VC eats the meat, retail investors do the dishes, is the crypto drama playing out in the US stock market?

Companies delaying their IPOs cause retail investors to miss out on high returns, with growth value mainly captured by VC institutions. Research indicates that the number of publicly listed companies in the US has fallen from 8,000 to 4,000, turning the public market into a liquidity exit tool, and capitalism is regressing back to a new feudalism. This article is based on Citrini Research’s X article “The Broken Promise,” translated and reorganized by PANews.
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The opportunity for retail investors to gain high returns in the stock market is becoming increasingly slim, largely related to companies delaying their IPOs. Citrini, a research organization, published an article exploring the tendency of modern capital markets for companies to remain private for extended periods, leading to growth value being mainly captured by VC firms, with the public market turning into a liquidity exit tool. Here are the details.

Long-term private status for companies is simply nonsense.

While I understand the motivations behind this and do not blame founders for doing so, such actions undermine the system that originally created these companies. Fundamentally, it is a betrayal of the promise that keeps capitalism running.

America’s social contract has always worked quite well for capital markets.

Yes, you might work at a dull small business, or have a job that’s not outstanding; you may not become extremely wealthy, nor have revolutionary ideas, and sometimes you might feel this system doesn’t serve you at all.

But at least, you have the chance to participate in the great achievements created by this system.

For most of the post-war period, this was roughly how the deal worked: the public bore the market’s volatility, inefficiency, and the boredom of holding broad indices. In return, they were occasionally given transformative growth opportunities.

It created upward mobility opportunities that didn’t exist before—especially for those who believed in the US economic growth prospects but were not direct participants.

I have shared two stories before: a woman in her sixties who, after Apple aired its first Super Bowl ad, invested two salaries in Apple stock and never sold. A childhood neighbor invested in AOL in 1993; by the time it merged with Time Warner, her stocks were enough to pay for all three children’s college tuition and pay off her mortgage.

Today, companies like Apple in the 70s or AOL in the early 90s are almost nonexistent.

Even if you are just a cleaner, you still have the chance to invest in companies that are writing American history. The elite system of the market means that if you are sharp enough, you could have bought AOL stock in 1993.

And this is just the tip of the iceberg: a few farsighted individuals noticed certain changes.

The broader, more socially significant impact is on those who are not particularly attentive to social dynamics. They go to work day after day. As part of the system’s engine, they have the opportunity to participate in creating enormous wealth.

Even if you are not the most savvy individual investor, even if you have never bought stocks in your life, your retirement funds will eventually be invested in companies building the future. As a small part of the capitalist engine, you don’t need luck.

You are already fortunate—thanks to part of your wages being invested in your future. Sometimes, you find yourself a small shareholder in a company that eventually becomes a cornerstone of the future.

Thanks to this system’s support, some companies generate annual revenues of billions of dollars. But now, those maintaining this system cannot benefit from it because, in the eyes of the capital market, they are unequal.

In this dynamic, capitalism will regress into feudalism. A small elite controls the means of production (land), while others work for them, and social mobility becomes a fantasy. If a company does not go public, it merely reconstructs the same structure with different assets. The equity of transformative companies is the new land.

You must have a net worth of at least 1 million USD (excluding real estate), or have two consecutive years of income reaching 200,000 USD. The median net worth of US households is about 190,000 USD. Legally, they are too poor to invest in the future. But it is these median households, through work and consumption, that use these companies’ products, giving them value.

Without hundreds of millions of users, OpenAI could not reach a valuation of 500 billion USD. Users create value. No matter how many B2B transactions occur along the industry chain, the end of the industry chain is always individual consumers. They should at least have the opportunity to share in the benefits.

In a sense, it might even be worse than feudalism today: at least peasants knew they were peasants. Today, people participate in capitalism through 401(k) plans but are systematically excluded from the most transformative wealth markets.

The rich getting richer has always been how capitalism operates. But until recently, the US’s powerful capital markets could at least ensure you were a stakeholder. Winners win, but you could also participate in their victory.

You could have been one of AOL’s first million users and said, “Cool, I want to invest in this company.” Over the next six years, its stock price increased by 80 times. Today, the good products of any new company you use are almost never traded on the public market.

In 1996, there were over 8,000 listed companies in the US. Despite the exponential growth of the economy today, the number of listed companies is less than 4,000.

Adjusted for 2024 inflation, the median market cap of companies listed in 1980 was 105 million USD. In 2024, it is 1.33 billion USD.

The focus here is not on the median market cap. Over the past century, nearly half of the market cap growth has been contributed by the top 1% of companies.

Anthropologie, SpaceX, OpenAI.

These companies should have been among that 1%. Today, the only way for the public to participate in their growth is through IPOs after their growth slows down.

Amazon was founded only three years before going public, with revenue of just 148 million USD and operating losses at the time. Apple went public after four years.

When Microsoft went public in 1986, its market cap was about 0.011% of US GDP. Within ten years, it created about 12,000 millionaire employees. Secretaries and teachers in Washington state also became millionaires by buying and holding stock in this software company.

SpaceX is arguably one of the most inspiring and milestone companies in the US today, with a valuation of 800 billion USD, about 2.6% of GDP.

