But there are some drawbacks to being listed on a stock exchange, such as:
- Significant costs associated with listing on an exchange, such as listing fees and higher costs associated with compliance and reporting.
- Burdensome regulations, which may constrict a company’s ability to do business.
- The short-term focus of most investors, which forces companies to try and beat their quarterly earnings estimates rather than taking a long-term approach to their corporate strategy.
Many giant startups (also known as unicorns because startups valued at greater than $1 billion used to be exceedingly rare) choose to get listed on an exchange at a much later stage than startups from a decade or two ago.
While this delayed listing may partly be attributable to the drawbacks listed above, the main reason could be that well-managed startups with a compelling business proposition have access to unprecedented amounts of capital from sovereign wealth funds, private equity, and venture capitalists. Such access to seemingly unlimited amounts of capital would make an IPO and exchange listing much less of a pressing issue for a startup.
The number of publicly-traded companies in the U.S. is also shrinking—from more than 8,000 in 1996 to around 4,300 in 2017.