The Long-Term Exchange – The Start-Up Investor
Stock exchanges are not primarily used to issue securities, but, as the name implies, allow a secondary market where investors can buy and sell securities with little effort and at the lowest possible cost.
The simplicity of being able to buy and sell a stock at any time means that not every investor has the long-term interest of the company in mind. On the contrary, part of the problem that companies have difficulty consistently investing in innovation is the pressure of the market to achieve short-term growth and profit goals. This view is at least Eric Ries, which many certainly known as the author of the bestseller Lean Start-up . He also founded the Long-Term Stock Exchange (LTSE) in 2015.
The drop in listed companies – the number of listed US companies has halved since 1996 – is largely due to the fact that today’s companies do not even want to go public . Companies do not want to lose control, do not want to think quarter after quarter, and they do not want to be distracted by the ups and downs and shrill screaming of activist investors. The argument also seems understandable and comprehensible, but what should be the alternative for large companies seeking capital?
Eric Ries wanted a stock market that promotes long-term value creation, and with the LTSE, he hopes to do just that. Among other things, he was financed by Valley greats such as Marc Andreessen, Reid Hoffman and Steve Case.
As the name implies, LTSE is committed to long-term thinking. The biggest change from “conventional exchanges” is the distribution of voting rights among investors. The so-called ” tenure voting ” provides these investors, who hold a share longer, with more voting rights than investors who have only recently invested in the company. Other changes relate, for example, to the remuneration system (“management’s variable remuneration may not depend on short-term targets”) or the disclosure requirements (“no permanent forward guidance”).
The advocates of the LTSE see it as a matter of course the antidote to Wall Street and the associated short-term thinking. At the same time, they hope that LTSE will give large private companies such as Airbnb and Uber an incentive to raise capital on the stock market. Critics see the LTSE as another vehicle that gives powerful Valley investors the opportunity to gain control and take over.
I’m honestly pleased that this experiment is ventured because I find the idea extremely exciting. I do not dare to say whether it will be successful or not, but I do see potential problems with liquidity and pricing. The starting shot should be 2018. In a few years we will know more.
Your view of the LTSE
What do you think? Will LTSE successfully turn the capital market upside down? Will there be a coexistence of two systems or is the LTSE doomed to failure?