A Free Market Alternative to the Public Listing
Think about this for a second. An entrepreneur has spent a lifetime building his own company up from the ground, using his own capital, the capital of family and friends—and possibly some help from the friendly local venture capitalist. Why would that entrepreneur choose to put his precious creation into the clutches of the public regulatory, legal and compliance environment—all the while having to manage his former long-term enterprise to a quarterly analyst call?
History shows that the answer has been one thing—liquidity. No one, at least in my opinion, ever really sits back and contemplates a public listing unless they need liquidity. The butcher always has his bill and if liquidity is the goal then the cost is aggravation.
What if a new paradigm emerged? Picture this. What if new platforms emerged to create a market for pre-IPO shares by offering liquidity to executives holding the common and preferred shares of private companies? That would make it possible for executives and critical employees to have a ready buyer at a fair price. But it wouldn’t stop there. That same buyer could create a secondary marketplace for other interested parties to buy those shares.
I think that construct could be part of our financial future. Once a marketplace is established for obtaining private company stock at a fair price, the allure of being a publically owned company will diminish significantly for private company owners.
From an asset allocation standpoint, this portends a tremendous opportunity for individual investors to access companies and valuations that have traditionally only been available to venture capitalists and the largest of institutions. The ability to diversify amongst not only public, but also private securities broadens the investable universe—and we know that the greater the size of the universe, the more opportunity there becomes for expanding the definition of diversification.
The future is fast approaching. The closer it grows, the more the traditional definition of allocating wealth is evolving.