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February 17, 2022 at 04:48 PM
What You Need to Know
- With a steeper part of most companies’ growth curve happening privately, an allocation to private markets is becoming necessary for nearly all investors.
- The average age of a new public company rose from 4.5 years in 1999 to more than 12 in 2020.
- Beyond the growing supply of private funding, a strong secondary market and emerging structures like continuation funds are making it easier to stay private longer.
The case for private market investing often centers around where. With the number of public companies shrinking, the bulk of innovation and dynamism in corporate America is happening at private companies.
But an addendum to the case for private markets should center around when. There is growing evidence that companies are deciding to stay private longer, experiencing more of their growth cycle outside the sphere of public markets.
For investors, the implication is clear: With a steeper part of most companies’ growth curve happening privately, an allocation to private markets is becoming necessary for nearly all investors.
Where and When
The argument about where growth is happening is still relevant. There are only 2,600 public companies with annual revenues greater than $100 million. That’s a small slice of corporate America, where there are 17,000 private businesses of that size, according to Capital IQ.
Further, the size of the public pie is shrinking. At the beginning of 2000, there were 7,810 publicly listed companies. By the end of 2020, it was just 4,814, according to research by Professor Jay R. Ritter of the University of Florida.
Of equal importance, those who do go public appear to be waiting longer to make the jump. Within the technology sector, for example, one study conducted by Professor Ritter found that the average age of a new public company had gone from 4.5 years in 1999 to more than 12 in 2020.
