In case you want a vivid example of how the Wall Street and tech worlds have changed in the past couple of decades…
Business Insider is now a much bigger company than 1990s Internet behemoth Yahoo, Inc. was when it went public.
And so are hundreds of other tech and media companies that are still private companies and probably always will be.
Yahoo! went public on April 17th, 1996.
The stock exploded, naturally, soaring from an IPO price of $13 a share to $45 and then closing for the day at $33. This gave Yahoo! an $850 million market value.
The most stunning aspect of the Yahoo! IPO, of course, was how young the company was. When it went public, it was only about 13 months old.
And in terms of financial performance, Yahoo was a veritable infant:
The company had generated only $1.4 million of revenue in 1995, the year before it went public. And the company’s revenue in the quarter of the IPO–the first quarter of 1996–was only $1.7 million.
For comparison, Business Insider generated about $10 million of revenue last year.
But a company our size wouldn’t even think of going public today, let alone a company the size that Yahoo and other seminal Internet companies were back in 1996. It would just be too expensive and too much of a headache.
The truth, unfortunately, is that only masochistic companies would ever go public today, unless they’re so massive, mature, and boring that most of the early opportunity has already been wrung out of them. The public market and media have become so hostile to high-risk, high-reward investments like Yahoo! that companies that go public are just setting themselves up for abuse and misery. It also now costs a fortune to go public and be public, in part because of the millions of dollars of accounting, compliance, and legal fees you have to pay to fend off the inevitable barrage of lawsuits you’ll be hit with the moment your stock opens. So no company that can avoid going public would ever go public today.
This, by the way, is a bummer.
Because no young companies go public, even aggressive investors who want to accept the risks of investing in them are deprived of the opportunity to do so. And promising young companies can no longer raise money from these investors to fund aggressive investment and growth.
The tech industry has worked around this problem by developing a huge market for private investment–late-stage venture capital firms, private-equity firms, etc. And that’s a perfectly easy way for growing companies to raise capital. (That’s how we’ve raised money, for example.)
But this market still has more “friction” than our IPO market once did. And it’s less available to aggressive investors.
And that’s a shame.
Not just for emerging high-risk high-reward companies–for aggressive investors as well.
Yahoo, of course, was an extraordinary success story–one of the fastest growing media companies in history. Those who bet on Yahoo! back in 1996 made more than 50X their money over the next three years (and then lost most of it again if they hung on too long).
Few of today’s private companies will grow at anything like the rates Yahoo did in the late 1990s (we certainly won’t), and the return on investment on these companies will likely be much lower.
But when those of us who were around back in the mid-1990s reflect on the excitement around the developing industry and public markets at that time, it’s hard not to feel like we’ve all lost something.
Yes, there are fewer opportunities now for public market investors to be stupid and buy stocks that are too risky for them and that they have no business buying. (Although, as Facebook’s IPO illustrates, even waiting until companies are mature won’t stop this from happening).
But there are also fewer opportunities for those who want to make speculative investments and are grown-up enough to accept responsibility for making them. (True speculators have now been reduced to gambling on Bitcoin, which is considerably riskier!)
And, today, unfortunately, most of the really exciting action in the tech industry now happens in the relative darkness of the private market.