Why are the American economy and the number of American jobs growing so slowly?\u00a0 A few days ago, I stumbled on one answer.\u00a0 And for once, it didn\u2019t have to do \u2013 or, at least, much to do \u2014 with economy\u2019s mismanagement by the current administration.<\/p>\n
As part of a swing through California, I spent a morning with one of Silicon Valley\u2019s most experienced and impressive serial entrepreneurs. \u00a0I\u2019ve lost track of all the ventures he has started or captained.\u00a0 But from twenty years in the tech community, he has gained unparalleled insight into the entrepreneurial ecosystem in our time.<\/p>\n
That ecosystem has fundamentally changed in recent years, he told me. \u00a0The reason is how new ventures are financed.<\/p>\n
It used to be, he told me, that there was a clear path to starting and, in successive stages, financing the growth of an enterprise. After a few rounds of angel funding, you\u2019d graduate to venture funding and then you\u2019d go public. IPOs are where things have changed, he told me.<\/p>\n
A decade ago, an IPO was a mid-stage \u201cliquidity event,\u201d as he put it.\u00a0 Your reason for going public was not just \u2013 or even not at all \u2013 so your early investors could get their money out.\u00a0 It was to raise money beyond the amounts available from the venture community to fund the next stage of growth.<\/p>\n
Today, he told me, the \u201cliquidity\u201d IPO is all but dead.\u00a0 To go public, companies must be much larger than in the \u201880s and \u201990s and they must have significantly greater growth potential.\u00a0 It is arguable, he said, that we used to go public too soon. \u00a0Now they come too late, if at all.\u00a0 The preferred next step has become selling to a larger company.<\/p>\n
So why the change, I asked.\u00a0 He answered it was changes in policy from Washington, but not Dodd-Frank (though he said the legislation played an aggravating role) or Obamcare.\u00a0 It was the 2002 Sarbanes-Oxley Act.\u00a0 Sarbox, as it is often called, injected massive costs into maintaining a public company.\u00a0 It also created restrictions on boards and management that may be appropriate for an ExxonMobil but are impossible for a still-developing young company.<\/p>\n
Here is why the death of the \u201cliquidity event\u201d IPO matters to the rest of us.\u00a0 Researchers have found that a path to ever-larger funding was critical to the explosive job creation the country experienced in the 1980s and 1990s.\u00a0 True, the job growth occurred \u2013 and could only have occurred \u2013 in the context of a tremendous growth in the\u00a0number<\/b>\u00a0of start-ups.\u00a0 But job creating was concentrated in just two percent of those new enterprises \u2013 ultra-rapidly growing firms that the leading researcher of the topic has called \u201cgazelles.\u201d\u00a0 It was the gazelles \u2013 or, rather, candidates for gazelle status \u2014 that needed those fundraising IPOs.<\/p>\n
And it was, in large part because the money for their growth could be so readily and inexpensively raised that the United States created so many millions of jobs just as the baby boomers were entering the job market.\u00a0 In the 1980s and 90s, demographics could have produced a crisis of unemployment and under-employment such as we are experiencing today.\u00a0 Instead, the United States went through a time of labor shortages.\u00a0 Incomes rose.\u00a0 Attracted by the robust job market, immigration boomed.\u00a0 Americans at all levels prospered and, as a range of recent research has shown, they prospered in roughly equal proportions to one another with income disparities NOT increasing (see, for example,\u00a0http:\/\/tinyurl.com\/kzxc5hw<\/a><\/b>\u00a0<http:\/\/tinyurl.com\/kzxc5hw><\/a>\u00a0\u00a0and\u00a0http:\/\/tinyurl.com\/bps9qsn<\/a><\/b><http:\/\/tinyurl.com\/bps9qsn><\/a>\u00a0).<\/p>\n My source is, as I said, prominent in the tech community.\u00a0 But the dynamics of entrepreneurial growth that he described are universal.\u00a0 They apply to all industry sectors.\u00a0 Eleven years ago, Congress all but closed IPOs out of their role in entrepreneurial finance.\u00a0 This is one reason we are having such slow growth today.<\/p>\n","protected":false},"excerpt":{"rendered":" Why are the American economy and the number of American jobs growing so slowly?\u00a0 A few days ago, I stumbled on one answer.\u00a0 And for once, it didn\u2019t have to do \u2013 or, at least, much to do \u2014 with economy\u2019s mismanagement by the current administration. As part of a swing through California, I spent […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[5],"tags":[94,12,174],"class_list":["post-1615","post","type-post","status-publish","format-standard","hentry","category-economic-policy-general","tag-economy","tag-hugh-hewitt","tag-ipo"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.clarkjudge.org\/wordpress\/wp-json\/wp\/v2\/posts\/1615","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.clarkjudge.org\/wordpress\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.clarkjudge.org\/wordpress\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.clarkjudge.org\/wordpress\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.clarkjudge.org\/wordpress\/wp-json\/wp\/v2\/comments?post=1615"}],"version-history":[{"count":2,"href":"https:\/\/www.clarkjudge.org\/wordpress\/wp-json\/wp\/v2\/posts\/1615\/revisions"}],"predecessor-version":[{"id":1617,"href":"https:\/\/www.clarkjudge.org\/wordpress\/wp-json\/wp\/v2\/posts\/1615\/revisions\/1617"}],"wp:attachment":[{"href":"https:\/\/www.clarkjudge.org\/wordpress\/wp-json\/wp\/v2\/media?parent=1615"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.clarkjudge.org\/wordpress\/wp-json\/wp\/v2\/categories?post=1615"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.clarkjudge.org\/wordpress\/wp-json\/wp\/v2\/tags?post=1615"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}