Comment by bko
5 hours ago
What regulation makes it so that a large private company would have to go public? You have it backwards. Increased regulations make it more burdensome for a company to go public, driving companies like OpenAI to remain private. If you made it less expensive and burdensome to IPO (decreased regulation), you would see companies go IPO earlier.
This also coincides with a growing market for private credit and VC which certainly helps companies stay private for longer.
There was a rule[1] pre-2012 that forced public disclosure (akin to listed companies) for private companies when it had >500 shareholder (which counted employees with shares). This made it so that companies had a choice to stay private with all obligation of public disclosure or go public for added benefit of tapping public market.
In 2012 this was relaxed in JOBS Act which relaxed the 500 threshold to 2000 but more importantly it ignored employees so now private companies of gargantuan trillion dollar valuation and thousands of employees have no disclosure requirements.
So, this is a classic case of regulation that did well but was relaxed and now creates hidden risks.
[1]: https://www.investopedia.com/terms/5/500-shareholder-thresho...
I think they would have kept it under 500 if they had to. I doubt this is the determining factor. In fact a lot more than 2k investors have exposure through SPVs or holding companies on top of holding companies. So no, I don't think this was the determining factor that allowed OpenAI to stay private longer.
I disagree. Not counting employees as shareholders was the main kicker. There was a reason Google and Meta went public so early in their growth story.
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Regulations that limit the ability of investors to invest in private companies, although these have been weakened in recent decades, which helps fuel the growth of private credit markets that allow private companies to stay private.
I'd say it's the growth of private markets to allow companies to keep getting funding even at the $100 billion range while staying private that has fueled the trend to stay private rather than SOX and other new regulations for public corporate governance dissuading them from going public.
>Regulations that limit the ability of investors to invest in private companies, although these have been weakened in recent decades, which helps fuel the growth of private credit markets that allow private companies to stay private.
Which regulations are these?
SEC 12(g). The cap was raised by the JOBS act.
It's not that you couldn't stay private before, but there wasn't much benefit because after crossing that cap you had reporting obligations comparable to public companies anyways.
It's because reporting requirements changed, in particular employees with stock options no longer counted as shareholders for the purpose of crossing the mandatory reporting threshold.
Before that change companies like MS were in essence forced to IPO, because they'd get all the downsizes of public reporting, without the benefit of accessing market liquidity. So once you were over the threshold, it made no sense to not go all the way.
That's no longer true, and has coincided with a huge expansion in private equity funding growth stage companies vs needing public liquidity. As a result these IPOs being done after their growth stage is largely over are offering the public a very different bet that tech company IPOs of the past.
> What regulation makes it so that a large private company would have to go public?
My guess would be - oxytocin, cortisol and dopamine regulation, or rather the failure of said regulation.
Meta (formerly Facebook) was forced to take their company public because of how many private investors they had. It’s the Securities Exchange Act of 1934 and also the Jobs Act of 2012 which set these limits (currently 2000 shareholders is the limit). Companies use right of first refusal on their shares to keep the number of shareholders low.