There are, increasingly, fewer and fewer public companies. That’s what a new report from Sherwood News, Robinhood’s research arm, unpacked. But the bigger question is why?
The report points to a number of possible reasons, including increased regulation like SOX, and increased amounts of private capital from PE and VC. While certainly some of the story, Sherwood points to one 2023 academic paper that argues the “Magnificent Seven” (Microsoft, Apple, Nvidia, Alphabet, Amazon, Meta and Tesla) have started to eat a lot of the public companies. These companies have, collectively, acquired over 870 companies.
Meanwhile, you have a number of viable contenders sitting on the sidelines staring across the chasm of going public. SpaceX ($150 billion valuation), Stripe ($50 billion), Databricks ($43 billion), and on and on. For some, like SpaceX, there’s a specific logic. Elon Musk already doesn’t love being a public company with Tesla, and has said he wouldn’t take SpaceX (or even Starlink) public until their revenues are more predictable.
And while many point to IPO conditions as a stalling point for many of these companies, you only need to look at the performance of several recent examples, like Instacart, Reddit, Klaviyo, and Rubrik.
All of them have had relatively steady performance since their IPO, with very few of the stark drop-offs and 90% value reductions that we saw with the crop of 2021 IPOs and SPACs. Even for Reddit, which has a fraction of the scale of other social media giants, and is still unprofitable.
But for many companies, becoming a public company remains a difficult chasm to cross. Apprehensions about how they’ll be received as a public company can be debilitating for a number of companies. Especially when, as we’ve seen for companies like OpenAI, Databricks, and Rippling, there is still plenty of appetite for private capital and even capital to support employee tenders to generate liquidity for early believers.
