While working on “The Lean Startup”, a book that would go on to become a bestseller, author Eric Ries suggested in the epilogue that someone should build a new, long-term stock exchange.
According to Ries, its reforms would change the frantic quarterly cycle to encourage investors and firms to make better decisions in the years ahead. Many readers were said to have told him to “kill that crazy part about the exchange”.
Determined to prove his skeptics wrong and bring the long-term stock exchange to life, Ries has assembled a team of professionals and raised a seed round from more than 30 investors, including venture capitalist Marc Andreessen, technology evangelist Tim O’Reilly, and Aneesh Chopra, the former chief technology officer of the United States. Furthermore, he has already started early discussions with the U.S. Securities and Exchange Commission (SEC).
However, getting the LTSE off the ground could take several years as it can take regulators months to decide whether to approve or delay applications. Nevertheless, if everything goes according to plan, the LTSE could end up being the stock exchange that provides a fix to what Ries sees as the plague of today’s public markets: short-term thinking that squashes rational economic decisions.
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A company looking to list its stock on Ries’s exchange will have to choose from a menu of LTSE-approved compensation plans designed to make sure that executive pay is not tied to short-term stock performance. The aim is to encourage companies to adopt stock packages that continue vesting even after executives have left the company, which will push them to make healthy long-term moves.
A New Long-Term Stock Exchange
The LTSE, which is looking to make money mainly by selling software tools to companies and collecting listing fees, also wants to persuade companies and investors to share more information, such as detail on R&D spending.
If Ries gains approval from the SEC, he will face what may turn out to be his biggest challenge: persuading a company to be first to list on the LTSE. However, as his strategy has been to connect with mid-size startup founders, some of whom have invested in the LTSE, he hopes one will be confident enough to be a pioneer.
In the next few years, Ries expects to see some of these companies emerge as strong IPO candidates.
Ries commented: “There’s a real collective action problem here. As an industry, we all want to see these changes happen, but there’s always a little bit of an incentive for any individual actor to say, this isn’t my fight – I’ll wait and let somebody else take it on. I don’t begrudge those people. But if everyone does that, change doesn’t happen.”