OpenAI recently completed a 500 billion USD funding round, reportedly trying to raise an additional 100 billion USD at a valuation of 830 billion USD. As of October 2024, its valuation is 157 billion USD. If OpenAI had gone public then, it would likely be included in the S&P 500 very quickly, perhaps as the sixth or seventh largest holding (possibly higher given AI company trading conditions).

However, most of this added value will not go into the hands of American citizens but flow into venture capital and sovereign wealth funds.

In 2024 USD, Apple’s market cap at IPO was 1.8 billion USD. It even ranks outside the top 100 companies by market cap.

In 1997, Amazon’s valuation at IPO was 438 million USD. The process was chaotic and volatile. During the dot-com bubble burst, its stock price fell 90%.

But because the public bore this volatility, they reaped a subsequent 1,700-fold increase.

They didn’t need enough capital to invest in venture funds, nor did they need to “build connections.” The only threshold to enter the market was the stock price.

Look at Uber.

This company has always attracted ordinary public investors’ interest because everyone uses Uber for transportation. However, when Uber went public in 2019 at a valuation of 89 billion USD, its value had already increased about 180 times compared to early venture rounds.

If this had been the 90s, individual investors might have noticed that the world was changing. Suppose a Uber driver noticed when the company’s cumulative orders surpassed 100 million in 2014 (valuation 17 billion USD). That would be a 10x return, with a 22% annual compound growth rate.

But the reality is, the public has only enjoyed a doubling of Uber’s stock price over the past seven years.

To clarify: this is not a call for all startups to go public. Those who invested in Uber from seed to Series C clearly took huge risks and reaped rich rewards.

But by the time Uber raised its Series D, one might ask: is staying private just to ensure a smoother path to market dominance and easier cash-out, with all profits ultimately flowing to VC circles?

It must be reiterated: venture capital has always been an indispensable part of technological progress. Many companies that would have been eliminated by the market survive precisely because they can raise funds from long-term investors.

But if venture capitalists want the game to continue, they need to ensure the entire system doesn’t collapse under its own overload.

We are now seeing the emergence of a “K-shaped economy.”

High-income Americans: Wealth and income growth:

• Asset appreciation: rising stock and real estate values.
• Remote work stability: stable jobs, reduced expenses, increased savings.
• Stronger income growth: higher wages, bonuses, and financial buffers.

Low-income families: struggling with living costs and inflation:

• Slowing income growth: stagnant or slowly increasing wages.
• Rising prices (inflation): rent, food, energy, and essentials increase.
• Financial fragility: increasing debt, limited savings, vulnerable to shocks.

There are multiple ways to address this issue, but any measure that broadly increases asset ownership aligns incentives. The impact of AI is likely to only intensify this dynamic. If the top half of the K-shape becomes narrower due to overly concentrated benefits, the situation worsens. If the public market turns into a liquidity exit for mature venture-backed companies, this dynamic is inherently unsustainable.

Capitalism will give way to new feudalism. Social unrest will become more common.

In contrast, China may see more early- and mid-stage AI companies going public this year, with the number surpassing the US. The STAR Market looks remarkably similar to Nasdaq in the early 90s, offering the public opportunities to create enormous wealth. China seems to understand that this helps build a strong middle class, while the US appears to have forgotten this.

Companies do not want to bear market volatility. Before they reach a size where venture capital can no longer fund them, they don’t need to go public. VCs know they can just raise valuations in later rounds, so they won’t push for IPOs.

Whether this situation will change or how it might change is uncertain, but it’s clear that the US is heading toward a world where the S&P 500 essentially becomes a liquidity exit tool.

OpenAI and Anthropic will go public as some of the world’s largest companies, and the indices that sustain retirement will be forced to buy their stocks. By then, even if stocks perform well, the public will be excluded from wealth creation, and future returns will be compromised.

The total valuation of unicorns on Crunchbase exceeds 7.7 trillion USD, over 10% of the S&P 500 market cap.

Considering some of the most successful companies of the last century listed above, some might accuse survivorship bias. But that is precisely the point. Investing in passive indices like the S&P 500 is so effective partly because over time, it tends to retain high-quality companies and remove poor ones. It benefits from periods when these companies dominate, especially during their rise to dominance.

Apple was included in the S&P 500 just two years after going public, replacing Morton Norwich (a salt company that later merged with a pharmaceutical firm, became responsible for Challenger disaster, and was eventually split by private equity).

Looking at the companies that truly created wealth over the past 50 years:

Even the highest-valued IPO—Google (230 billion USD)—was just at the bottom of the top 100 companies at the time.

If capitalism is to continue, it must encourage people to invest. But if investment merely becomes a tool for a few to profit, the system will struggle to sustain itself. Viewing IPOs as exit strategies and limiting companies before they become national giants ignores the very system that creates the conditions for these companies to survive. If the returns on investing in meaningful companies are monopolized by a few, most people will gradually lose confidence in the system.

It’s uncertain how to change this situation or whether existing incentives are so deeply ingrained that they cannot be altered, but if there is the power to change, it should be improved.