The Shrinking Stock Market

The stock market may be shrinking, but we’re here to help

Last year, Jeff Sommer at The New York Times wrote a poignant article, “The Stock Market Is Shrinking. That’s a Problem for Everyone,” that explained the changes in the stock market over the last few decades. Sommer noted that in terms of volume of public companies, “The market is half the size of its mid-1990s peak, and 25 percent smaller than it was in 1976.” The article went on to explain the pitfalls of having a “shrinking” market. Fortunately, the current IPO boom offers an opportunity for privately held companies to go public and start changing this trend.

ClickIPO is attempting to help by taking companies public earlier in their life cycle. For example, Amazon went public in May 1997 at a $600 million market capitalization (market cap), while Lyft and Uber were over $24 billion and over $80 billion, respectively, in market cap when they went public this year. Because Uber and Lyft stayed private longer, the average investor missed an opportunity to invest at an earlier stage, compared to the value of Amazon at its IPO.

An IPO underwritten by a major investment bank today is generally over $1 billion in market cap and has over $100 million in capital raised, which is primarily allocated to large institutional clients. The smaller investment banks will underwrite offerings under $1 billion in market cap, with less than $100 million in capital raised and sometimes as little as $15 million. However, raising capital can be more difficult at this level because bigger institutions tend to stay away from smaller market cap companies due to potential liquidity issues.

ClickIPO can help solve this problem by serving as a capital-raising source for smaller market cap companies, helping them acquire more capital at an earlier stage through an IPO. The ClickIPO app, and its embedded platform, allow investors to place orders for IPOs and other capital markets products. We partner with online brokerages and financial advisors to form one aggregated distribution pipe by representing thousands of individual investors at multiple brokerages.

We can also work with smaller investment banks that are helping to get those private companies to go public earlier in their life cycle. Our goal is to be part of the engine that increases the number of public companies, supporting capital formation, creating more jobs and ultimately growing the U.S. economy. In addition, there has been a strong surge of interest among foreign investors seeking to invest in companies on U.S. exchanges, and it’s always good to see capital flowing into the U.S. rather than out of it. Although we have certain compliance restrictions, our technology platform allows investors from around the world to invest through ClickIPO or our partners using multiple languages.

Overall, capital markets have actually grown in the past 5 years, although equities now represent a smaller percentage of the overall mix. ClickIPO’s broad capital markets platform has a mandate to provide Main Street retail investors with a full array of capital markets products. This includes not only equity IPOs, but also follow-on offerings, preferred securities and closed-end funds. Investors can choose from a variety of products that have not been widely available to the general public until now, through ClickIPO. At the same time, we are helping smaller market cap companies raise capital by going public earlier in their life cycle. It’s evident that the U.S. economy would benefit from having more public companies funded by average investors.

Risk of Investing in Initial Public Offerings (“IPOs”)
There are specific risks in investing in an Initial Public Offering (“IPO”). Among other things, the stock has not been subject to market valuation. Those risks are described at length in the prospectus, and we urge you to read the prospectus carefully to understand those risks before investing. An IPO is the first sale of stock by a private company to the public and may not be suitable for all investors. IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded. IPOs are a risky investment. For even experienced investors, it can be difficult to predict what the stock will do on its initial day of trading and in the near future because there is often little historical data with which to analyze the company. Also, most IPOs are of companies going through a transitory growth period, which are subject to additional uncertainty regarding their future values. Read more information regarding the significant risks associated with investing in IPOs.