SEC’s Over-Regulation Hurting IPOs

Published Jul 22, 2024, 11:41 AM

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Isabelle Freidheim, CEO at Athena, explains why she thinks the SEC is stifling a comeback for initial public offerings.
Hosts: Carol Massar and David Gura. Producer: Paul Brennan.

Bloomberg Audio Studios, Podcasts, Radio News. You're listening to Bloomberg Business Week with Carol Messer and Tim Stenebek on Bloomberg Radio. There was a story I saw on Bloomberg News.

I think it was actually yesterday.

It noted that the price of new initial public offerings in the formation of blank check vehicles, which we were talking about.

I feel like, go back a couple of years.

They're very in vague.

Yes, have both.

Picked up amid a lukewarm market for non spac us IPO SO a kidence of ten to fifteen new SPACs per quarter, which strike a delicate balance offering an alternative to traditional first time share sales without inviting comparisons to the mania and the go go stretch from twenty twenty to twenty twenty one.

Go back right off the pandemic.

It felt like everybody and anybody, many celebrities, everybody was starting a spac, A lot of.

Spacks, a lot of people learning what the phrase means. Our next guest has some thoughts on the IPO and SPACK markets. Back with us is Spell Freedheim, the founder and CEO of Athena. It's an all women led spack platform to talk to us to why she thinks the SEC is stifling the IPO come back. She's showing us today from Lima.

Place Special Purpose Acquisition view.

Thank you so much. You better than I, Betty, I should say, yeah, is well, just give us the lay of the land here. I mean, interest rates are still high relatively speaking. But our colleague Preston Brewer Bloomberg Law, writing about how he thinks the ipo market has kind of turned a corner here we are seeing more of them, seeing larger ones. What's your read of sort of where we are in the bounce back of the ipo market.

Thanks David. The ipo market is turning a corner. Indeed, we have seen in the last few months a number of high profile IPOs that have done decently well in the market. But to your point, interest rates continue to be high, as does inflation. So it is it is, and hopefully it won't be the case that the Fed wall turn change interest rates from in a pattern that will go up and down, So we expect for now interest rates to continue to be steady for the most part. The ipo market itself is a reflection of investor sentiment, and it has been the case in the last three years, and to your point, has been to the detriment of SPACs. Unfortunately that investors have taken a risk off posture when it comes to making investments in companies that are cash burning, companies that are high growth, typically tech or climate sectors. So we're seeing less of those going public now or going public respects, and we are seeing more companies that are cash flow positive with industry tailwinds. But we're not going to get there yet because there continues to be a lot of volatility in the market, and I think that will continue to be the case until the elections and up until twenty five.

Is a bit.

I feel like we talk about SPACs, it's like it just goes through these cycles where everybody kind of you know, they start, we start talking about them, there's interest, everybody plows into them, then everybody backs off because they don't perform. So I don't know, how do you make sense of Is there a healthy SPAC cycle?

Yeah, there is a healthy SPA. SPACs continue to play a purpose in the market. There continue to be good for some companies. There has been there have been abuses, And to your prior question on the SEC, the SEC was very quick to jump on SPACs because of the amounts of capital that were flowing into SPAC products, which frankly has never been the SEC's mandates. So the SEC, broadly speaking and not that's not just true for SPACs, it's true for other areas of the market as well. It is in a way stifling companies' access to public market by making it so difficult and so overregulated to go public. And that's whether it's through a SPAC, through an IPO, through a direct listing, and that's not new the administration currently, the SEC administration has has made it worse. Certainly in the last couple of years. It's not clear why, frankly and whether they're addressing, but it has been twenty years now that the regulatory environment in the US has made it difficult and costly for companies to access to public equity markets.

And yeah, you know, I'm going to say, David, you know, I it felt like for many years that the reason companies weren't going public is because they didn't need to. There were so much money in the private markets that they could stay private for an extended period of time, and in some ways that creates I feel like healthier companies, or some market observers would say that you stay private for longer you do create a company that has a sustainable business model.

A fascinating point. Go ahead, yeah, chip in.

When you have a strong private equity market short but the venture capital industry exists because of exit opportunities that can lead to private equity, but also primarily to the public market. So not only is it difficult for companies to access to public equity market. Remember the number of publicly traded companies has consistently gone down now almost ninety percent in the last thirty years, and there needs to be a recovery. And that's the role That'spax played at some point. But of course we've been operating in a challenging market. But there needs to continue to be access to capital beyond what the venture capital industry can offer to technology companies to fond innovation, because capital is the life blood of innovation. The United States has land for many years in that respect, and in the absence of exit opportunities, we're stifling access to capital, both in venture capital and in the public equity markets, and access for tech companies to the public equity markets. It's not just tech, it's life sciences, climate companies that will solve tomorrow's challenges.

Is well, I want to ask you just about sort of what regulators have said. And Gary Gensler is chief among them, who's certainly singled out SPACs as a place where he'd like to see the SEC do more. And I think one area on which he's focused is disclosure that investors don't know enough say about who's sponsoring a particular one. Let me step back and ask you, what do you think the regulatory framework should look like for SPACs? And you've talked a bit about sort of the SEC's role in the scrutiny that's applied to special purpose acquisition companies. What would you what kind of touch, how light a touch, or how have you touched do you think that the SEC should have when it comes to these kind of offerings.

So remember that space exist because they've provided investors in twenty nineteen, in twenty twenty with access to high growth companies. Investments in those companies is challenging in the private market. It's risk key, and spas, in a way, being publicly treated companies and taking companies public makes for a much less risky investment when you invest in the same company, whether it is private in the venture market or as a publicly traded company. Now, there were there was a point in time when investors couldn't access yield in any other product that high growth equities, and that's why they piled into SPACs and into the promise of growth and yields. Now the yields have shifted and they can be accessed now through other products, especially debt right now by it. But so there has been a pull back in a national adjustment in and uh I would say in over correction, but there has been a national adjustment that the SEC has no business regulating frankly. I mean, the disclosures is one thing to prevent fraud. But the disclosures are there, and sure we could. I mean most facts these days proactively disclose more information than is regularly than is required by regulators, and those are important to protect retail investors very much favorite disclosures.

It's about just got about forty five fifty seconds left here. I mean, what is it that we get from for companies or for investors, you know via a spack versus angel investing or VC investing. And again, we don't have a lot of time, unfortunately, you.

Get the transparency, you get the liquidity, you can sell your shares so you cannot sell in an early stage company. You again the access to pull disclosures to your point. So that's that's taken care.

Of, all right, Gonna leave it on that note.

Listen, great to get some time something to think about on this Friday, right, And we actually talked to I think it was Art and Health yesterday at IPO. So we are seeing some things happening in the IPO.

Market, you know.

I'm just going back to that article by our colleague prest And Brewer at Bloomberg Law. He's saying, you know, although they're not among the largest IPOs, biotech companies are seeing a resurgence total capital race in the first half of this year twenty one point two billion dollars. So things directionally seems to be going in the right place. But again, this conversation about regulation a royling one has been for a few years. And as we talk about the election, what might or might not change certainly something I think a lot of that's on a lot of voters' minds.

Absolutely. Isabel Frett Freedheim.

She is the founder and CEO of Athena the all women LEDs Back Platform, joining us from Lima, Peru.

All right, folks, you are listening and watching Bloomberg BusinessWeek. This is Bloomberg