Matt Levine writes: Uber can raise all the money it needs,7 from all the investors it wants, as often as it wants. And it doesn’t have to file audited financials with the Securities and Exchange Commission, or subject itself to stock exchange governance guidelines or flash crashes, or deal with short sellers or activist investors or nuns or really any investors it doesn’t want. Companies that go public give up a lot, and don’t really get anything. So why do it?
The answer, of course, is pretty simple. The people investing now — like the ones who invested in June, or last year, or earlier — will want to be able to cash out. They could in theory cash out by selling to each other; certainly there are private companies that allow trading among their private shareholders,8 though Uber apprently does not. But even leaving aside the administrative headaches, selling to each other has a certain zero-sum feeling: For everyone in the limited universe of pre-IPO investors who makes money by selling at a higher valuation, another is out-of-pocket paying that higher valuation.
No, the way to cash out is in an IPO. An IPO brings in new money, which can take shares off pre-IPO investors’ hands at a higher valuation, making all of those pre-IPO shareholders richer.
