Public Capital, Trust and Ukraine

Very exciting news came across the wire recently that public shares of some of the biggest names in the world, like Facebook, Tesla, Visa, Microsoft, and Netflix, will be available to local investors on the Ukrainian stock market. No doubt this is a good signal overall, but its real impact on the Ukrainian economy will be hollow. Where is the news about Ukrainian companies going public on Ukrainian stock exchanges?

Take a look at public listings on the NYSE or NASDAQ; they are dominated by companies from the United States! The recent news about Ukraine’s stock market shifts the focus from the fact that the key point of Ukraine’s exchanges should be Ukrainian companies going public, so that investors from around the world can provide the capital they need to grow.

Why do companies go public? 

There are many benefits to going public. Traditionally, the key reasons are to raise capital to fund growth, to allow founders and early investors to take some of hard-earned cash out of the company, to use shares to attract top-level executive talent, and even to use shares of the company as capital in mergers and acquisitions. But there are downsides to being public as well: cost, regulation, compliance, investor pressure on management, and more.

Does Ukraine really need a stock market? In my opinion, the answer is no. Here is why.

Stock exchanges were very powerful for most of the twentieth century. The story is very different in the twenty-first century. Companies have more options for raising capital now, without ever going public. Technology, including blockchain, has already changed the operational dynamics of financial exchanges. In the early 90s, when I was a stockbroker for Raymond James, the spread on NASDAQ between the bid and the ask could be as much as a dollar, today a spread of a couple cents is rare. The NYSE was famous for its “specialist” on the floor of the exchange, managing the buy and sell sides of a stock to provide stability. Today all is electronic. Plus, global cryptocurrency exchanges, which in the near future are going to represent shares of corporations, will disrupt things even more. 

Ukraine’s focus must be on growing Ukrainian companies, and a stock exchange is just one tool. In my view, the first foundational block of any company’s future growth is trust. Before you can attract financial capital, you need the “capital” of trust!

The article is also available in Ukrainian in the business media The Page.