Where did all the listings go?

Founder and director of investment website, Simon Brown. (Photo: Finweek)
Founder and director of investment website, Simon Brown. (Photo: Finweek)

As stocks continue to slide off exchanges across the world, new ways of start-up investing are popping up. But they're still few and far between.

For the past year or so there’s been a tweet that frequently pops up in my Twitter timeline, stating that in 1999 the JSE had 668 listed companies and now has 351. I haven’t verified the information, because it makes sense to me. It’s not a regulation or a red tape issue. It’s not even a South African issue. It’s a global phenomenon.

In November 2017, research by the US-based Vanguard Asset Management – with $6.2tr under management at the end of January – found that in 1996 the US had over 7 000 listed companies, but by 2016 this number had fallen below 3 800. (You can access this research on this link:

It may be different timelines, but it shows the same trend. A trend that has accrued for several reasons.

The first was the listing boom and the dotcom bubble at the end of the previous century that led to an expansion, which meant the Nasdaq doubled in value in 1999. Even locally we saw a flood of listings that were not just tech stocks. We even had a second-tier banking boom that ultimately ended in tears.

But there are other reasons, such as companies’ easier access to cash. Typically, a listing is a way to raise capital or a chance for the company’s founders and early investors to exit their investments. But as I have written before, we’re seeing listings happening later in a company’s life and in many cases no longer happening at all.

The easy access to cash is in part driven by low interest rates that existed even before we saw the quantitative easing by central banks in response to the global financial crisis of 2008 and 2009, albeit those interest rates were not nearly as low as we’ve been seeing over the last decade.

The tech bubble, and tech sector in general, has over the last two decades created a vast pool of extraordinarily rich individuals who could easily sell a business for $100m(or in some cases even for billions of dollars). These sellers have now ventured into their own angel and venture funding setups. We also have a few individuals with unimaginable wealth, which has enabled them to fund new ventures from their own pockets. 

The space ventures by Jeff Bezos (who funded the start of Blue Origin 20 years ago) and Elon Musk (who started SpaceX 18 years ago) have largely been funded out of their own pockets. If they’d started these businesses back in the 1980s or 1990s, they most likely would have had to go to the stock market to raise the capital required. By doing so, they would have given investors the opportunity to invest into these businesses.

Today, we also have a huge pool of private equity funded by banks, individuals and states – such as Norway and Japan – that are pouring money into new start-ups and even more mature ventures.

We also see large companies who now run venture-capital type investment pools. Naspers*, for example, has its own Naspers Foundry, which recently invested $5.6m into a start-up called Aerobotics. A decade or two ago, to raise that sort of capital, Aerobotics would likely have had to list on the stock exchange. Now it’s just one of many examples of beneficiaries of private funding.

The concern of the original tweet does, however, remain.

Our investable markets are shrinking, and this reduces investment options for investors.

Even worse news is that there’s not very much we can do about it. Most private investors are not able to invest in venture- capital funding companies now that we do have enough capital to do undertake our own risk-adjusted venture-capital funding.

There are, however, companies that allow for co-investing in venture-like funds. For example, there is the Sygnia Oxford Sciences Innovation Fund that has rights to intellectual property coming out of Oxford University. This fund gives investors some level of access to start-up investing. But, in general, there are few good options like this.

At the end of the day, as an investor who only invests in listed investments, I have fewer options. Hopefully, we’ll see some more innovative investment options such as the Sygnia fund, but I fear the trend of fewer listings is only likely to worsen.

*finweek is a publication of Media24, a subsidiary of Naspers.

Read more
This article originally appeared in the 13 August edition of finweek. To read the full story, you can buy and download the magazine here.

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