Why Fewer Companies Are Going Public on the NYSE

In the booming IPO market of the 1990s, over 500 companies debuted on the New York Stock Exchange (NYSE) in 1996, marking an unprecedented era of public listings.

Yet over the following two decades, IPOs slowed to a trickle – with only 102 companies going public on the exchange in 2016.

This staggering decline of over 80% has been driven by an interplay of factors making it less attractive for companies to have an initial public offering (IPO) on the NYSE specifically.

The Rise of Private Capital Alternatives

One major disincentive has been the ample availability of private capital from sources like venture capital, private equity firms, and corporate investors.

Flush with cash, private markets can meet most funding needs without companies having to enter public markets. In 2019, over $130 billion USD was invested in US startups by venture capitalists alone.

Beyond covering funding requirements, much private capital comes with seasoned investor expertise in scaling growth companies. Leading VC firms often have operative experience in growing tech, biotech, and other high-growth sectors.

Such privately held pre-IPO giants like SpaceX, Juul, and Instacart have leveraged both the funding and advisory components of private capital to reach billion-dollar valuations while avoiding public listing scrutiny.

Increased Regulatory Burdens

Another key deterrent has been the increased regulatory compliance burden associated with public listings after the implementation of legislation like Sarbanes-Oxley in the 2000s.

This mandated strict corporate governance processes, financial reporting procedures, and internal control policies. Complying is massively costly for newly public small-cap companies, often requiring public compliance staff solely dedicated managing regulatory filings.

Public transparency laws also mandate fulsome and timely disclosure of business details anathema to many entrepreneurs fearing compromising competitive data.

Prominent technology unicorns like Airbnb, Dropbox, and SpaceX have cited avoiding regulatory burdens and disclosure requirements as factors in continuing to delay potential IPOs.

Volatile Market Climate

Upheaval in public stock markets has also made IPOs a dicey proposition over the past 20 years relative to more predictable private capital markets. The bursting of the dot-com bubble extinguishing the IPO fever of the 1990s, followed by shocks like the 2008 financial crisis and current pandemic volatility.

This has often shut the IPO window completely or dramatically cut newly listed stock prices for companies debuting during cyclical downturns.

Rising traction of alternative public listing platforms like Nasdaq and Over-The-Counter markets have also offered a more flexible avenue for companies wishing to tap into public markets.

These provide options limiting some regulatory burdens, disclosure requirements, and other IPO hurdles associated with prestigious exchanges like NYSE while still allowing companies to access broader public trading investor liquidity.

The diminished IPO pipeline on the NYSE looks unlikely to resurge dramatically any time soon given the favorable private capital environment and risky, compliance-laden reality frequenting public exchanges.

However, volatile markets do turn. Should the private funding boom slow or public market appetite shift, the exchange could once again serve as the hub for exciting young companies pursuing the highest levels of public market fundraising – and scrutiny.

1 thought on “Why Fewer Companies Are Going Public on the NYSE”

Leave a Comment