Late-Stage, High Growth, Private Companies

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Presentation transcript:

Late-Stage, High Growth, Private Companies Raising Capital: Late-Stage, High Growth, Private Companies Sanjai Bhagat Provost Professor of Finance Independent Director, ProLink Solutions https://www.linkedin.com/in/sanjaibhagat

Decreasing Number of Public Companies in the U.S. In Any Given Industry: Winners Take All Source: Doidge et al (2018)

Decreasing Number of Public Companies in the U.S. In Any Given Industry: Winners Take All Source: Doidge et al (2018)

Where have all the flowers gone

Where Have All The IPOs Gone? Source: M. Lowry, R. Michaely, and E. Volkova (2017)

Number of Start-ups that raised at least $150 M, 7 years after first round Source: Ewnes & Farre-Mensa (2018)

Round up the usual suspects…

Decline in number of IPOs, and number of public companies Sabanes-Oxley Act 2002 Dodd-Frank Act 2010 Perhaps not … Decline in number of IPOs, and number of public companies long before 2002!

NSMIA National Securities Market Improvement Act 1996 Federal pre-emption of states’ Blue Sky Laws Allows investors to raise unlimited amounts of capital from “accredited investors” Used extensively by Venture Capital and Private Equity firms Changes to Investment Company Act of 1940 Exempts from registration/disclosure private funds with 100 or fewer investors

VC and non-VC capital to late-stage startups Source: Ewnes & Farre-Mensa (2018)

New sheriffs in town…

Diversified Private Equity Funds Historically in LBOs; Now in “growth-equity” investments Mutual Funds, Hedge Funds Historically, active IPO investors Now, investing in private VC-backed startups

Non-VC investors in late-stage startups Source: Ewnes & Farre-Mensa (2018)

Source: Chernenko et al (2017)

Source: Chernenko et al (2017)

Source: Chernenko et al (2017)

Source: Chernenko et al (2017)

Founders equity after first-round of VC financing Source: Ewnes & Farre-Mensa (2018)

New kid on the block?

Regulation A+ offerings, or, Mini-IPOs 2016-2017 290 companies $400 million total raised Most companies have no revenue Industry: Finance, insurance, manufacturing AuditAnalytics (2018)

Positively related to post-IPO ownership of IPO Valuation Positively related to post-IPO ownership of CEO VC Officers and Directors Other Blockholders Negatively related to stock-sales during the IPO of AuditAnalytics (2018)

Founders will continue to own significant equity after the Given, IPO Valuation is Positively related to post-IPO ownership Negatively related to stock-sales during the IPO Founders looking for equity capital should assure hedge-fund/mutual fund/private equity group: Founders will continue to own significant equity after the equity capital has been raised