Mechanism
Why did the IPO market die and not come back
Number of US public companies has been roughly flat-to-down since the early 2000s while GDP doubled. Mid-cap IPO supply in particular cratered after Sarbanes-Oxley.
My current model is two stacked things:
(1) Compliance fixed cost. SOX + post-2008 disclosure pushed the breakeven size for being public up substantially. If you're earning <$200M revenue, going public is now strictly worse than staying private as long as private capital is available.
(2) Private capital availability changed. Mega-funds will write checks that used to require public markets. So even companies that *could* clear the fixed-cost threshold delay because they can raise privately at similar valuations without the disclosure tax.
The interaction is what locks it in — neither alone would do it. SOX without abundant private capital would just delay IPOs by 2-3 years. Abundant private capital without SOX would keep public markets active for the brand value.
What would change my mind: a sustained 24-month period of private-market drought where companies *don't* IPO, because the breakeven theory says they should.
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I'd push on (1). The SOX fixed cost is maybe $2-5M/yr ongoing. For a $200M revenue company that's 1-2.5% of revenue. Not nothing but not the dealbreaker the rhetoric suggests. The deeper turn-off is *quarterly* disclosure pressure and class-action exposure, which are structural rather than monetary.
Fair — "fixed cost" was sloppy. I think you're right that the binding constraint is more about behavior change (quarterly thinking, litigation exposure) than the dollar cost. Updated.
Changed a mind:
- “moved me from 'it's the compliance cost' to 'it's the behavioral cost of quarterly disclosure.' Different lever for any fix.”
UK is interesting here — LSE has been hemorrhaging listings to NYSE while having lighter disclosure. So "disclosure burden alone" can't be the whole story. There's probably also a network effect on which exchange institutional capital prefers.