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    • A 2017 study by public policy think tank Third Way showed that going public was accompanied by a 40 percent decline in patents within five years after listing, the result of pressure to satisfy analysts' short-term expectations.

      U.S. regulators just approved a new Silicon Valley stock exchange [1]. It’s supposed to reduce the short term pressures on companies, making it attractive to money-losing hot startups who want the breathing room to be long-term focused.

      What tech companies are likely to join it? What are the trade-offs for future investments and growth?

      [1] Regulators approve new stock exchange, Reuters https://www.google.com/amp/s/mobile.reuters.com/article/amp/idUSKCN1SG21K

    • “One of LTSE’s listing ideas has proved contentious: “long-term voting,” a system that would give investors more voting power in a company the longer they hold shares. The goal is to give the biggest say to shareholders with the longest time horizons. But critics —such as the Council of Institutional Investors, a group of pension funds, endowments and other institutions—say long-term voting would entrench the control of founders and company insiders, while harming other shareholders.” [1]

      Hmmm...🧐

      [1] https://www.wsj.com/articles/silicon-valley-backed-venture-cleared-to-become-14th-u-s-stock-exchange-11557511056

    • But critics —such as the Council of Institutional Investors, a group of pension funds, endowments and other institutions—say long-term voting would entrench the control of founders and company insiders, while harming other shareholders.”

      “Watch the money change hands” is one of my favorite sayings. It means look beyond the words and focus on the self-interests of the power brokers.

      Investment fund managers get bonuses based on their quarterly performance on investing. Management fees are based on the quarterly value of the stock fund.

      So yeah, it doesn’t surprise me that institutional investors are opposed to delayed gratification.

      That doesn’t mean the companies can do whatever they want. Minority shareholders can always sue for damages if fiduciary responsibilities are violated: think Theranos.

      Another advantage of increased voting rights the longer you hold the stock is that it makes it harder for corporate raiders—think Carl Icahn—to buy up the stock and then either (a) gut the company or (b) receive greenmail payoffs to go away.

    • I wonder what this policy would do to short-selling. That seems to be Musk’s pet peeve.

      When Adobe shifted to a subscription model, one of the employees here in Lehi told me the main reason was to get some relief from the quarterly-report merry-go-round; I assume a lot of [tech] businesses squirm because of that SEC requirement.

      I have always felt like a crazy business growth model is really bad for the humane side of a business. But it’s baked into shareholders’ expectations when trading is on NASDAQ or the Dow. I wonder if this model that encourages long-term investing might temper crazy growth expectations.

    • I wonder what this policy would do to short-selling. That seems to be Musk’s pet peeve.

      Short sellers are every company’s pet peeve. 😎

      You ask an incredibly astute and intriguing question, @lidja .

      I think Musk would be quite happy with the additional costs inflicted on a short seller with the Long Term Stock Exchange (LTSE).

      Normally on a stock exchange, every share of a company is worth the same. So when a short seller borrows stock from John Smith, sells it, buys it back for less and then “returns” the borrowed stock to John Smith, Smith could care less that he now owns someone else’s shares as long as he still owns the same number of shares.

      On the LTSE, each share becomes more valuable to the owner the longer they hold it. So a short seller should pay a premium to borrow and sell shares held for several years by John Smith. Why? Because the short seller can only replace them with shares that will have zero years ownership accrued to Smith.

      In practice, I expect daily trading of a portion of each company on the LTSE. But as many of the startups on the exchange will be money-losing for several years, there’s an incentive for founders and original investors to hold on to their shares at least until profitability. Consequently, it’s an open question if there will be enough volume availble to make it worth a seller’s time to short. So it could provide a few more years of breathing room and long-term focus for the listed companies.

      Hmm, I think Musk would be mighty happy to have Tesla listed on the LTSE.

    • I wonder if regular investors become super-investors once their ownership crosses a certain time horizon, or if this is an attempt to entice/enrich/discipline angel investors.

    • I wonder if regular investors become super-investors once their ownership crosses a certain time horizon

      What do you mean by “super investors”? All I can think of is someone gaining X-Men like powers to bend metal with their mind.

      🙃

    • I just borrowed that term (probably misapplied it. Ha.) I meant how does an investor go from being a plain old run-of-the-mill investor when buying in, to a “long-term investor?” Is there a process? Like, do they have to hold shares for five years? ten years? twenty years? Or are there just long-term investors designated at the outset, before the company goes public, and then everyone else is “normal?”

      Is this new market just trying to remedy the problem if early-stage investors trying to make fast money before the new company gets a solid footing? In that case, it’s all about angel money and doesn’t really apply to the run-of-the-mill investor after the company goes public at all.

    • Is this new market just trying to remedy the problem if early-stage investors trying to make fast money before the new company gets a solid footing? In that case, it’s all about angel money and doesn’t really apply to the run-of-the-mill investor after the company goes public at all.

      According to the articles, the median age of a company at IPO is 12 years. So it’s definitely a chance for angel investors to cash out early. If they are re-investing their monies in new early stage ventures then it has two benefits.

      One, more money will be pumped into pre-IPO start ups each year.

      Two, venture capitalist’s can set their expectations below “unicorn levels” for investment. If a VC can cash out after 5 years instead of 12, they can achieve the same outsized return on a fraction of the $1 billion market value required for unicorns.

      I just borrowed that term (probably misapplied it. Ha.) I meant how does an investor go from being a plain old run-of-the-mill investor when buying in, to a “long-term investor?” Is there a process? 

      They don’t go into specifics but basically, if you own 50 percent of the stock then in 5 years, your voting rights go from 50% to hypothetically 60%. So you could sell some of your shares and still have a majority of the votes.

      For average investors on the Long Term Stock Exchange (LTSE), think someone with 500 shares they bought after a company went public, I don’t think the increased voting rights will make much difference for their investment. You might get a premium from short sellers. But otherwise, I think average investors will buy, sell or hold the stock the same as they do with NYSE stocks.