By Sophia Wu
Marketing Specialist, Investments
The decision for businesses to stay private longer has emerged as a significant trend, driven by multiple economic, regulatory, and strategic factors. Historically, companies would go public to access large pools of capital, gain greater visibility, and provide liquidity for their investors. However, this revolution has shifted recently, as private companies increasingly depend on alternative strategies and funding sources to fuel their growth.
First reason founders keep their businesses private longer
Businesses are staying private longer due to several reasons. First is having financial privacy. Public companies are legally required to disclose their financials, including revenues, profits, and expenses, in quarterly and annual reports. This level of transparency often exposes sensitive business strategies and vulnerabilities to competitors, investors, and the public. Private companies, on the other hand, can operate without this scrutiny. This financial privacy allows them to safeguard their competitive advantages and make strategic decisions without external interference. For example, family-owned companies like S.C. Johnson have historically remained private to protect their trade secrets and control their operations.
Second reason Founders keep their businesses private longer
The second reason for staying private is it allows companies to prioritize long-term goals over short-term shareholder demands. Public companies face immense pressure to meet quarterly earnings expectations, often leading to decisions that prioritize immediate profitability over sustainable growth. For example, public firms may reduce R&D spending or cut jobs to meet investor expectations. Private companies, however, are free from these constraints. They retain control over decision-making, allowing them to concentrate on innovation, expansion, and other strategic initiatives without the risk of a hostile takeover or stock price volatility. An excellent example is SpaceX, which remains private and has continued to focus on its long-term vision of space exploration and satellite technology.
Third reason founders keep their businesses private longer
The third reason is having abundant access to private capital. Previously, companies went public especially to raise large amounts of capital for expansion. Today, the landscape has changed significantly. The rise of venture capital, private equity, and other funding sources has enabled private companies to access substantial funds without an IPO. Between 2004 and 2019, global venture capital investment grew exponentially, peaking at $308 billion in 2018. Platforms like Linqto and Forge have also facilitated secondary markets, allowing private companies to provide liquidity to investors and employees. Uber and Airbnb, for example, relied on billions in venture capital funding to scale globally before going public.
Fourth reason founders keep their businesses private longer
Next, is the reason for the regulatory burdens of being public. The Sarbanes-Oxley Act of 2002 imposed stringent regulatory requirements on public companies to improve financial transparency and accountability. While these regulations protect investors, they also increase costs and complexity for businesses. Public companies must invest heavily in legal, accounting, and reporting infrastructure to meet these standards. In contrast, private businesses avoid these burdens, allowing them to focus more resources on innovation and growth. The regulatory environment has become a significant barrier for many companies considering going public, particularly smaller firms.
Final reason founders keep their businesses private longer
The last is that it can have liquidity alternatives. Private companies now have access to secondary markets where shares can be bought and sold without an IPO. Platforms like Forge provide liquidity options for early investors and employees while the company remains private. This innovation enables companies to delay going public while still offering financial benefits to stakeholders. An illustrative example is United Parcel Service (UPS), which stayed private for 92 years before going public in 1999. During its private phase, UPS offered private stock to employees as part of their compensation, fostering loyalty and long-term growth.
Pros and cons of keeping a company private
The benefits and drawbacks of staying private are numerous and are key considerations for both private and public companies when evaluating their strategic direction. Companies like Uber, Airbnb, and SpaceX have demonstrated that staying private enables the development of long-term plans without the pressures of public markets. Blitz scaling, a strategy involving rapid expansion at a loss to capture market share, is particularly well-suited for private companies, as it would be difficult to maintain under the scrutiny of public shareholders. Many private companies reach considerable growth and higher valuations before going public. For example, Uber and Airbnb attained "unicorn" status, with valuations surpassing $1 billion, well before their IPOs. This approach allows much of their value creation to occur privately, benefiting early
investors and stakeholders. However, staying private has its drawbacks. While private companies can access venture capital and private equity; they cannot leverage the vast resources of public capital markets. This restriction can delay growth opportunities, especially for businesses requiring substantial investment in infrastructure or R&D. Public companies enjoy increased visibility and credibility, attracting customers, partners, and talent, whereas private companies often face challenges in these areas, specifically in highly competitive industries. Although secondary markets offer some liquidity, they lack the scale and efficiency of public exchanges. Pricing in these markets is less transparent, and trading volumes are generally lower, making it harder for stakeholders to discover the full value of their investments.
Some famous real-life examples of companies benefiting from staying private include SpaceX and Airbnb. SpaceX, founded in 2002 by Elon Musk, has raised billions in private funding to develop technologies such as reusable rockets and the Starlink satellite network. By staying private, SpaceX has been able to avoid public scrutiny and focus on long-term goals, including its vision of occupying Mars. Similarly, Airbnb raised over $6 billion in venture capital before its IPO in 2020, authorizing it to scale globally and disrupt the hospitality industry. Staying private for over a decade allowed Airbnb to refine its business model and assemble a strong brand without the pressure of quarterly earnings reports. Data insights further emphasize these trends, with the average age of companies going public rising from 4.5 years in 1999 to over 12 years in 2020, echoing the growing movement for companies to delay their IPOs. While companies like Apple, Amazon, and Google created substantial value post-IPO, newer companies like Airbnb and Coinbase generated much of their value while still private.
In conclusion, the trend of companies staying private longer reflects a shift in business strategy driven by financial privacy, control, access to private capital, regulatory burdens, and liquidity alternatives. While this approach offers numerous benefits, it also presents challenges that companies must navigate. For investors, understanding this trend is important to identify opportunities in private markets, where much of today’s innovation and value creation occur. Companies like SpaceX and Airbnb demonstrate the advantages of staying private, while the growing ecosystem of venture capital and secondary markets continues to support this trend. As the business landscape evolves, staying informed about these dynamics will be required for making strategic investment decisions and understanding the future of corporate growth.