3c hapter - Index of

Back to the Future 205
resources to their existing portfolio companies to keep them
going. It also dampens job growth. The bulk of jobs at venturebacked
companies—up to 92 percent by one estimate—are created
after they go public. Instead of aiming for an IPO, the exit
plan for many VCs these days is to push their startups into the
arms of deep- pocketed buyers. (Apple, Microsoft, and Google
alone were sitting on $90 billion in cash in late 2010.) Mergers
and acquisitions, however, tend to result in job reductions rather
than additions. Weild and Kim calculate that, had IPOs kept pace
with GDP growth, an additional 22 million jobs might have been
created from 1997 to 2008.
The long- term trends don’t bode well for American entrepreneurship
and innovation. “The whole ecosystem to support
small- cap companies has shrunk,” Weild, a former vice chairman
of NASDAQ and capital markets advisor at Grant Thornton, told
the New York Times. “This infrastructure is every bit as important as
bridges, roads, and tunnels. Without it, you undermine growth.” 9
The Wild, Wild West
The drift toward speculation rather than investment has been
underway for decades. Institutions, rather than individuals, now
dominate the market. In 1950, individual investors (or retail investors,
in industry parlance) owned 90 percent or more of corporate
shares; today they own less than 30 percent. 10 Individuals still participate
in the market, of course, but they do so largely through
institutional intermediaries such as mutual funds and pension
funds. As SEC general counsel Brian G. Cartwright noted in a 2007
speech, “Our understanding of fi nancial markets has become far
more sophisticated and mathematical. . . . The amateur plays at
a disadvantage.” It’s part of a trend that Cartwright inelegantly
terms “deretailization,” in which individual investors, or nonaccredited
ones, in any case, are increasingly marginal players in
the stock market, and are cut entirely out of new institution- only
markets and alternative asset classes such as venture capital and
private equity. 11 Individuals who want a piece of Facebook, for
example, will have to wait until the social network company goes