Discuss the Book, entrepreneurship, Facebook, Google, Once You're Lucky, Twice You're Good, Silicon Valley, venture capital, Web/Tech

Possible Solution to Broken Public Markets?

Could it be this easy? Marc Andreessen has a post on the benefits of dual class stock that you have to read. I know it's long, and you like short posts. So do I. Just pace yourself. Pack a snack. It's worth it.

Here's why:

We have a major, major problem in the U.S. capital markets that is hurting innovation, our economy and ultimately society. Yes, that sounds dramatic. Guess what? Things are dramatically bad for public companies. I'm not supposed to quote my book before May 15, but screw it. If you've been at a dinner where I've had a few glasses of wine, you've heard the rant anyway:

"For a long time the path of a start-up was simply a given: entrepreneurs take venture money, they build the business and one day if everything goes well they get to go public. More than just the financial windfall, going public was the ultimate validation that your company had made it. But just as the crash was a cautionary tale of the unseemly side of venture capital and start-up life, so too was it a cautionary tale that going public isn't always the fairy-tale ending it seems to be.

 

For one thing, all that control and ownership this generation of companies have worked so hard to maintain? That's all gone once you're publicly owned. ....

...Public companies also have to openly state their revenues, losses and profits which a lot of fast growing tech companies consider a competitive disadvantage. Still, that's the least of the hassles. There's also the all-important quarterly earnings dance ...

... Then there's the Wall Street addiction to growth. Sure, companies need to have profits, but even wildly profitable businesses don't do well in the public markets unless they have gaudy revenue growth figures attached to them. If growth stalls, watch out, because here come activist hedge funds to pound the management team, demanding they buy a company or do something dramatic to juice up the stock. Building a business for the long haul rarely happens on Wall Street now that we all live in a world of 24-7 news and short attention spans. It's all about this quarter. And happiness in a public company, especially a tech one, is all about the stock price. Nothing can kill morale more than a stock price that just doesn't move, while a new hotshot stock zooms past.

The government has only made the harsh reality of life as a public company worse in the years since the bust, thanks to something called Sarbanes-Oxley regulations....Instead of punishing bad people, the government just made an already imperfect system worse. ...

..."No thank you," said much of the Web generation looking at the mess.

The rant goes on, but you get the idea. I've spent many dinners talking through what could get the markets back to a spot where the best companies want to go public. To a point where you could build a long-term company and invest for future growth without an insanely efficient and profitable business like Google. I wonder now, if this would be a huge step in the right direction. If so, the stigma needs to die fast. 

As a side note: It's another reason Marc is a great fit for Facebook's board. And btw, it takes a lot for Pmarca to change his mind this dramatically! Everyone, remember where you were when you read this post....;)

Comments

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Sarah,
I love your writing, but I think you are getting too close to these people. It will hurt your credibility.

Marc Andreessen's commentary on dual share structure is infantile at best. I can't believe gets so much ink. I thought it was a joke at first, but he actually believes it. He is right about the emotional reality of the financial markets--and Wall Street is an obvious easy target, but he seems to forget that in life and business we have tendency to deceive ourselves and others just like The New York Time Co. and Yahoo. What he wants is the safety to fail and lose money without accountability.

Andreessen seems to be on the pursuit of some kind of esoteric truth and he is doing so by extolling the merits of technology and "building" a franchise. Good for him! Well, stay private and don't go public. But that means no cashing out and no stock options. Don't like Wall Street or hedge funds then stay private.

Also, his buy and hold thesis in dying. Financial markets are too complex today. Even Buffet drops underperforming investments. He should do more home work.

Sarah,
I love your writing, but I think you are getting too close to these people. It will hurt your credibility.

Marc Andreessen's commentary on dual share structure is infantile at best. I can't believe gets so much ink. I thought it was a joke at first, but he actually believes it. He is right about the emotional reality of the financial markets--and Wall Street is an obvious easy target, but he seems to forget that in life and business we have tendency to deceive ourselves and others just like The New York Time Co. and Yahoo. What he wants is the safety to fail and lose money without accountability.

Andreessen seems to be on the pursuit of some kind of esoteric truth and he is doing so by extolling the merits of technology and "building" a franchise. Good for him! Well, stay private and don't go public. But that means no cashing out and no stock options. Don't like Wall Street or hedge funds then stay private.

Also, his buy and hold thesis in dying. Financial markets are too complex today. Even Buffet drops underperforming investments. He should do more home work.

hey maximo-

i respect your feedback and thanks for the comment. i've long had an issue with the public markets, it has nothing to do with being too close to anyone. it has to do with spending a decade watching companies go public and find themselves trapped in no win situations as a result. when you hear the same thing over and over again from CEOs, you tend to notice a pattern. and i hardly think that's a controversial position. a lot has been written on it. i think marc proposes a good, thought provoking solution, that's far less radical than other ones i hear and obviously the google guys did as well. i would not be surprised if this becomes the new vogue among tech companies who have the leverage. if you don't agree, that's fine and reasonable, as there are a lot of pitfalls as well, but i don't think it's an issue of my credibility.

there's always a tricky balance between being informed and being perceived to be "too close" to a source. i guess i think being informed is more important. i spent hundreds of hours all told with the people in my book. it was necessary to write a narrative and i'm not going to pretend that i have some distance that i may not. but hopefully that perspective is a reason some people like to read my blog. there are a ton of people who write about the valley who aren't immersed in the players or the game, so that perspective is out there too and also valid!

but hey! i love anytime someone says they love my writing! :) so thanks!

s

I think the much safer route to getting more public companies is to repeal big chunks of SarBox.

Reduce the cost of going public.

And I think Andreessen's proposal would have lots of unintended consequences - since it would simple weaken governance.

My view here:
http://gotads.blogspot.com/2008/05/andreessen-loves-leverage.html

BTW, blogging after wine is a good thing.

thanks for the note john! headed to read it now. i think marc's caveats were important, but of course there are consequences. there just seem far worse abuses of governance. and yeah-- big chunks of sarbox just have to go or us capital markets are screwed. i think they will eventually.

Sarah,

I have my issues with the stock market as well, as an investor. I do agree with you on sarbox. It is a burden for small companies and startups and has done very little to halt corruption. Just look at the mess with financials.

You're right, Marc's position is not controversial, but I don't see as a solution at all.

As to your perspective of course I rather have you immersed in the tech culture--that's why I read your columns. Just don't turn into Maria Bartiromo :0)

thanks maximo!

i laughed at the last line because my producer at Yahoo was maria's producer for seven years. I think she wishes I was MORE like maria! i'm hopeless with a teleprompter or scripted interview!! i'm sure she'd tell you no worry there! :)

Of course, you could take the slightly more sceptical point of view and argue that this is more a mechanism for early day investors to grab public money without relinquishing control.

In another world this is called power without accountability - nice gig if you can get it, but caveat emptor!

Anyway, my thoughts on the matter here:

http://broadstuff.com/archives/912-A-change-in-the-control-structure-of-Tech-companies.html

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