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Rise of private investing puts growth ‘in the hands of the elite’: Venture capitalist Ben Horowitz

Max Zahn

High-profile IPOs this year from household tech names like Uber (UBER), Lyft (LYFT), and Slack (WORK) have drawn attention to public exchanges. But, overall, companies are staying private longer — a “terrible problem” for everyday investors and an unsung cause of wealth inequality, says one top venture capitalist in a newly released interview.

The rise of private investment takes “the growth opportunity away from regular people and puts them all in the hands of the elite,” says Ben Horowitz, cofounder of venture firm Andreessen Horowitz and author of “What You Do Is Who You Are,” a book released last month on how to build an effective company culture.

The number of public companies fell by more than half between 2018 and 1997, when there were 8,884 companies listed on U.S. exchanges, the Atlantic found. Meanwhile the count of unicorns, private companies worth at least $1 billion, has ticked up to 418 with a whopping $1.3 trillion in total valuation, according to research firm CB Insights.

Horowitz called the spike in private investment “one of the biggest issues we have economically as a country,” noting the lost opportunity for widespread returns when “we have all these amazing new businesses that are getting created in the United States.”

Regulation puts demands on public companies that make it appealing for chief executives to keep their ventures private, Horowitz told Yahoo Finance Editor-in-Chief Andy Serwer in an interview taped on Nov. 5.

“The whole regulatory structure of being public has just made it such that it's very dangerous and difficult for a small growth company to be a public company,” says Horowitz, who noted insurance costs and disclosure requirements.

The Sarbanes-Oxley Act, passed in 2002, tightened reporting rules for public companies, after scandals at Enron, WorldCom, and others that cost investors billions. In 2012, President Barack Obama signed the Jumpstart Our Business Startups Act (JOBS), which made it easier for some small companies to raise money and go public, but paradoxically also raised the trigger to go public from 500 shareholders to 2,000 shareholders.

Such regulation has made it “very expensive, dangerous, etc. to be public,” Horowitz says.

In August, Serwer examined why the number of IPOs has dropped — and why it’s bad for investors. He followed up last week, explaining why an end to the age of the unicorn would be a positive development.

Horowitz made the comments during a conversation that aired in an episode of Yahoo Finance’s “Influencers with Andy Serwer,” a weekly interview series with leaders in business, politics, and entertainment.

He co-founded the buzzy venture capital firm Andreessen Horowitz, which manages $10 billion in assets. Before that, he co-launched a data storage company called Loudcloud, later renamed Opsware, which sold to Hewlett-Packard (HPE) for $1.6 billion.

In 2014, he released “The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers,” a best-selling book on how to run a startup.

Ben Horowitz, author and cofounder of venture capital firm Andreessen Horowitz, appears on Influencers with Andy Serwer.

To reverse the trend of companies remaining private, Horowitz suggested a narrowing of the difference in how the law treats public companies versus private ones.

“We have to close the gap between what it means to be private and what it means to be public from just general standpoint, so it's a smoother transition,” Horowitz says.

Companies “wait until they get to a billion dollars in revenue” to go public, Horowitz says.

“There's clearly not as much growth left at that point,” he adds.

Max Zahn is a reporter for Yahoo Finance. Find him on twitter @MaxZahn_.

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