It would appear that Anthropic is headed toward an initial public offering before the end of the year. The whisper number is a $2 trillion valuation. Regardless of the merits and considerations of the underlying investment, it is depressing to think that a company can be worth that much on the very first day the public can buy a single share.
The “IPO” (initial public offering on the first day the public can buy shares on a stock market) market is increasingly leaving the public behind, and the Trump administration has an incredible opportunity to directly channel wealth back into the middle class. In a prior article, I discussed how this could happen and what the benefits would be. Having said that, this offering, as well as the recent offering of SpaceX, highlights the asymmetric relationship the financial markets have with the public.
Thirty years ago, companies would go to the public as a source of growth capital with valuations as low as $100 million. If Anthropic had done this, 100 shares priced at, let’s say, $20 would have cost $2000. Today, even with dilution, it would be worth millions. It’s worth noting that the company’s Series “A” round (the first time a company raises capital privately with institutions) went off in late May of 2021, so the gestation of this wealth has been meteoric.
Imagine the effect of that capital dispersed to everyday people. Even non-investors would have benefited. 401(k)s would have gotten allocations to their funds. Pensions would have gotten shares. Insurance companies would have participated. The wealth effect of this single transaction would have been massive. For many, house down payments, college funding, and retirement planning would be significantly easier.
Instead, a small number of super-affluent people are reaping the benefits of this growth because they can afford to have access to the private funds that are allowed to participate. Now partner this with the other huge transactions that have bypassed retail investors in favor of private equity, and it is easy to see why people aren’t as wealthy as their parents.
It is imperative to help middle America build wealth. While overall wages have kept up with inflation, this is heavily skewed toward high earners. Hourly wage earners have actually lagged. The wealth dispersion in our country looks like a sideways “k” with the bottom leg being the working poor, the short middle is the shrinking middle class, and the long upper leg being the highly compensated. The lower and middle class are precisely the people that would benefit most from IPO reform.
Looking outwardly, increasing the wealth of the middle class would add significant velocity to economic growth. The wealthier people feel, the more money they spend. This is good for businesses, tax collection, employment, and every other economic metric worth talking about. Having a growing portfolio would also reduce the need for consumer debt, which is a choke on an economy.
So how do we do it? Easy. Relax reporting requirements for emerging growth companies under, say, $1 billion in market cap (this can be done by expanding on the work already done by the JOBS Act most specifically exempting small companies from certain audit and disclosure requirements). You could also remove the tax benefits currently enjoyed by private equity (carried-interest treatment has long been a bipartisan target).
Another idea would be to make it a little easier for executives to sell their shares if they want to by relaxing the limitations of executive and affiliated shareholder trading rules for small companies. It would also be helpful to create a support system of banks that help emerging growth companies prosper. We had that 25 years ago but due to consolidation, the number of small underwriting banks is extremely limited now. That, in and of itself could be the source of thousands of very good, high-paying jobs.
The last thing, and the one that would most directly benefit the average investor, would be to require that a company going through an offering to set aside a significant percentage of its shares for private client allocation instead of giving them directly to institutions.
The rules that led to these restrictions were necessary at the time they were written. The dot-com bubble, and the panic of 2008 required a rethink of how we functioned, but there are better, more subtle ways of keeping corporations in check, and it’s time to reimagine how all of this works.
The best part about this reform is that the federal government would simply be allowing its citizens to help themselves up. Giving the public access to early-stage companies isn’t a handout, it’s an earn-out, and that is a foundationally American principle.
I am sure there are many other ways to increase household wealth in this country, but allowing the public access to the enterprise value of emerging growth companies is far and away one of the easiest and most effective. The democratization of our capital markets is extremely overdue. Looking at companies like Anthropic and SpaceX, it’s clear that there is plenty of capital being created. It’s also clear that there are more beneficial ways to distribute it, and we should.
