The exchanges designed to take them public often keep them in the shadows, as a problem that is almost as unknown as some of the firms themselves. These more modest firms, known as the Small-Caps, have to list on the same stock exchanges as the Fortune 500 when they go public, so bigger competitors often eclipse them when they vie for investor attention.
The Main Street Growth Act would make stock exchanges better at doing what they do best by creating venture exchanges for smaller companies and people looking to invest in them. The option of hosting smaller firms on their own exchanges would not only help small businesses succeed alongside their giant counterparts, it would be a boon for America's economy and workers as well as main street investors.
What s the problem with a status quo that funnels small firms to venues like the New York Stock Exchange or Nasdaq? It can leave a wide variety of talent and opportunity untapped. Even WNBA starters don't take the court alongside their NBA counterparts. If a team had to pick between Kevin Durant and Breanna Stewart, they would have to relegate a lot of talent to the sidelines, despite the fact that both the WNBA and the NBA have some of the best players in the world.
A one-size fits-all framework isn't bad for basketball. It is bad for business and for everyone whose paycheck or retirement savings depend on a healthy U.S. business landscape.
Small-cap stocks on the NYSE don't get as much exposure to investors in existing exchanges because companies with the highest market value, or the total value of all of a company's stocks, have a greater name ID. A young business like the shoe and clothing company Allbirds isn't a household name like Disney, Netflix or Nike. Investors are not just less likely to buy and sell small-cap stocks - they are less likely to know the smaller folks and the big growth opportunities they might offer.
Because the arrangement makes doing public unattractive for many small-caps, those companies either wait longer to offer their stocks or never open themselves to public investment at all. Too often firms overlook the growth opportunities that come from raising capital on stock exchanges. Blockbuster was the king of video rentals a long time ago. In 2002, Netflix's initial public offering on Nasdaq raised $82.5 million. No one starts their weekend with a DVD rental from their local Blockbuster, but people around the globe are more likely to stream Netflix than take a daily vitamin.
How many opportunities like Netflix never make it onto investors radar? Venture exchanges give visibility that would encourage more businesses to sell their stocks to the public and raise more capital. That capital allows businesses to expand their operations, as well as fuels innovation and allows for at least two things to happen in the American economy. It is as good for investors as it is for small business workers to get in on the ground floor of promising business models. Many Standard and Poor s firms have seen their seasons of greatest growth, but small-cap investors could tap into a higher rate of return from companies that still have significant growth potential, like Netflix did when it was still under Blockbuster's shadow. A single share of Netflix was worth only $15 in 2002. An investor who snagged 1,000 Netflix shares would be able to cash out with more than half a million dollars.
The benefits of small-caps play out across the board, according to the investor's perch. In 2021, the S&P Small Cap 600 Index, which tracks small businesses, consistently showed higher total returns for investments in small-caps compared to the S&P 500.
While the Main Street Growth Act allows flexibility for smaller companies, it doesn't mandate it. The choice between listing on a venture exchange or one of the existing exchanges will be entirely up to the individual businesses.
Allowing small-caps to court investors looking for exactly what they have to offer would be a win-win situation for the American economy, for investors, and for workers.