The federal government has been shut down since October 1 because of a funding disagreement between Democrats and Republicans in Washington. Though a deal could theoretically be struck at any moment, there does not appear to be any end in sight.
Only services deemed essential are permitted through the shutdown, which means no one is around to process IPO paperwork at the Securities and Exchange Commission – a major blow for companies about to go public.
A report from Reuters pointed out that IPOs for actress Jennifer Garner’s Once Upon a Farm, a food brand for kids, and electric-aircraft maker Beta Technologies are currently threatened by the shutdown.
When the timing appears right, when there’s product-market fit, private businesses will often go public by opening up to regular investors who can become partial owners through a stock exchange.
A lot can go wrong, like a bad valuation or a misreading of the market. Government shutdowns are not generally thought of as a possible hindrance, but they should be.
IPOs might sound like a distant phenomenon that has nothing to do with the average person, but IPOs are effectively what transformed Apple from a fast-growing startup to a nearly $4 trillion company that not only transformed the technological lives of the global community but also serves as a stable pillar in countless retirement accounts.
The dangers of delaying IPOs are numerous. First, any salesperson will tell you that time is a major killer of deals. When a company is ready to go public, it has ridden a wave of momentum to get to that point. Delays thwart momentum.
The market can shift during the elapsed time. Having product-market fit today doesn’t mean it’ll be the same fit tomorrow. This could seriously affect the company’s valuation.
There’s also an opportunity cost. Without investment today, critical decisions like hiring and acquisitions are delayed. But there are financial costs as well. Preparing for IPOs is expensive. There is legal work, accounting work and underwriting that costs millions of dollars. Delays can drive these costs further.
What makes the situation so sad is that it’s entirely avoidable. Though shutdowns and the threat of shutdowns have become a routine part of life in Washington over the past few years, they’re a sign of incompetence.
Congress has the power of the purse, but lawmakers can’t figure out a way to work the zipper.
Though there might be valid reasons for the shutdown on either or both sides of the partisan dispute, the fact remains that shutdowns have real-world consequences and in the case of IPOs, the economic damages could be staggering.
Matt Fleming, MBA, is the Pacific Research Institute’s Director of Communications.
