Here's Why Companies Are Staying Private For Longer
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I'm Stephen Carroll and this is Here's Why, where we take one news story and explain it in just a few minutes with our experts here at Bloomberg. The legendary investor Warren Buffett once wrote, if you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes. But what if you can't buy the stock in the first place? Some tech companies, maybe a lot of tech companies,

go public a bit too early. Some of the world's most exciting companies are remaining in private hands. Take the example of payments giant Stripe, valued at about $70 billion. The co-founder and CEO John Collison says they're in no rush to go public. We still see tons of opportunity to change and grow the business quite a lot. You look at analysts following public companies and obsessing over guidance and what will be this quarter and things like that. Culturally, we've ended up, I think, in a bit more of a world where businesses

public companies are suited for the extract stage of the sigmoid curve rather than the expand stage. And Stripe's not alone. SpaceX cemented its status as the world's most valuable private startup with a share sale that valued it at about $350 billion. And at OpenAI's last fundraising round, it was valued at $157 billion. So here's why companies are staying private for longer.

Joining me now to discuss is the person at Bloomberg who specialises in covering how companies go public, Bailey Lipschultz. Bailey, thanks for joining us. Does this mean you're out of a job? How widespread is this trend of companies staying private? So far, not out of a job, but it definitely makes you want to find some other areas to write about. But it is a widespread trend.

that has been really taking place over the last two, two and a half decades. When you look at the U.S. alone, the number of publicly traded companies has been cut in half from about 7,500 to 4,000. So this is something that has been a real sea shift that has been taking place again, really, when you go back to the mid-2000s with companies preferring to stay private after the fallout of the dot-com bubble. So why are they making this decision? Why are they choosing to stay private?

Easier access to capital. We've seen such a big push from some of the biggest investors to wanting to get a piece of some of these companies earlier. You also don't have to deal with activist investors, deal with journalists digging through filings and financial updates. Also, it costs a lot of money to be public. If you can be Databricks, who just raised $10 billion at a $62 billion valuation, you mentioned SpaceX, OpenAI, and a number of other companies, when you talk to management,

An IPO could be the path at some point, but they prefer to stay private just because they can continue to give early investors, employees, access to liquidity, ability to sell some of their shares to actually turn paper profits into real cash, and they're not dealing with the headaches that come with being a public company.

But it seems like in a lot of cases, these companies are sort of keeping the option open that they could go public at some point down the line. Do we have any idea of how much money is tied up in these private companies that could, in theory, list if they wanted to? So we've seen data with private equity-owned companies alone. There's about $2.9 trillion worth of value that needs to be

either sold through a sale or brought public through an IPO. And you have a number that's pretty similar on the venture capitalist side of things. So this is trillions of dollars in terms of companies that are tied up in these private investments. It's just a question of when they would go public, what that would look like, and whether valuations make sense for venture capitalist private equity firms, or if they want that branding event where they're ringing the bell at the stock exchange here in New York and have the ability to point to a ticker that trades online.

on the New York Stock Exchange or on the NASDAQ. And we mentioned valuations there. How reliably can we value a company that stays private?

It's a hotly contested debate because when you look at companies like OpenAI being valued at $157 billion, that means they found enough investors who thought that that was worth writing a check for. If you're publicly traded, you're getting kind of mark-to-market every second that a market is open for trading. So it's a bit opaque. It's a bit of a black box in terms of how some of these valuations end up. But presumably, the investors, the thrive capitals of the world, the venture capitalists, these private equity firms who take these companies private --

they have an expectation and kind of a specialization that those numbers do make sense. But the big debate we've been seeing and why we've seen such a dearth of offerings in really the last three years partly has been companies were either taken private by private equity or have remained private in venture capital, and they don't like what they would get if they were to go public and sell shares to public investors and have to deal with being kind of re-rated on an ongoing quarterly basis.

Are there regulatory concerns involved here as well? If we have companies that are this valuable, talking about some that are hundreds of billions of dollars, that aren't subject to the same oversight that publicly listed firms are? I don't think so. The expectation, it depends kind of who your stakeholders are. Securities regulations are there to protect unsophisticated investors. So you have to be an accredited investor. You have to

actually have access to buying a SpaceX. And you have to kind of have the ability to get in the door with an open AI to actually write a check. So there are some regulatory walls put up in terms of investing in some of these companies. And just broadly speaking, as it relates to reporting, if you're publicly listed, you obviously have to have earnings every quarter and have to be kind of in the books and have lawyers and consultants and other people on the payroll. If you're private, you can kind of operate at least to some extent

and how you would like, broadly speaking. MARK MANDEL: Is it a problem if these companies don't ever go public? We think about some of the really high profile ones like SpaceX or OpenAI.

It depends who you talk to. If you are a company or if I talk to lawyers and investors, as long as the earlier stage investors or employees have the ability to take advantage of the equity they've built up in the company, then there's really no reason to go public. When I talk to advisors, the question when they're talking to management teams are, why do you want to go to public?

What do you gain from being publicly listed? The downside, though, is if you don't have a strong public market, you don't have that transparency that you mentioned, you don't have the ability to hold some companies accountable, and you also don't have the ability for people to actually buy some of these companies. So by the time OpenAI were to go public via IPO, by the time SpaceX could go public or Starlink could go public, a lot of that valuation and growth could be sapped out of the market. And now you're bringing a company that

already is one of the biggest companies in the world, straight to the public markets. And investors, at least in the public markets, who don't have the ability to have access to it or can't afford to pay someone for those private investments, kind of is joining the party late. Is this becoming a question of prestige? Is it just a sort of badge of honor to be a public

company, or is even that dwindling? It feels like that is dwindling depending who you talk to. Obviously, the exchanges want companies to continue listing, but if OpenAI can be valued at $157 billion, if SpaceX can get its funding round, and employees, according to Elon Musk, don't want to sell shares...

Everyone knows who some of these companies are. There is still a branding event with being publicly listed. There is some validity, depending on the industry you operate in, where you can talk to customers and clients and say, "Hey, we're publicly listed. We trade on the New York Stock Exchange. Here are our quarterly results." But for some of these name brand companies, some of the top, upper echelon firms, the question really is, what would be the reason to go public? If there's not a good business reason, then, for all intents and purposes, staying private makes a lot of sense.

OK, Bloomberg's Bailey Lipsholtz, thanks very much for joining us. For more explanations like this from our team of 2,900 journalists and analysts around the world, search for Quick Take on the Bloomberg website or Bloomberg Business app. I'm Stephen Carroll. This is Here's Why. I'll be back next week with more. Thanks for listening.

Welcome back, Ms. Klein.

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