argues reporting burdens are a first order problem needs to explain why such burden has massively increased for banking, software, tech hardware, media and telecom relative to pharma. Smaller IPOs, mostly micro-caps, gone The McKinsey piece also makes the interesting point that we have far fewer smaller IPOs now relative to the past. This suggests that more of the earlier value is captured by private investors, as private equity firms seem to take longer to exit their positions now relative to before (3 years in 2007 relative to 6 years in 2015). One could argue that the costs of reporting, auditing and compliance have become too large for smaller IPOs to even think about going public. Vanguard points out that the missing IPOs are micro-caps. Is the loss of micro-caps a policy concern? Moreover, Mauboussin, Callahan, and Majd (2017) and Doidge, Karolyi, and Stulz (2017) note that half of what can be referred to as the 'listing gap' (exits more than IPOs) occurred before Sarbanes Oxley became law. Start-ups have declined too Somewhat intriguing, the number of start-ups appears to display mixed patterns since 1996. The Kaufmann index of startup activity falls from 1996 to its nadir in 2013, after which it picks up till 2017, when the index was last published but the 2017 number was still lower than the 1996 number. This suggests that there may be fewer businesses even available to go public. International exchanges I am in the UK as I write this and an institutional investor I know here suggested that the London stock exchange has suffered a similar decline in IPOs. In fact, there is some angst in the UK that they are losing listings to the US. The loss in listings applies to other advanced economies as well, as Espen Eckbo points out. The theory pushing for reporting burdens as the primary explanation will have to explain why UK reporting and reporting in other advanced economies has also become onerously burdensome. Burgeoning private equity (PE) A senior executive tells me,' the payouts achieved by management and their VCs by arranging acquisitions to PE firms, as well as PE to PE sales have been, in recent times, just as compelling as anything other than a truly dramatic IPO. Smaller companies, companies with significant internal ownership, companies without strong growth or high investment opportunities (that is to say not pharma or biotech who absolutely need risk capital), companies where management would like to stay involved but are not keen on public company visibility. These are all great reasons to be acquired by PE rather than either IPO or even getting acquired by a public company rapidly, with certainty, without much publicity. PE is incredibly well equipped at maximizing ongoing cashflows, and growth, while still maintaining: (i) particularly attractive incentives for management in the transaction, (ii) management that stays post transaction with significant incentive retentions and milestones -- all without pesky proxy announcements about executive compensation; and (iii) objectively great returns to those equity holders that are just selling.' The role of reporting for intangibles Rene Stulz (2018) has suggested that new firms heavily invest in intangibles and forced disclosure of intangibles by securities laws, all else constant, encourage firms to stay private. I am not sure of this argument as US public firms barely tell us anything about their intangible investments, especially home grown ones. Papers suggesting that SOX increased regulatory burdens Zhang (2007) finds negative returns of around -15% to -13% around the events surrounding the passage of SOX. I find these returns too large to be credible. Engel, Hayes, and Wang (2007) observed an increase in decisions to go private after SOX. But this evidence is mixed. Bartlett (2008) of the Stanford Law School re-examines this question and concludes, 'non-SOX factors were the primary impetus for the "name brand" buyouts commonly evoked as evidence that SOX has harmed the competitiveness of U.S. capital markets.' Iliev (2010) is perhaps the best cited paper in the area. Using careful research designs, Iliev documents that section 404 of the SOX, which mandates that the auditor attest the internal controls of the firm for the absence of a material weakness, led to conservative reported earnings but also imposed real costs. Iliev compares audit fees and earnings quality for firms with float of $50-75 million to those just above at $75 million-$100 million. The idea is that firms in these two partitions are mostly similar except that Section 404 applies only to firms with float greater than $75 million. He concludes, 'on net, SOX compliance reduced the market value of small firms' and increases audit fees by 167%. Atanasov and Black (2020) replicate Iliev (2010) and conclude that not controlling for firm growth led Iliev (2010) to overestimate SOX compliance costs in his analysis. However, the increase in audit fees suffered by the small firms is real, by about 80%. The dollar numbers underlying these estimates are worth reiterating. The average firm in Iliev's affected firm sample pays