Has Death of U.S. IPO Market Been Exaggerated?

The market for initial public offerings is shaky. So says the new head of the U.S. Securities and Exchange Commission, Jay Clayton, and the president of the New York Stock Exchange, Tom Farley, who point to burdensome regulations as a big part of the problem. The decline in new listings has been fingered as a key reason the total number of public companies in the U.S. shrank from more than 8,000 in 1996 to about 4,400 in 2016. Does fewer companies going public mean there’s something fundamentally broken in the IPO process? Not necessarily.

Many companies can find capital privately, allowing them to avoid the red tape that comes with a stock listing. A prime example is the technology industry, which has more than 200 closely held companies with valuations higher than $1 billion, according to CB Insights. Take Airbnb Inc.: The nine-year-old home-booking company has raised about $3.4 billion in private funding rounds and is valued at $31 billion (what investors are willing to pay for a share in the latest private stock sale, times the number of existing shares). Airbnb has expanded into new markets and dealt with regulatory issues away from the daily scrutiny of public market investors, unlike, say, Google (now Alphabet), Apple and Amazon.com, which held IPOs within six years of their founding.