What is the purpose of public markets?  Public markets serve a number of purposes including setting valuation benchmarks for all companies, not just those publicly traded.  Over the past decade or so the number of publicly traded companies in the US has been in decline for some time now.  In short the number of companies exiting the public markets via takeover, bankruptcy etc. has outpaced the number of companies coming public via an initial offering.  Some argue that public policy has made the costs of being public too high, thereby discouraging IPOs.  For example many argue companies like Facebook are staying private to avoid these costs.  Others argue that the public markets are becoming more discerning in their tastes and are only open to larger companies with more established track records.  In the meantime a great deal more venture capital activity is happening outside of the scope of the public markets.  The relative openness of the public markets has implications not only for the companies involved but also the investing public.  Institutional investors have access to private companies via private equity and venture capital.  These opportunities are by and large off the radar screen for individual investors.  In today’s screencast we look at the implications of the rise of a two-tier capital market.*

Items mentioned in the above screencast:

Why are the number of public US companies dropping?  (CFO)

Hedge fund herding and the decline in US listings.  (Abnormal Returns)

The IPO market isn’t dead, it has just become more selective for VC-backed firms.  (Street Sweep)

Are individual investors missing out by the rise of more privately held firms?  (Felix Salmon)

*Have left aside the entire issue of holding periods and the rise of high-frequency trading on companies’ willingness to be publicly traded.

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