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50 hot startups 2017

As Uber’s day one flops, a new exchange that understands startups materialises

By Nick Baker

Uber Technologies Inc.’s shares dropped on their first day of trading and a U.S. regulator said it would let a new kind of stock exchange open. Both things happened Friday, and they’re arguably interconnected.

Uber is worth about $70 billion as a newly public company, but because it shunned an IPO for years, private investors got all the benefit of its rise from startup to behemoth. The ride sharing company’s stock declined as much as 8.8% during its trading debut.

Around the same time as Uber’s first trade at the New York Stock Exchange, the Long Term Stock Exchange got permission from the Securities and Exchange Commission to set up shop. Created by Eric Ries, a guru for Silicon Valley entrepreneurs, LTSE is designed to pull the stock market out of its short-term mindset through a set of rules meant to coax companies out of strategic near-sightedness.

Ries’ ideas include prohibiting listed companies from publishing quarterly earnings guidance and giving shareholders who’ve long held stock more voting power over corporate policy. Peter Thiel’s investment fund and venture capitalist Marc Andreessen are among LTSE’s backers.

Many famous entrepreneurs have argued that the way markets now operate is robbing average investors. Among them is AOL co-founder Steve Case, who has been an investor in LTSE.

“People still stop me on the street to tell me the story of how they invested in AOL early on, held onto those shares, and were able to put their kids through college with their returns,” he wrote in an April 2018 letter to the SEC. “This kind of opportunity is virtually nonexistent for the average American investing in today’s public markets.”

Why? “Companies are no longer going public in early growth stages as AOL did,” Case said. “So why are companies waiting so long to go public? There are many contributing factors, but I believe many public companies are concerned about subjecting themselves to the short-term interests of transient shareholders.”

Whether LTSE can change that -- or even attract enough companies to be viable -- remains to be seen.
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