Private or Public Equity? The Evolving Entrepreneurial Finance Landscape
Annual Review of Financial Economics, Forthcoming.
36 Pages Posted: 10 Nov 2021 Last revised: 11 Apr 2022
Date Written: February 2, 2022
The U.S. entrepreneurial finance market has changed dramatically over the last two decades. Entrepreneurs raising their first round of venture capital retain 30% more equity in their firm and are more likely to control their board of directors. Late-stage startups are raising larger amounts of capital in the private markets from a growing pool of traditional and new investors. These private market changes have coincided with a sharp decline in the number of firms going public—and when firms do go public, they are older and have raised more private capital. To understand these facts, we provide a systematic description of the differences between private and public firms. Next, we review several regulatory, technological, and competitive changes affecting both startups and investors that help explain how the trade-offs between going public and staying private have changed. We conclude by listing several open research questions.
Keywords: Entrepreneurial finance, private equity, private firm, IPOs, venture capital, financial intermediation.
JEL Classification: G23, G24, G28, G34, G38.
Suggested Citation: Suggested Citation