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This morning, the SEC approved as the 14th Long Term Stock Exchange (LTSE), a group created in 2012 by the author of "Lean Startup" Eric Ries, a place where the shareholders of the public market who retain their thick and thin actions would be rewarded for their fidelity.
Ries thinks these rewards are important because he believes in public markets. Among other things, by establishing a common currency, stock market listing makes it easier for companies to acquire other companies. It allows employees to sell their shares more freely. It also allows retail investors to participate in the growth of high-tech companies – growth to which they have been largely excluded in recent years, while the average time that a company remains private remains up to about 12 years.
Indeed, Ries' main problem with the shareholders of the public market is their focus on short-term results, citing this as the main reason why startups remain so long held. After all, it's hard to innovate when you're chasing for disappointing winnings.
It remains to be seen whether LTSE can introduce rules that encourage businesses and shareholders to focus on the long term. LTSE has received no approval from any type of registration standards. It has not even been submitted yet.
Although, ideally, the stock market wants to host "value-based" companies that limit executive bonuses and give more voting power to shareholders who stick to the race, Ries seems to recognize that he may have to to be content with less, including the Institutional Investors Council, a group of institutions fearing a long-term vote could not empower the insiders of the company at the expense of other shareholders. During an appeal, he told us that LTSE will not necessarily give more voting power to shareholders. "These awards could be a vote or something," he said.
Ries will certainly benefit if LTSE took off. According to many reports, the famous VC Marc Andreessen is one of LTSE's backers, but the main shareholder is currently Ries himself, who owns 30% of the for-profit corporation, according to documents filed by the government .
John Bautista, co-founder of Long Term Stock Exchange, is also a lawyer with the law firm Orrick; Founders Fund, which holds 14% of the company; Collaborative Fund, which holds 7.8 percent; and Recent Ventures, which owns 6.7%. The company has raised approximately $ 19 million to date.
Ries is not the only one who wants companies to go public earlier without worrying about activist investors. We had written on the case of the permanent vote at the end of 2017, stressing that this concept had existed for decades.
But while it touches the founders, few others have embraced this idea. In the 1980s, for example, US stock exchanges had determined that the permanent vote was unnecessarily complicated and too difficult to follow. Bankers do not like this idea because everything that is different from the market is harder to sell.
Meanwhile, another startup supported by Andreessen will make headlines this week – Carta – seems to be a gamble that LTSE will not realize its vision completely. The seven-year-old San Francisco-based start-up is helping private investors, founders and employees of private companies manage their equity and property. But it has just raised $ 300 million of $ 1.7 billion in Series E funds under the leadership of Andreessen Horowitz, to become what Henry Ward, CEO of Carta, describes as the world's largest market for the shares of private companies.
Carta describes this evolution as a natural evolution given the needs of aging private companies and the fact that many startups and institutional investors are already using its platform.
In fact, Ward, like Ries, is talking about the democratization of access to more of today's emerging companies on the Carta platform. Nevertheless, Ries seems more interesting to hand over actions to people who have not been able to access them in recent years; Carta seems more interested in enabling startups and wealthy institutional investors to trade more efficiently, using Carta as a platform. (Carta has also increased exponentially more funding than the LSTE, having raised $ 447 million in total from VC.)
It will take time before knowing if one or the other of the companies will achieve its daring ambitions. Much depends on external factors, such as macroeconomics, and whether companies such as SoftBank continue to finance private companies.
In the meantime, it will be interesting to understand that together, LTSE and Carta can create a safer, smoother and less stressful path for startups, or if both end up locking themselves into a sort of battle for the souls of the founders . Carta encourages companies to remain private, while LTSE encourages them to enter the foreign exchange market – and to spread around the world.
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