Public markets are doing a good job of valuing technology companies, but the same cannot be said for private investors, closely watched venture capitalist Fred Wilson said recently.
The big problem: Startups can get much better valuations in the private market, so when they go public, their shares may end up trading below their last round of financing, the Union Square Ventures founder said.
“The idea that you can buy stock privately in a company and then it goes public six or nine months later, and you’re going to make three or five [times], that’s just not going to be the case for many people,” Wilson told CNBC’s “Squawk on the Street.”
Private markets need to be ratcheted back, but how that will happen remains to be seen, because so much money is chasing deals and bidding up prices, he said.
Companies should be going public earlier in their life cycles so the broader public can become shareholders, Wilson added.
“I think it’s not good for society for all of the gains in these game-changing companies to be held between a very, very small group of shareholders,” he said.
Wilson chalked up delays in going public to bad public policy, saying regulation such as the Sarbanes-Oxley Act create hurdles to taking more companies public.
The 2002 Sarbanes-Oxley Act is meant to protect investors from fraudulent accounting practices by requiring companies to establish strict internal controls. However, some critics say the compliance costs associated with the rule and the large penalties companies may face if they make mistakes on financial statements discourages some firms from going public.
Wilson also called on the United States to make computer science part of state education standards known as Common Core. He took issue with the notion that American schoolchildren do not have the requisite math and science skills to tackle software engineering in the classroom.
“The idea that you need to be a rocket scientist to be a software engineer is just wrong,” he said. “Many countries like India have acknowledged that. They acknowledged that 30 years ago, and they educate their population, and that’s why our software engineering jobs have moved to India.”
Wilson chairs the board of the New York City Foundation for Computer Science Education, a nonprofit that seeks to improve access to computer science training for school children.
Image credit: CC by Tech Crunch