Then there are the numerous retail brokers such as Charles Schwab and their clients, the private investors, who make up a sizeable proportion of the capital markets. While institutional investors such as venture capital funds benefit from private equity placements, private individuals generally only gain significant exposure to these investment opportunities once they are listed as equities on a stock exchange–indeed, this in one of the key functions of an exchange: that it allows a larger pool of individuals who otherwise cannot gain access to investment opportunities to take part in the shareholding process.
In addition, it is retail investors who often facilitate much faster capital market cash-flow as they create easily-available, liquid secondary and tertiary markets for the sale of equity that institutions have realised a capital gain on. This has the effect of freeing up capital that venture capital funds use to finance further investors.
Here the columnist and Editor really might have thought harder about her postulation. To suggest, as Rich does, that “more entrepreneurs are finding it a seller's market,” and that “(they) are doing just fine” is to naïvely assume that only a primary market is necessary in order to facilitate entrepreneurial and innovative growth in an economy. The principle goes back to the age-old law of supply and demand: if demand at the lowest level does not outstrip supply then capital dries up – in the same way, if there is no “re-sell” IPO market for private equity investments then continued funding of entrepreneurial ventures cannot foreseeabley be sustained. Corporate financing activities such as industry trade purchases and big company mergers, as stated as one of the reasons for the IPO decline by The Wall Street Journal in Rich’ s riposte, is hardly a reliable long-term strategy for continued investment funding as there is a significant limit the possibility of these types of deals without fresh capital to cushion the activity.
And so it seems that despite the fact that Rich and her erstwhile team of amateur economists at Inc. might not care that much for the number of IPO’s in the market, the very entrepreneurs whom she directs so enthusiastically to the publication’s valuation guide–“Take a look at our Ultimate Valuation Guide to get a sense of all the companies that are cashing in”–might end up caring rather more than it seems.
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