American Startups Have Less Need to List on the Stock Market
Oct. 18, 2018
Whatever your view of the recent antics of Elon Musk, one thing seems clear. He rather regrets that Tesla, the electric-car maker of which he is boss, ever became a public company. To recap: in August Mr Musk announced that he had secured the funding to take Tesla private. The gyrating stock price is a distraction to staff, he explained. The obligation to report earnings each quarter fosters short-term fixes that may hurt the firm’s long-term health. And being listed makes Tesla prey to short-sellers.
Tesla’s share price rallied. The shorts lost money. It then emerged that the money to buy out shareholders was not quite as secure as Mr Musk may have suggested. Before long, the board confirmed that the firm would not be taken private. Its shares sank back. The company is now under investigation for possible securities fraud.
Whatever these larger consequences, Mr Musk achieved a minor feat. He has drawn fresh attention to some familiar grumbles about public markets. The number of listed firms in America is in long-term decline (see chart). Mr Musk’s beefs seem specific, but they are part of a general explanation for this trend. The red tape, the endless disclosures, the ceaseless spotlight—all have made the cost of being a public company too high. Yet that is not the real cause. The main reason why startups do not become public firms is that many of them no longer need to.
Image Courtesy of Pixabay.