VCs "eat meat," retail investors "wash dishes": Is the crypto drama about to play out in the US stock market?

Author: Citrini Research; Translator: Felix, PANews

The chances of retail investors achieving high returns in the stock market are becoming increasingly slim, and this may be related to companies delaying their IPOs. Research firm Citrini has published an article exploring the problem of companies tending to remain private for extended periods in modern capital markets, leading to growth value being primarily captured by venture capital firms, while the public market may have become a tool for liquidity exits. Details are as follows.

The idea that companies remain private for extended periods is utter nonsense.

While I personally understand the motivations and don't blame the founders, this undermines the system that initially created these companies. Fundamentally, it violates the promise that makes capitalism work.

The social contract in the United States has always worked remarkably well for capital markets.

Yes, you may work for a boring small business or have a mediocre job; you may not become extremely wealthy, nor have transformative ideas, and sometimes you may feel that the system doesn't work for you at all.

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

For much of the postwar period, this trade-off went something like this: the public bore the brunt of market volatility, inefficiency, and the tedium of holding broad indices. In return, they were occasionally given transformative growth opportunities. This created upward mobility opportunities that wouldn't have existed otherwise, especially for those who believed in the prospects of American economic growth but weren't direct participants. Two stories have been shared before: a retired woman in her sixties invested two salaries in Apple stock after Apple ran its first Super Bowl ad and never sold it. A childhood neighbor invested in AOL in 1993, and by the time it merged with Time Warner, he had enough to pay for his three children's college tuition and pay off his mortgage. Today, there are very few companies that went public at the same stage as Apple in the 1970s or AOL in the early 1990s. Even if you're just a janitor, you have the opportunity to invest in companies that are writing chapters in American history. The market's meritocracy meant that if you were perceptive enough, you could have bought AOL stock in 1993. And that was just the tip of the iceberg: a few visionaries noticed certain changes. The broader, more socially significant impact was felt by those who didn't particularly follow social dynamics. They clocked in and out day after day. As part of the system's operation, they gained the opportunity to participate in creating enormous wealth. Even if you're not the most astute individual investor, even if you've never bought stocks in your life, your retirement savings will eventually be invested in companies building the future. As a small part of the capitalist engine, you don't need luck. You're already fortunate to have a portion of your salary invested in your future. Sometimes, you'll find yourself a small shareholder in a company that ultimately becomes a cornerstone of the future. Thanks to this system, some companies have annual revenues of billions of dollars. But those who maintain this system don't benefit today because, in the eyes of the capital market, they are not equal. In this dynamic, capitalism only regresses to feudalism. A small group controls the means of production (land), while others labor for them, and social mobility becomes an illusion. If a company doesn't go public, it's simply rebuilding the same structure with different assets. Equity in transformative companies is the new land. You must have $1 million in net worth (excluding real estate) or an income of $200,000 for two consecutive years. The median net worth of American households is about $190,000. Legally, they are too poor to invest in the future. But it is these median households that use these companies' products in their work and consumption, giving these companies value. Without hundreds of millions of people using ChatGPT, OpenAI could not have reached a $500 billion valuation. Users create value. No matter how many B2B transactions are involved, the end of the value chain is always the individual consumer. They should at least have a chance to get a share. In a sense, it might even be worse than feudalism today: at least farmers know they are farmers. Today, people "participate in capitalism" through 401(k) retirement plans, yet are systematically excluded from the most transformative wealth markets. The rich getting richer has always been how capitalism works. But until recently, America's powerful capital markets at least ensured that you were a stakeholder. Winners won, but you could also participate in their victory. You could have been one of AOL's first million users and said, "Cool, I'm investing in this company." In the next six years, its stock price increased 80-fold. Today, any good product from a new company that you use almost never has its stock traded on the public market. In 1996, there were over 8,000 publicly traded companies in the U.S. Despite today's exponential economic growth, the number of publicly traded companies is less than 4,000.

In 2024, the median market capitalization of publicly traded companies was $105 million in 1980, and $1.33 billion in 2024.

This discussion is not about the median market capitalization. Over the past century, nearly half of the market capitalization growth has been contributed by the top 1% of companies.

Anthropologie, SpaceX, OpenAI.

These companies should be among that 1%. Today, the only way for the public to participate in the growth of these companies is through an IPO after their growth has plateaued.

Anthropologie, SpaceX, OpenAI.

These companies should be among that 1%.

Today, the only way for the public to participate in the growth of these companies is through an IPO after their growth has plateaued.