more than $0.7 million in greater audit fees. The mean and median earnings of sample firms is -$4.8 million and -$1.4 million respectively. Iliev uses this comparison to argue that the compliance costs of section 404 were substantial. Were they? Would these firms have survived had section 404 not been enacted? Is it obvious that investors would have wanted to invest in such firms? And, how much of the audit fee hike is temporary for a year or two. Even more noteworthy, this evidence relates to micro caps (defined as stocks with market capitalizations of between $50 million and $250 million in 2024). These numbers would be smaller if we went back in time as stock markets have gone up quite a bit in the last 20 years or so. The bigger question is how can we possibly generalize evidence reliant on a sample of microcaps to the entire corporate ecosystem? Ewens, Xiao and Xu (2024), in a new paper, move this literature forward and consider three such natural breakpoints to estimate costs of mandatory reporting: (i) firms below $25 million in float in 1992 were designated as 'small businesses' and escaped a few disclosure requirements; (ii) the $75 million float threshold that Iliev looked for section 404 of SOX; and (iii) the $700 million float threshold used in the 2012 JOBS Act. The 2012 JOBS Act is interesting because the point of that legislation was to exempt smaller firms from a few reporting requirements. So, the JOBS Act presents a bit of a counterfactual to the usual setting whereby regulation increased. Based on these events, they claim that the median firm spends 4.3% of its market capitalization on compliance costs. I find the 4.3% number somewhat big. Moreover, even with the clever econometrics used in the paper, can one really generalize estimates from SOX and JOBS Act to the universe of firms? I don't know. Interestingly, Ewens et al. themselves seem to conclude, 'heightened regulatory costs only explain a small fraction of the decline in the number of public firms over the last two decades. Our results suggest that non-regulatory factors likely played a more important role in explaining the decline in the number of U.S. public firms.' Evidence around the 2012 JOBS Act Researchers are generally good at coming up with unintended consequences of regulations that public firms are required to follow. But we don't often see studies that document the offsetting benefits of going or staying public. The 2012 JOBS Act presents a rare opportunity to consider whether relaxing reporting regulations encourages more IPOs. Dambra et al. (2015) conclude that the 2012 JOBS Act led to an increase of 21 IPOs a year, on average. Ewens et al. (2024) find a slightly higher estimate: roughly 28 additional IPOs. One must wonder whether 20 odd IPOs per year are worth the potential collateral damage to the credibility of US reporting and compliance systems, if the PCAOB were to be dismantled or SOX were to be repealed. Incidentally, many other advanced economies passed regulation, modeled on SOX, in their own countries. Did they not conduct a careful assessment of costs of such regulation on their IPO activity? Or did they recognize the need to tighten up reporting and audit rules after the tech bubble burst in 2001? IPO Tax Robert Jackson's, the ex-SEC commissioner, analysis highlights the 7% tax that middle market IPOs must pay even before they go public, to investment bankers, lawyers and the like. Surely, the IPO tax, which has little to do per se with the reporting and compliance costs of 4.3% highlighted by Ewens et al, deserves more attention. The advocates of cutting reporting burdens are somewhat silent about reducing the 7% middle market IPO tax. And I am aware of startups that are working on software that can write an S1 in minutes with AI. Shouldn't the 4.3% reporting costs, estimated by Ewens et al., fall? Benefits of staying public are often ignored Owners, VCs, and capital providers get liquidity. Public firms can potentially pay labor mostly via stock and hence attract higher quality talent. Stock can be used as a means of payment to buy another company and hence take out a rival or to buy a complementary firm. If you get acquired, the acquirer is usually expected to pay a 25% control premium over the prevailing stock price. In sum, the case for reporting burdens forcing companies to stay private is far from clear. The best evidence relates to micro-caps and generalizing from that set to other companies is not straightforward. Partisan debate about the evidence often tends to ignore the vast number of confounding factors such as low interest rates, falling number of start-ups, special time periods chosen for the analysis and large number of acquisitions of public firms and the 7% IPO tax. If anything, US reporting rules need to be strengthened, not weakened. I have pointed out, time and again, the deficiencies in our financial reporting system and how auditors could potentially do a better job. Regulators may want to proceed with caution the next time someone brings up the hypothesis that reporting burdens are a significant barrier to US firms going public.
