Wednesday, 15 May 2013

Andreessen: "We've Ruined The Public Markets"

Don't expect a game-changing tech initial public offering anytime soon. Private tech companies are steering clear of going public as long as they can manage, said Marc Andreessen, the co-founder of the venture capital firm Andreessen Horowitz, on CNBC's "Closing Bell" Monday.

"When you say, 'what's the next big IPO?' the brutal truth is I don't know and I'm not sure there is going to be one for quite a while because the incentives are so strong to keep these companies private," Andreessen said.

The hangover felt from the dot-com crash and financial crisis has spurred an era of over-regulation in the public markets which has essentially caused a backlash from private companies that are refusing to go public, Andreessen said.

Emerging entrepreneurs see the public markets as "incredibly hostile," he said.

"The new running theory among new entrepreneurs is never take your company public or don't do it as long as you possibly can," Andreessen said.

Above is from an article on Business Insider. Andreessen is a highly regarded player in the VC (Venture Capital) industry, he knows what he is talking about. The above applies to the US market.

I am a great believer in capital markets, but things must make sense. There should not be over-regulation, but simple, clear rules which are enforced in a strict, fast and transparent way. The cost to list and to stay listed should be minimal. Exchanges should be non-profit organisations. All intended to encourage companies to list, using public money to grow further. IPO valuation should be reasonable, investors should be rewarded for taking on risk. All parties involved (founders, initial backers, public investors, regulators) should play their part in this eco-system. Financial engineering should be brought back to an absolute minimum.

More quotes from Andreessen:

While there were about 8,800 public companies in 1997, there were about 4,100 publicly-traded companies in 2012, a decline that can be attributed to a war being waged on the public markets via regulations like Sarbanes-Oxley and Regulation FD, which were put in place to help de-risk the market. But these regulations do more harm than good, Andreessen said.

"We seem to have collectively decided as a society that we want to strip risks out of the public markets, so we had the dot-com crash, we had the financial crisis, and we decided that we don't like risk anymore," he said. "So there have been a series of regulatory reforms, a series of corporate governance movements, and the result has been a huge disincentive for companies to go public, and of course the problem with that is if new companies don't go public then you get exactly what we are seeing, which is the number of public companies falling."

Because the number of public companies is falling, growth is being stripped out of the public markets, which will ultimately pave the way for a two-tiered system, he said.

"If you kill risk, you kill growth. If you kill growth you kill returns. And as a result the market is becoming a two-tiered system and I think that is bad," he said. "Funds like ours—that primarily represent, frankly, rich people, rich people's pensions, rich people's colleges and foreign countries' sovereign wealth funds—generally, are doing fine."

However, he said that on the public side, growth is being drained out of the market, and that could hurt many Americans in the long-term.

"Of course the public market is where most ordinary Americans retirement savings is held in the form of mutual funds and pension funds and if we keep with this approach of over regulation in the public markets, we're not going to have returns for peoples' retirement accounts, which means people aren't going to be able to retire," he said. "And I think that is going to be the big problem that comes out of that and I think that's where we are heading straight towards that right now."

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