I wonder how good it is for companies to be allowed to grow so big and still be private? Would it makes sense to require any company with more than a billion dollar valuation to be subject to all the same SEC requirements that public companies are? Could companies be blocked from raising money once the reach a crazy valuation like $1 billion?
That doesn’t make sense at all. The raison d’être of SEC is to protect regular mom-and-pop investors. A private company just doesn’t allow anyone to invest in them. Why should SEC rules apply? On what legal basis can you force a private company to divulge its financial details? Would you be happy if you, as an individual, have to divulge your account statements if your own net wealth reaches one million?
It's a corporation, it exists at society's leisure.
It might be necessary to create a legal basis, but it's just a matter of doing it. If the owners don't like it they can dissolve it.
> The raison d’être of SEC is to protect regular mom-and-pop investors
That's not the sole reason. They (should) also enforce a fair even playing field by preventing market manipulation (e.g. how Elon was tweeting about stock prices) and a few other things to "facilitate efficient markets and the formation of capital".
> Why should SEC rules apply?
Because private companies still fall under the jurisdiction of the SEC? See e.g. Theranos.
> On what legal basis can you force a private company to divulge its financial details?
On the to-be-created legal basis that aims to prevent bubble formation and the resulting fallout to the wider society?
> Would you be happy if you, as an individual, have to divulge your account statements if your own net wealth reaches one million?
Sure, why not? It's not a totally unheard of idea. In Norway everyones salary can be looked up.
yeah it's a slippery slope forcing companies to go public at X valuation. who decides that? what number makes sense? etc. but i do think we need to somehow fix massively overpriced companies going public and dumping on retail
Nobody said anything about forcing them to go public, just to force them to adhere to reporting regulations.
It’s a major issue in VC. Main Street doesn’t get access until it’s time to offload. Prevents capital recycling for early stage as well.
there used to be rules that companies must be public if they have other 1000 investors. is this no longer the case?
it's still the case, but there are never 1,000 investors, there's a couple dozen VC firms, SPVs, and individuals
if you're smart.
I don't think this is an SEC problem, they are fully aware that people subject to their jurisdiction can jump through many hoops to circumvent them. This shows consent on the investor's part well enough, and capital formation regulations do not burden the investor at all, they are only constitutional because they burden the organization raising capital, who simply needs to do a cursory check - not an in-depth one. (level of depth is based on which regulatory exemption is chosen)
So as long as you separate concerns the SEC is satisfied.
If employees get stock options and decide to exercise on exit, they count against the 500 unaccredited investor limit that would trigger reporting requirements. So companies that issue stock options do have an outside risk that enough employees will exit, exercise their stock options, and trigger a reporting requirement.