Are IPOs good at creating jobs?
During the dot-com boom, firms that went public often used the new influx of cash to go on hiring sprees. The bust, however, erased many of those gains. Since then, firms that have gone public often don’t use the new equity to expand their payrolls so rapidly, as the Kauffman Foundation explains in a new report.
“There are still lots of hot three-year-old technology companies raising huge amounts of equity and using it to hire loads of people. They’re just doing it in the private markets rather than the public markets,” explains Felix Salmon, who flagged this chart earlier. By contrast, he continues, IPOs have simply become “financial tools used by financial professionals to make money”— a way for a company to cash out and pay back some of its early investors (along with its owners and employees.
James Surowiecki also has a good column explaining why today’s startups are shunning IPOs altogether.