Why firms stay private longer?

Yes, Sarbanes-Oxley is one well-known reason but there are more reasons, most of all stemming from a shift in the balance of power toward founders, boosting their ability to raise private capital:

One such notable deregulation event has been the National Securities Markets Improvement Act (NSMIA), passed in October 1996. NSMIA has made it easier for both private startups and the private funds investing in them to raise capital. First, NSMIA exempts private firms selling unregistered securities under Rule 506 of Regulation D from state securities regulations known as blue sky laws (Rule 506 is one of the exemptions firms can use to issue private shares not registered with the SEC). As a result, NSMIA has made it easier for startups to raise private capital from out-of-state investors by exempting private firms from complying with the blue sky laws of every new state where they issue securities (public firms have long been exempt from blue sky laws). Second, NSMIA has made it easier for private funds such as venture capital (VC) and private equity (PE) funds to raise large amounts of capital by increasing the number of investors in a fund that force the fund to register under the Investment Company Act (ICA).2Registered funds have to regularly disclose their investment portfolio and face leverage and other restrictions, and so VC and PE funds tend to avoid having to register.

That is from a new NBER working paper by Michael Ewens and Joan Farre-Mensa.


Everyone's favorite here at MR, Annie Lowrey, pointing out that the cash that keeps on flowing is coming from (1) the giants in tech, Microsoft, Google, Facebook, and Amazon, (2) institutional investors, and last but not least (3) foreign sovereign wealth funds and other foreign investors. https://www.theatlantic.com/ideas/archive/2019/07/whatever-happened-tech-bubble/594856/ That was back at the end of July. Will the cash keep flowing? Or will the bubble burst? Have Uber and now WeWork worked the limits of separating a fool from his money? Maybe. But investors using their own house money (like Microsoft - which earns billion mining data from its LinkedIn users) are not fools. As for the foreigners, well, maybe their friend Trump will sell them some real estate.

I don’t need a paper for this, Matt Levine has been all over it for years, come on.

"boosting their ability to raise private capital"

private sector is ultimately the only source of capital.

avoiding government regulatory interventions is alawys wise.

Investment funds that only have “qualified purchasers” (e.g. high net worth investors) are also exempt from registration under the Investment Company Act as 3c7 funds - the 3c1 exemption caps total investors. Not sure if there is ultimately an effect, but there is potential for increases in wealth inequality as the best investments only get filtered to the wealthy (as encouraged by regulation).

But by the same token those investments are riskier since the regulation was done to protect the small guys from being ripped off. Now an exclusive club could scam their rich investors. That's exactly what Madoff did, after all

Economists love a legislative loophole, but some firms stay private longer for much simpler reasons. Founders place a premium on control in order to maintain their original vision, and they'll happily trade off potential growth via going public. There's a large, successful private firm that went even further by changing to a nonprofit decades after its founding. The owners said they didn't trust future generations or shareholders to uphold the quality they'd established.

Just because a firm is for-profit doesn't mean it's a profit maximizing firm...

Why libertarians stay Trump longer?

It is just supply and demand in a world where start ups have become more rare and savings more abundant.

Uber forces "drivers" to become startups. Outsourcing creates millions of startups. The system is designed to keep them from growing.

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