This morning, SEC approved the 14th US Stock Exchange's long-term stock exchange (LTSE), an outfit that was perceived in 2012 by author Eric Ries as "Lean Startup" as a place where public market shareholders who hold their shares through thick and thin would be rewarded for their loyalty.
Ries believes such benefits are important because he believes in public markets. Among other things, establishing a common currency, making it publicly traded, means that companies can more easily buy other companies. It allows employees to sell their shares more freely. It also makes it possible for private investors to participate in the growth of technology companies ̵
In fact, Rie's biggest problem with public market shareholders is their focus on short-term results, citing it as the primary reason why startup stays private for so long. After all, it is difficult to innovate when you are sued over disappointing earnings.
Whether LTSE can introduce rules that encourage both companies and shareholders to focus on the longer term is still to be seen. LTSE has not received approval for any kind of entry standards. It hasn't even submitted these yet.
While the idea is, the stock exchange welcomes "value-based" companies that restrict executive bonuses and give more voting rights to stockholders holding on for the trip, Ries seems to realize he may have to pay less because of some backlinks, including from the Institutional Investors Council, a group of institutions that fear long-term voting may authorize the company's insiders at the expense of other shareholders. During a conversation today, he told us that LTSE will not necessarily give more voting rights to shareholders. "These rewards can vote or other things," he said.
Surely Ries will benefit if LTSE takes off. While many reports today note that the famous VC Marc Andreessen is one of LTSE's financial supporters, the largest shareholder right now is Ries himself, which owns 30 percent of the profits, according to governments.
Other major shareholders include John Bautista, a co-founder of the Long Term Stock Exchange, who is also a lawyer at Orrick's law firm; Founders Fund, which owns 14 percent of the company; Cooperation fund, which owns 7.8 per cent; and obvious ventures, which own 6.7 percent. The company has raised around $ 19 million to date.
Ries is almost not alone and wants the companies to be able to become public earlier without worrying about activist investors. We had written about the case for tenured vote at the end of 2017, and noted that that concept has been around for decades.
But while it resonates with the founders, few have taken the idea. For example, back in the 1980s, US stock exchanges determined that it was unnecessarily complicated and too difficult to track pinned polls. Bankers do not like the idea because something that looks different from the market is more difficult to sell.
At the same time, another Andreessen-backed start to make headlines this week – Carta – as a game that LTSE will not fully realize the vision. The seven-year-old, San Francisco-based startup greatly contributes to private investors, founders, and employees managing equity and ownership. But it only increased $ 300 million in series E-financing at a $ 1.7 billion valuation led by Andreessen Horowitz largely to become what Carta CEO Henry Ward describes as the world's largest private equity marketplace.
Carta reminds developments as a natural given the needs of aging private companies, as well as the fact that so many startups and institutional investors are already using the platform.
In fact, Ward, like Ries, talks about democratizing access to several of today's upcoming businesses on Carta's platform. Still, Ries seems more interesting to get shares in the hands of people who have not had access to them in recent years. Carta seems more interested in streamlining startups and already wealthy institutional investors to trade stocks among themselves using Carta as a hub. (Carta also has exponentially more funding than LSTE, having increased $ 447 million from VCs.)
Whether a company realizes its bold ambitions will take time to know. Much depends on external factors, such as the macro economy, and on equipment such as SoftBank continues to shower private companies with funding.
Meanwhile, it will be interesting to understand whether the LTSE and Carta together can create a safer, softer, less stressful start-up path to become public, or instead the two raised ones are locked in some sort of struggle for the founding souls, with Carta tempting companies to be private, while LTSE pushes for them to enter the exchange – and out into the wider world.