FOMO

If you had invested $1,000 in Amazon at its IPO you’d have $2MM+.

Nearly everyone has heard this example or something similar to it. (Apple, Google, etc.) The idea that wealth creation can take place from the public markets is not a fallacy. However, the public market of today is not the public market of yesterday. Things are changing.

Road to IPO

The road to IPO used to be a 2 minute drive down the street and a right turn into NASDAQ. Below are notable tech giants and how long it took them to go from founding to IPO:

• Amazon (1994): 3 years 

• Apple (1976): 4 years

• Netflix (1997): 5 years 

• Google (1998): 6 years 

With newer tech giants, the road to IPO is much more drawn out:

• Uber (2009): 10 years 

• Dropbox (2007): 11 years

• Airbnb (2007): 12 years 

• Stripe (2010): 13 years (still no IPO)

In this very limited sample size, it's taking roughly 2x+ as long for tech giants to join the public markets. The reason it’s taking longer can be attributed to two drivers:

1. Cost of Going Public: The costs associated with being a public company have increased significantly post-GFC (Great Financial Crisis). Dodd-Frank regulation hiked costs of being a public small/mid cap company to ~$15-25M. For context, Apple's valuation at IPO was $1.8B, Amazon's was $300M, Netflix's was $309M, and Google's was $23B. For the new guys, Uber's was $75B, Dropbox was at $9.2B, Airbnb was at $47B, and Stripe, still private, is currently valued at $50B.

2. More Private Capital: The total amount of private capital (angel investment, venture capital, growth and private equity) has ballooned in the past few decades, making it more viable for startups to stay private for longer. This, combined with Dodd-Frank regulation, means that companies are staying private even as their valuations get to $10B+. 

Implications

The outcome is clear: the opportunities for wealth creation in public markets are thinning out relative to two decades ago. All of the companies in our "new guys" set were founded 2007-2010, more than a decade ago. The tech giants of tomorrow are being founded today, and the odds are that they will not be available on the public markets until their valuation has reached a near peak. 

 When it comes to wealth creation through equity, angel investing + access to VC/PE vehicles will continue to grow in importance relative to the public markets. These vehicles allow for broad exposure to private markets while still retaining attractive upside.

 Thanks for reading today's edition… There is still time to review investment materials for Forma Capital, and you can complete the investment subscription flow by clicking Invest Now on our site. You can also reach out to [email protected] for more info. 

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