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Goldman Sachs chief David Solomon has warned private companies to use “extreme caution” before deciding to go public, saying the depth of capital in the private market means more companies will go public. He added that there was no longer a need for it.
“Nowadays, you can get capital privately at scale. . . You can get liquidity in the private markets as well. So when you actually reach incredible size, you can go public. The why is being pushed out,” Solomon said at the Cisco AI Summit in Palo Alto.
He added: “If you’re running a successful company and it’s growing, taking it public would force you to change the way you run it, so do that with great care.” We should do it,” he added.
Goldman’s role as a trusted IPO partner has long been core to its business, but that market has slowed since 2021 as interest rates rise. The bank is increasing its services to mega-private tech companies that have postponed their initial public offerings.
Goldman helped Stripe raise $6.5 billion in 2023, allowing the payments company to remain private for the long term. Mr. Solomon said the deals are part of a “more fundamental long-term secular trend” to shrink the number of public companies.
The biggest startups, including Stripe, artificial intelligence group OpenAI, and Elon Musk’s space exploration company SpaceX, have seen valuations in the tens and even hundreds of billions of dollars. The company is preparing to go public.
They are finding increasingly deep wells of capital, tapping into venture capital giants like Josh Kushner’s Thrive Capital and sovereign wealth funds in the Middle East and elsewhere. It also found a way for employees to convert their stock into cash on the secondary market.
In doing so, they have created a new type of privately held “start-up” company that has the scale and sophistication of publicly traded companies but lacks the oversight and reporting obligations that come with public market activity.
“It’s not fun being a publicly traded company,” Solomon said. “Who would want to become a publicly traded company?”
However, given the growing importance of private capital, one must ask the question, “If the same people are buying things in public and private institutions, why are there different standards?” No,” he added.
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Mr. Solomon, who has been Goldman’s chief since 2018, also talked about the impact AI will have on his company and its clients’ businesses.
Solomon said the bank currently has 11,000 engineers among its 46,000 employees and uses AI to draft public filings.
Drafting an S1 (initial registration prospectus for an IPO), which could have taken a six-person team two weeks to complete, is now 95% done by AI in minutes, Solomon said.
“Now that last 5% is important because the rest has become a commodity,” he says.
