Goldman Sachs CEO warns private firms against rushing to public listings

At the recent Cisco AI Summit in Palo Alto, Goldman Sachs chief executive David Solomon delivered a cautionary message regarding private companies considering public listings. He advised firms to exercise “great caution” in deciding to go public, noting the robust capital available in private markets that has diminished the necessity for many businesses to pursue public offerings. Solomon articulated, “Today you can get capital privately, at scale . . . you can also get liquidity in the private markets. So the reasons to go public, when you really reach an incredible scale, are getting pushed out.”

Solomon’s remarks come against the backdrop of a significant slowdown in the initial public offering (IPO) market since 2021, attributed to rising interest rates. Historically, Goldman Sachs has served as a prominent partner for companies seeking to go public; however, the firm is now extending its services to large private tech companies that are opting to delay their IPOs. A notable example is Goldman’s facilitation of a $6.5 billion capital raise for payments giant Stripe in 2023, allowing the company to maintain its private status for an extended period.

Solomon remarked that this trend reflects a “more fundamental, long-term secular trend” characterised by the dwindling number of public companies. The largest start-ups, including Stripe, OpenAI, and SpaceX, have refrained from public listings despite their valuations soaring into the tens or hundreds of billions. Their reluctance is largely due to the burgeoning sources of private capital, including significant support from venture capital firms like Thrive Capital and sovereign wealth funds from the Middle East among others. Additionally, these companies have found methods for employee stock liquidation in the secondary market, further reinforcing their private status.

Regarding the operational challenges of being a public entity, Solomon commented, “It’s not fun being a public company. Who would want to be a public company?” This observation underscores the shifting landscape where the burdens of public scrutiny and reporting obligations are driving companies to prefer staying private.

Amid these discussions on private capital, Solomon also highlighted the transformative impact of artificial intelligence on Goldman Sachs’ operations. He noted that the bank employs 11,000 engineers out of a workforce of 46,000 and has begun integrating AI technologies into their workflow. A prime example mentioned was the drafting process of public filing documents, specifically the initial registration prospectus for an IPO, known as an S1. Traditionally, this task would involve a six-person team over a span of two weeks; however, Solomon revealed that AI can now handle up to 95 per cent of this workload in mere minutes, transforming what was once a resource-intensive process into a more streamlined operation. “The last 5 per cent now matters because the rest is now a commodity,” he explained, illustrating the significant efficiency gains realised through automation.

As discussions around AI continue to advance, the insights offered by Solomon highlight key trends in the evolving landscape of capital markets and the integration of emerging technologies within traditional financial practices.

Source: Noah Wire Services