Job creation in Phoenix is a critical issue that threatens our hope for a sustained economic recovery. While we have heard many suggestions for creating Phoenix jobs, we have yet to hear of the positive role that resuscitating the initial public offering (IPO) market can play on job creation. By taking a look back at successes of the past, perhaps it can help to resuscitate IPOs as we move forward to economic recovery.
- Net creation of more than 20 million jobs in the United States
- Average of 530 corporate IPOs per year (excluding funds, LPs, REITs and SPACs)
- Nearly half of IPOS came from traditional America (neither venture capital nor private equity sponsored)
IPOs in the 1990s inspired confidence and created a source of capital that led to equity investment in private companies, giving rise to a “virtuous circle” of capital formation, job growth, innovation and increases in tax revenues.
From 2000 to 2009, we saw an average of only 126 corporate IPOs per year – down more than 76 percent from the prior decade, nowhere near enough to replace the 360 public companies that are lost annually to delistings.
Common sense dictates that when the number of IPOs declines, the availability of capital for job creation shrinks; when the number of companies de-listed from stock markets exceeds the number listed, jobs are shed. This “circle of destruction” undermines investment in private companies — considered the “foundation of job formation” — leaving behind a “foundation for unemployment.”
Consider that by 2000, unemployment had fallen to a mere four percent after an eight-year decline that coincided with the robust IPO market. Unemployment began to rise in the next few years amid the bursting of the dot-com bubble and the dissolution of thousands of businesses, but then ebbed once again from 2004-2007 as IPOs modestly reemerged. As we have seen, the credit crisis and the concurrent disappearance of IPOs in the past couple of years has been the backdrop for a sharp rise in unemployment.
The antidote is simple: restore the ecosystem that supported the allocation of capital to small Phoenix companies.
To do this we need to create a new stock market structure — subject to the same regulatory oversight and disclosure requirements that govern the NYSE and NASDAQ — that provides specifically for adequate economic incentives for Wall Street to return to the business of supporting small companies with research, capital and sales support. This new market would have minimum spreads of $0.10 for stocks below $5 per share and $0.20 for stocks trading at or above $5 per share, thus restoring incentives for brokerages to pursue profitability, while providing sufficient economics to support small cap liquidity.
The U.S. stock market once was the envy of the world — in large part because it fueled economic growth. Access to capital is the life blood of growing companies.
Resuscitating the IPO market for small cap businesses may not be the sole answer to Phoenix job creation, but it certainly should be part of every conversation.
For more information about resuscitating IPOs, please visit gt.com.