Making It Easier For Startups To Cash Out
from the moving-forward dept
This idea has been talked about for a while, but it looks like it's finally starting to move forward: creating a market for buying/selling shares in startups outside of a full public offering. As you may know, right now, (with a few exceptions) the stock in a startup is basically illiquid in that it can't be bought and sold outside of a full funding round. The downside of that is that it really does lock up the value for many employees who have to sit on the stock and hope that one day the company is sold or goes public. That's become an even bigger issue this past decade as the IPO market for tech startups has been pretty dim -- due to a combination of factors, including (among other things) the dot com bubble burst, regulations like Sarbanes Oxley and even the real estate bubble (diverted plenty of money that could have gone towards IPOs into both real estate and alternative investments).The new plan, from a company called InsideVenture and backed by a bunch of VCs is what they're calling a "hybrid public-private offering," nicknamed a "Hippo." And it is basically just what it sounds like -- a mix between a private fundraising and a public market. Companies that go through the process will file the standard earnings reports with the SEC -- but the initial shares will be sold to member investors prior to the offering being final. I'm all for experiments of this nature, though there certainly are questions about whether or not this will really catch on. Many may see it as "what a company does if it can't IPO" which could attach a stigma to companies that go this route. Also, I still think that the old "quarterly reports" system needs a reboot involving radical transparency, so I'm not sure that reinforcing the old quarterly report system (which stunts long term vision for short term results) is really such a good idea.
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Filed Under: cash out, investment, ipo, startups
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- a big mean animal that kills people
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It isn't the report period causing the issue
There are a few studies that support the idea institution ownership can have a negative impact on corporate performance over the long. There are many studies that note positive aspects as well.
http://www2.bc.edu/~tehranih/TehranianInstOwner10-06-05.pdf
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Benefit?
If a company is doing well enough for a Hippo, then they're probably doing well enough to be acquired; however, I can see that there may be appropriate situations for Hippo. For example, when one shareholder wants an exit while others don't. If not all the other shareholders are willing and able to buyout the exiting shareholder, then selling to one may change who controls the company, which could cause problems. In that case, a Hippo could be an option.
I've run companies with both VC and angle funding, as well as a public company (for a short time). In my experience, the reporting/auditing required of a public company is a significantly bigger pain in the neck than is required for private investors (at least when the relationship is good). Quickbooks does a great job of easily and instantly generating accurate non-GAP reports, which is fine for most investors, but not for public companies. So, I'd likely really have to want to get rid of someone to go for a Hippo.
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Love it!!!
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I think if the business is worth its salt then you dont need hippo.
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Radical transparency? How can you even put these two things together in the same story? Private companies are entirely NOT transparent. If they want to trade, they need to take the company public, then they can trade - or they can go get another round of financing privately. You can't do both, sorry.
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As far as providing more information (per the link you provide in this post), what else do you propose they disclose? Even in the linked post, you observe how the volume of information could obscure rather than enlighten some readers.
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Post 8!
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