There used to be an average of 500+ IPOs per year, says Silbert. The all time high was in 1996 when more than 800 companies went public.
Back then, 75% of the companies raised less than $50 million from investors — they were small cap companies — and it took an average of four years for them to IPO or get acquired.
Today the average time to IPO has more than doubled to 10 years.
Silbert says the delayed IPO shift began in 1996 when online brokerage firms like E*TRADE and TD Ameritrade helped people side-step stock brokers. Brokers used to act as sales people for public companies; they suggested stocks for clients to buy. Now people are making investment decisions themselves based largely on a company’s ability to meet or exceed quarterly earnings.
The average stock in 1970 was held for five years; today it is only held for 2.8 months. CEOs are having to manage their companies on a quarterly basis instead of for the long haul.
Unless a company is really hot or well known, many public companies become zombies, says Silbert. They only trade 5,000 shares per day. They have all the costs of being a public company (it can cost $2-3 million per year) but none of the benefits.
“The IPO market has completely crapped out,” says Silbert.” “You need to be a billion-dollar company, and it’s really f*cking hard to build a company of that size.”
“The old capital formation process was this: You were founded, angel funded, VC funded, then went public or got acquired within five years,” says Silbert. “But a 10-year IPO doesn’t work for 99% of the companies now.”