When Amazon went public, it was only three years old, with revenue of just $148 million and operating at a loss. Apple went public four years old. When Microsoft went public in 1986, its market capitalization was approximately 0.011% of the US GDP. Within a decade, it created approximately 12,000 millionaire employees. Secretaries and teachers in Washington state also became millionaires by purchasing and holding shares in the software company. SpaceX is arguably one of the most inspiring and landmark companies in the US today, with a valuation of $800 billion, approximately 2.6% of GDP. OpenAI recently completed a $500 billion funding round and is reportedly attempting to raise another $100 billion at a valuation of $830 billion. In October 2024, its valuation was $157 billion. If OpenAI had gone public then, it would likely have been quickly included in the S&P 500, perhaps becoming the sixth or seventh largest holding in the index (or even higher, given the trading activity in AI companies). However, the majority of this added value would not go to U.S. citizens, but rather to venture capital and sovereign wealth funds. In 2024 dollar terms, Apple's market capitalization at the time of its IPO was $1.8 billion. It wouldn't even rank among the top 100 companies by market capitalization.

In 1997, Amazon's initial public offering (IPO) valuation was $438 million. The IPO process was chaotic and volatile. During the dot-com bubble burst, its stock price plummeted by 90%.

But because the public absorbed this volatility, they also reaped the subsequent 1700-fold increase.

They didn't need enough capital to invest in venture capital funds, nor did they need to "build connections." The only barrier to entry was the stock price.

Now look at Uber.

This company has always attracted the interest of ordinary public investors because Uber is used everywhere.

However, when Uber went public in 2019 at a valuation of $89 billion, its value had increased approximately 180 times compared to its earlier venture capital rounds. If this were the 1990s, individual investors might have had the opportunity to notice the changing world. Suppose an Uber driver noticed it in 2014 when the company surpassed 100 million cumulative orders (at a valuation of $17 billion), that would have been a 10x return, a 22% annualized compound growth rate. But the reality is, the public has only enjoyed the benefit of Uber's stock price doubling in the past seven years. To clarify: this is not an advocacy for all startups to go public. Those who invested in Uber from seed to Series C clearly took on significant risk and reaped substantial rewards. But when Uber went public with its Series D funding, one couldn't help but wonder if remaining private was simply a way to ensure a smoother path to market dominance and easier monetization, with all profits ultimately flowing to venture capitalists. It must be reiterated here: venture capital has always been an integral part of technological progress. Many companies that would otherwise have been eliminated by the market have survived, likely because they were able to raise funds from a group of long-term investors. However, if venture capitalists want the game to continue, they need to ensure that the entire system doesn't collapse from 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: Increased wages, bonuses, and financial buffers. Low-income Families: Struggling Living, Facing Price Pressures: Slower Income Growth: Stagnant or slow wage growth. Soaring prices (inflation): Rising rents, food, energy, and prices of necessities. Financial vulnerability: Increased debt, limited savings, and vulnerability to shocks. There's more than one way to address this, but anything that broadens asset ownership aligns incentives. The impact of AI is likely to only exacerbate this dynamic. It will be even worse if the upper half of the K-shape becomes narrower due to over-concentration of beneficiaries. This dynamic is inherently unsustainable if public markets become mere exit points for already established venture capital projects. Capitalism will give way to neo-feudalism. Social unrest will become more widespread. In contrast, China is likely to list more early- and mid-stage AI companies this year, surpassing the number in the US. The STAR Market looks strikingly similar to Nasdaq in the early 1990s, offering mass investors the opportunity to create enormous wealth. China seems to understand that this will help build a strong middle class, while the US seems to have forgotten that. Companies don't want to be exposed to market volatility. They don't need to go public until they're large enough that venture capitalists can no longer fund them. Venture capitalists know they can simply inflate valuations in later funding rounds, so they won't push companies to go public. Whether this situation will change, or how it will change, is unclear, but it's evident that the U.S. is heading towards a world where the S&P 500 is essentially a tool for exiting liquidity. OpenAI and Anthropic will go public as some of the world's largest companies, forcing indices that people rely on for retirement to buy their shares. By then, even if the stocks perform well, the public will have been excluded from wealth creation, and future returns will be compromised. The total value of companies on Crunchbase's unicorn list reaches $7.7 trillion, exceeding 10% of the S&P 500's market capitalization. Given the list of some of the most successful companies of the last century, some might accuse it of survivorship bias. But that's precisely the point. Investing in passive indices like the S&P 500 works in part because, over time, it tends to retain high-quality companies and weed out low-quality ones. It benefits from periods when companies are dominant, especially when those companies are actively striving for dominance. Apple was added to the S&P 500 index just two years after its IPO, replacing Morton Norwich (a salt company that later merged with a pharmaceutical company, became responsible for the Challenger space shuttle disaster, and was eventually broken up by private equity). Look at the companies that have truly created wealth over the past 50 years: Even Google, the company with the highest market capitalization at its IPO ($23 billion), was only at the bottom of the top 100 companies at the time. If we want capitalism to continue, we need to encourage investment. But if investment becomes merely a tool for a few to profit, then the system will be difficult to sustain. Viewing an IPO as an exit strategy and limiting companies to becoming national giants ignores the very system that created the conditions for their survival. If the returns on investments in epoch-making companies are monopolized by a few, the majority will gradually lose faith in the system. It's unclear how this situation can be changed, or whether the existing incentive mechanisms are too deeply entrenched to be altered, but if there's the ability to change it, it should be improved.