As tech startups IPO increasingly later, most of the value is captured by private investors. This might be hurting average investors in more than one way - not only do they not have access to the high growth opportunities, but the tech startups often flourish at the expensive of older companies that are included in index funds and ETFs.
The team at A16Z recently released a massive slide deck that analyzes tons of data on U.S. Tech Funding. They show how tech companies are roughly 20% of the S&P 500 market cap, that the median time to IPO is 11 years, and that almost all the returns from tech investing are happening before the companies IPO.
If the average consumer is only interacting with the public market through things like index funds (which seems to be the best approach) then they don’t get to realize any of the growth from the current tech boom. Even worse, tech startups often attain their meteoric rise by disrupting incumbents; the existing companies they replace often are publicly traded and included in index funds. This means a double whammy for the average investor - they miss out on the growth companies and are exposed to the declining ones.
As I mentioned earlier, tech companies only make up 20% of the S&P. This might temper the impact of this trend for now but the current wave of startups are competing in every industry and the ‘tech’ categorization might ultimately become moot.
I’m not sure what this means in the long run. Certainly some non-tech companies benefit from the lower costs and increased efficiency that tech companies can create. Overall, I’m not sure if those benefits will out weight the damage done to publicly traded incumbents.
I’m not so bold (or foolhardy) to suggest and investment strategy based on these observations but I wouldn’t be surprised if we transition to a period of increasing GDP with stagnant public markets - yet another vector for increasing inequality.