The economy and the private capital markets are intrinsically linked; many of the largest companies in America exist because of investments within the private capital markets. When you invest your money, it is essential to understand how the economy and this market interact.
Capital markets are a system in which capital is transferred between people or institutions with capital to invest and companies who need it, fueling the economy with jobs, goods, and services. Unlike the public market, which consists of companies listed on a stock exchange and registered with the SEC, private companies are not required to be SEC-registered. Investments in this sector include alternative investments like private equity, JOBS Act exemptions, venture capital, and private lending.
Although public companies have a significant impact on the economy, the number of private companies far outweighs the number of public companies. As of 2020, close to 6,000 companies were traded on NASDAQ or the NYSE. It is often more challenging to determine the actual number of private companies since they don’t have to be registered with the SEC. However, there are 31.7 million small companies, which account for 99.9% of US businesses and employ nearly half of the population. Public companies only represent a small fraction of the companies that have a profound effect on the economy.
This impact of the private capital market only continues to increase as companies stay private longer. At the turn of the millennium, companies stayed private for an average of four years before their IPO. However, this has since tripled to nearly 12 years. This means that throughout the lifecycle of a private company, they will have much more activity within the private capital markets.
The private capital markets are often overlooked when discussing the economy of a country. However, these markets can be very influential to its economic well-being and citizens, contributing to the GDP and providing employment opportunities. Private capital markets affect the economy by providing loans for businesses and allowing new investments to take place. In turn, these companies can continue to innovate to bring new products and services to market. As the economy recovers from the pandemic, the influence of private companies will continue to affect our economy and encourage its growth.