The Leyline team has been on a very interesting journey over the course of the last 12 months. Seth and I are ready to share some of our findings.
First, some facts:
- There are fewer than 4300 companies listed on public stock exchanges in the US. Down almost 4000 from the high of 8100 in 1996. [SOURCE]
- There are over 5,900,700 companies in the US. That’s right, almost 6 million. (US Census Bureau) 10,000 – 12,000 private companies (non-financial issuers) raise capital every year.
- Roughly 52% of US Households own stock in public companies via 401k, IRA, directly, or through an intermediary. Guess how many own stock in private? The answer is less than 1%.
- Fewer than 350,000 entities purchased securities in private companies in 2014 according to data pulled from Form D filings (SEC Staff Whitepaper). This includes private equity, hedge funds, institutional investors, and retail investors, as well as investors that make more than one investment.
Meat and Potatoes:
It sounds unbelievable, right? We are confident that this systemic difference in investing behavior is one of the main reasons for the wealth disparity and lack of upward mobility that exists in our country today.
You might think that because fewer people are investing they would be investing less. Actually this isn’t the case. The amount of new capital contributed was roughly the same at 1.2 trillion. (SEC Staff Whitepaper) This doesn’t account for trading activity.
This has created an imbalance in the economy where those that are in the know are able to create the largest gains because they get in early. A company will grow many times over before reaching a size where it makes sense to go public or see a liquidity event. At every stage is the chance to make substantial returns, and risk decreases as companies mature through Seed, Series A, B, C, D, E, F, and G funding stages. There is, of course, a large failure rate, yet the small fraction that succeed, payout in multiples unheard of in public offerings. It’s worth paying attention to.
Because there are so many small firms, there is a lot of competition for that capital and banks are generally opposed to lending capital to a business with a short track record. In today’s financing climate, it is exceptionally difficult for a small firm to raise capital. As a result, our economy isn’t functioning optimally. Innovation, job growth, and wealth creation are being artificially constrained by a lack of participation. Knowledge and tools targeted toward private companies are scarce.
For years private investors have used their business acumen, financial leverage, and refined diligence practices to benefit from the rapid growth potential inherent in small, agile private companies. There is a process and method to manage risk and make better decisions about these investments. These practices aren’t special. They can be learned if one applies oneself.
Historically one needed to be an accredited investor to participate in private markets. Good news, the times, they are a’changing. Thanks to the JOBs Act of 2012 private markets have become more accessible to the individual investor (defined as retail-investor in industry jargon).
We’ve talked with the people that brought the JOBs act Framework to Washington. We’ve analyzed FINRA Investor educational content. We’ve studied the private investing landscape, and we are building a solution for the individual investor who wants to start taking steps to learn more about private companies with intent to make smarter decisions about their investments.
How we’re addressing the issue:
We’re building a web/mobile application that serves as a retail-investor’s entry point into the world of private investing. The software’s foci are on education, company data search, community features, and accreditation. The application is gamified in such a way that users will be able to make meaningful progress in becoming more sophisticated even with just a few minutes a day, and track their progress towards specific goals.
As an investor-centric platform we are solely focused on serving the investor. Our interests are not split as in the case of a broker-dealer, funding portal, financial advisor, etc. As a mission-driven organization, our interests are in looking out for the interests of our users and providing a net positive impact to all stakeholder groups in the private market ecosystem.
We expect that this sector will continue to become more developed as standards begin to emerge in coming years.
Our team believes that by developing broad and deep competence among individual investors we can revolutionize the way our economy functions.
The fact is that fewer companies are choosing to go public and if one doesn’t start to learn about private companies they are going to be severely handicapped when it comes to available choices of where to put their money.
The Leyline team started investigating this about 18 months ago. We uncovered a lot of interesting information along the way. We are excited to share it with you and if you are interested, we’d love to talk to you.
“Call to action” How to be involved.