Private Market Gains Go Public

When Enron imploded in 2001, it was another kick in the gut for U.S. investors.

People were steaming mad about corruption. Rightfully so.

Politicians felt they had to respond. The primary “reform” passed into law was the Sarbanes-Oxley Act (SOX).

Among other things, it required public companies to recruit independent board members and audit committees.

In effect, SOX made it far more costly to be a public company. Especially for small caps and micro caps. See the chart below, from Heritage.org, which shows just how much more expensive.

EI_impact of regulatory costs

Unintended Consequences

As is often the case, the government’s reaction to this crisis didn’t help much.

In fact, its actions caused significant harm to public markets.

After SOX was implemented, a new trend began. Private companies avoided going public for as long as possible.

As you can imagine, this meant that when companies offered stock to the public, it was much later in their growth curves.

Since SOX, public market investors have missed out on most of the great U.S. growth stories.

Most of the gains were captured by private market investors. The trend has only strengthened over time.

And for most of the past 82 years, to be a private market investor has meant you had to be wealthy. The whole situation worked out rather well for the 0.1%.

But savvy investors knew they were missing out on the investments with the greatest potential, so they pushed the government to open up private opportunities to all.

True Reform Hits the Markets

As regular readers know, in May of this year, the last and most important reform of the JOBS Act of 2012 went into effect.

Finally, all investors can access private markets via equity crowdfunding.

With as little as $50 to $100, anyone can invest in private early-stage companies, startups valued anywhere from $1 million to $50 million.

It’s shaping up to be a beautiful market. One where thousands of small investors can collectively help their investments succeed.

It’s good for not only investors, but also for small businesses and startups. And that’s where real meaningful economic growth occurs.

First Stage Investor

We started Early Investing with the goal of building a research service to help regular investors navigate these private markets.

We had to wait three years for the laws to go into effect, but the day has come at last.

This week we launched our service for everybody: First Stage Investor. My Co-Founder Andy Gordon and I will be researching every investment opportunity and recommending the best ones to our members.

We’ve also put together a ton of educational material for those who are interested in learning to navigate this market on their own.

Our goal is not just to find the best investment opportunities, but to help members avoid common mistakes.

By the way, one of our initial recommendations closes July 31. It’s a company with big potential in a red-hot industry. In this deal, you’d be investing alongside professional venture capitalists.

To learn more, click here.

Once these funding rounds close, the opportunity will be gone. There will be others. But this is a choice one. A time to act.

Have a great weekend.

Adam Sharp
Founder, Early Investing