Is being listed worth it? The data says it is.

A little over a year ago, I wrote an article that was inspired by a 100-year old quote:

“It’s not easy being a public company.

You have to answer to a tonne of people and you have to answer a lot of questions.

You always have to run your business worrying about how much somebody else says you will make, somebody who may not have enough knowledge to understand what your potential is.

But against all those negatives, without that public company, this company would still be a chain of four stores in Atlanta, Georgia.

The reason we are who we are today is because of public money.”

This was said by one of the founders of Home Depot, a company that is worth over $400bn at the time of writing (up almost $100bn since I wrote about them last year).

This year (2024) has been a tough year for the majority of listed companies. Despite technically being in a bull market, 70% of listed companies are down.

This has led many leaders and commentators to ask the question, is it worth it being listed?

My position on this has always been clear: if many public companies were private, they would already be dead - now I have the data to prove it. Today, I’m comparing the recent (i.e. past 18 months) performance of public vs. private companies in Australia to test (a) who has more access to capital and (b) who is more likely to survive.

Test #1: Capital.

Capital is fantastic. InvestorHub raised more of it this year, so I have first-hand experience as to how it changes a company's outlook and ability to grow.

Some recent reports have suggested that it is better to be raising private capital vs. public capital. One AFR piece points to the evidence that Australian “start-ups banked close to $3 billion cumulatively over the first nine months of the year, compared to just $US495 million ($720 million) raised from initial public offerings in the same period.”

Obviously there are more ways to raise capital than via VC funding, but this is also a comparison of apples vs. oranges. As we know, an IPO is one of many opportunities that a public company has to raise capital. If we zoom out to include secondary sources, then the ASX tells us that across the same time period, almost $35bn of capital was invested into public companies. 

That is more than 10x capital when compared to VC funding.

Of course, there are other ways to raise capital, and this report from the RBA indicates that private equity fundraising is around $8bn per annum (which is inclusive of VC capital). So perhaps being listed *only* provides 3.5x more capital?

Regardless, when it comes to capital, public companies have the advantage over privates.

Test #2: Survival.

Great, so public companies have more capital. That means jack if they aren’t going to be here next year to spend it.

For this comparison, I’m turning to ASIC and the ASX to compare the failure rates of private vs public companies in 2024.

ASIC data shows that the failure rate of private companies in FY24 increased by 36.2% when compared to FY23. A total of 7,742 companies entered external administration.

For public companies, the ASX reports that, in FY24, delistings on the exchange rose from 119 to 156 - a 31% increase. Bear in mind that a delisting doesn’t usually mean that the company has entered administration - by my count, at least 30-50% of companies on this list were acquired or privatised.

For this one, it seems clear that private companies are hurting just as much, if not more, than public companies. As much as I’d love to see both numbers much lower, public companies still have a better chance at survival than private ones.

Test #3: Cost.

Finally, cost. Many companies find the cost of being listed to be borderline extortionate. 

This figure is obviously influenced by things like industry, the stage of growth you’re in, and capital management. However, there is one report that was published by the AIRA (Australian Investor Relations Association) that estimates that the median cost of maintaining an ASX listing is $7.3 million a year for ASX300 companies and $4.4m p.a. For companies outside of the 200. 

What’s interesting about this report is what it includes in the “cost of being listed” - namely people costs, D&O insurance, and audit costs, These three costs add up to 84% of the “cost of being listed”, but as someone with broad experience across startups, enterprise, and big 4 accounting, I can tell you that these are simply the costs of being a business.

Ultimately, it does cost less to be private - but that cost isn’t what many companies claim it to be. If you were to turn private tomorrow, you’d still retain 80%+ of your existing costs.

So yes, it is slightly cheaper to be private, but there is a huge asterisk over that number.