Anthropic is headed toward an initial public offering before the end of the year with a whisper valuation of $2 trillion.
That means a company will be worth that much on the very first day the public can buy a single share.
The wealth effect of this single transaction could have been massive for everyday people. Instead, only the super-affluent will benefit.
Thirty years ago, companies went public as a source of growth capital with valuations as low as $100 million. If Anthropic had done this, 100 shares priced at $20 would have cost $2,000. Today, even with dilution, it would be worth millions.
The company’s first private funding round went off in late May of 2021, so the gestation of this wealth has been meteoric.
The wealth effect of this single transaction would have been massive for everyday people. Now, only the super-affluent will benefit.
Imagine the effect of that capital dispersed to everyday Americans. 401(k)s would have gotten allocations to their funds. Pensions would have gotten shares. Insurance companies would have participated.
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 because they can afford access to the private funds allowed to participate. Partner this with the other huge transactions that have bypassed retail investors in favor of private equity — including SpaceX — and it’s easy to see why people aren’t as wealthy as their parents.
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” — 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 $1 billion in market cap 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 easier for executives to sell their shares 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 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.
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.
Allowing the public access to the enterprise value of emerging growth companies is far and away one of the easiest and most effective ways to increase household wealth. 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.
