Why founders are turning off stock market flotations

Floating on the stock market was once the ultimate sign that the business you’d founded was a serious, lasting concern. That feels like a long time ago.

When the stock of ailing businesses like GameStop or AMC Entertainment can balloon twentyfold in a month because some kids in basements think it’s funny, you know that a listing isn’t the mark of prestige it used to be.

It’s going too far to blame the dwindling number of public companies - in January 2023, there were 1,954 listed in London, a 20% drop in eight years - on the escapades of Reddit meme stock traders and their hedge fund nemeses. But it is part of the story of how the asset class is losing its lustre.

On the one hand, you have a wild west: while the vast majority of retail investors are perfectly sensible, you still can’t control who wanders into town and buys your beloved saloon.

On the other, there are increasingly tight restrictions and scrutiny on public company directors. There are good reasons for strong governance, but it has consequences: some CEOs confide that the pressure of quarterly reporting under the media spotlight is just too distracting from the job of running and growing a business.

There certainly aren’t many entrepreneurs who would want to work in that environment, particularly if the reason for floating was to raise growth capital. There are so many alternative ways to do that now, and indeed it is the rise of private equity and venture capital that I suspect is the primary reason behind the decline in listings.

Of course capital from private investors comes with its own strings attached. Their vision may be very different from yours, and their horizon is more likely to be medium term than long.

But they usually have invaluable connections and experience of taking businesses to the next level, and you know they’re investing in your company because they see its potential to be something more than a cash cow or object of frenzied speculation.

Clearly it’s a personal choice, and for some founders listing will remain the right way to go: unless you catch the eye of Softbank or one of the larger sovereign wealth funds, IPOs remain the best way to raise very large sums of capital. It doesn’t seem to have held Amazon, Alphabet, Tesla or Apple back either.

With the way things are now though, I just know that I for one would need a bit more convincing.?