IPOs in Decline

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“IPOs are on the decline, and that spells economic trouble. Between 1997 and 2016, the number of publicly listed companies in the US went from 7,500 to 3,618, reports Quartz. Startups aren’t necessarily hurting, as they can raise funds from private sources like VC and private equity firms. But when they do that, average American investors lose the opportunity to invest in, and profit from, the burgeoning parts of the US economy. And when startups shift their goal from going public to getting acquired by bigger fish, this leads to increased industry concentration, which in turn results in a decrease in competition.

Early Stage and emerging growth stage companies are failing to access all of the financial strategies afforded to them due to the pressures for an exit, exerted by the very VC and private equity firms who have funded them. Getting a portfolio company acquired is the quickest and least uncertain path to the harvest strategy required by these investors for them to realize a real return on their investment.

Average American investors have not participated in the IPO marketplace to a large enough extent that would lead the VC and private equity firms to the certain conclusion that an IPO is a safe place to exit and that they would be rewarded for taking the risk of their early stage investing. Until that occurs industry consolidation will continue and mega companies will reign supreme.

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