'Private for Longer' Is the New Norm... And That's Bad for Investors

In recent years, the journey from startup to a public company has changed dramatically.

Business owners used to see an initial public offering ("IPO") as the ultimate goal. It marked a significant milestone in their growth.

However, over the past decade, more companies are choosing to stay private... avoiding the public markets far longer than ever before.

This shift is changing the business landscape... And as I'll explain today, it's bad news for mom-and-pop investors.

We can point to three big drivers of this trend...

First is the sheer amount of private capital available. Venture-capital ("VC") and private-equity ("PE") firms have raised record amounts of money, sending huge waves of funding to private companies...

Assets under management in private markets topped $13.1 trillion last year, growing roughly 20% annually since 2018. So-called "dry powder," or cash that has been committed to buy out firms but not yet deployed, increased to $3.7 trillion, according to global consultant McKinsey.

Second, regulatory changes have made going public less attractive. For example, the Sarbanes-Oxley ("SOX") Act of 2002 – which was passed in the wake of the Enron and WorldCom scandals – forced rigorous compliance requirements on public companies.

These regulations increased both the cost and complexity of being publicly traded. Public companies face intense scrutiny – not just from regulators, but from analysts and shareholders combing through their quarterly earnings reports.

It can cost companies millions of dollars a year in legal fees... just to comply with regulations.

And third, changes to the Employee Retirement Income Security Act ("ERISA") in 2020 allowed pension plans and other funds to invest more of their assets in private markets. This opened the floodgates for institutions to funnel investments into private assets.

As a result of all this, there's plenty of money floating around... and not much incentive to go to the public markets. By avoiding the public markets, companies can maintain greater control, avoid the pressures of quarterly earnings milestones, and focus on long-term strategic goals.

We can see how much this has changed the markets by looking at the number of "unicorns"... privately held companies with valuations north of $1 billion.

According to database-management firm Dealroom, out of 2,800 startups that reached a $1 billion valuation or higher since 2000, half are still private today.

We've seen plenty of mainstream examples, too. For instance, Elon Musk's SpaceX took in $750 million in a round of VC funding early last year, pushing it to an astounding $180 billion valuation. Similarly, Musk's newest venture, xAI, recently raised $6 billion – reaching a valuation of $24 billion.

AI startup OpenAI is now valued at more than $80 billion... while video app TikTok's owner, ByteDance, recently bought back shares at an implied valuation of $268 billion.

This is the new norm. More and more companies are opting to stay private, at unprecedented valuations. And for retail investors, that's a big problem...

Everyday investors don't have access to the hottest PE or VC funds. That means most of us are crowded out from investing in some of the more exciting, faster-growing companies in the world.

The public market now sees fewer high-growth stocks, period. And by the time some of these companies do go public, much of their explosive growth potential may have already been realized in the private market.

That said, you shouldn't see this as a reason not to invest. But it's one reason why outperforming the market may be harder than it used to be.

It also means contrarian investing and second-level thinking will be more and more important to your investing success.

In the Stansberry Innovations Report, we try not to let the market's narrative or certain "hyped" stocks cloud our judgment. That can lead to catastrophic losses.

Instead, we look for undervalued opportunities in overlooked sectors of the economy that are still poised for growth.

You need to understand these dynamics today. As the lines between public and private markets continue to blur, the future of investing may increasingly favor folks with access to private capital. Everyone else will need to work that much harder – and think more creatively – to stay competitive.

Contrarian strategies and opportunities will become more and more important from here on out. And when you're looking to buy a growing stock, remember... the best days of those hyped-up IPOs may already be behind them.

Good investing,

Andrew McGuirk

P.S. This kind of mindset is how the Stansberry Innovations Report newsletter has been able to outperform the market with an average gain of 40.1% over the last two years, compared with the S&P 500's 19.4% average gain. If you're interested, click here to learn more.

Further Reading

"You have the potential to make the biggest gains when you buy what other investors hate," Brett Eversole writes. It's not easy to go against the crowd. But this second-level thinking is a great way to get a leg up in the markets... Read more here.

Working on Wall Street has its advantages. But it also pays to be the "little guy." At the end of the day, you're the boss of your finances. And that kind of freedom allows you to serve your portfolio how you see fit... Learn more here.

Market Notes



Alphabet (GOOGL)... tech "World Dominator"
Eli Lilly (LLY)... pharmaceuticals
Intuitive Surgical (ISRG)... medical technology
Cirrus Logic (CRUS)... semiconductor supplier
TTM Technologies (TTMI)... circuit boards
Arista Networks (ANET)... cloud technology
Commvault Systems (CVLT)... data security
Vertex (VERX)... tax software
ICICI Bank (IBN)... Indian multinational bank
Fair Isaac (FICO)... credit-score data analytics
AT&T (T)... telecom
FedEx (FDX)... shipping
Royal Caribbean Cruises (RCL)... cruises
Carvana (CVNA)... online used cars
Vista Outdoor (VSTO)... sports and hunting gear
Roper Technologies (ROP)... diversified engineering
Scorpio Tankers (STNG)... oil-tanker shipping
Targa Resources (TRGP)... natural gas
Waste Connections (WCN)... trash and recycling


Nike (NKE)... sports apparel
Carter's (CRI)... children's apparel
Newell Brands (NWL)... consumer brands
Yum China (YUMC)... China fast-food chains
Weyerhaeuser (WY)... timber