Nasdaq and the Capital Markets: The More Things Change, the More They Stay the Same

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Last Friday, April 10, I had the opportunity to attend the ringing of the Nasdaq opening bell. That morning’s opening represented a monumental achievementfor one of the founding members of Nasdaq. In the spotlight stood the team of Boenning & Scattergood, a company that has been operating since 1914 and is now celebrating its 100-year anniversary.

NASDAQ Opening BellThink about that for a moment – how many of today’s firms have that much history?

The capital markets have been the facilitator of innovation, directing capital to the best ideas since the dawn of capitalism. Boenning & Scattergood, and the 3 CEOs that led it over the past 100 years, witnessed a staggering amount of innovation, disruption, and change.

We saw the emergence of the assembly line, the discovery of penicillin, the beginnings of space exploration, the human genome project, and several catastrophic financial crises.

These events were coupled with some of history’s greatest inventions, including “talking” pictures, television, sliced bread, jet engines, the ballpoint pen, the nuclear reactor, the silicon chip, the personal computer, the mobile phone, the Internet, and, more recently, Google search, Wi-Fi, the iPod, and Facebook. Some of the companies and visionaries responsible have shared the same podium that the Boenning & Scattergood leadership stood on.

We often take for granted the acceleration of innovation. I am writing this on my laptop, on a cross-country flight from New York back to San Francisco, connected to the Internet to post it from the comfort of my reclined seat – the fodder for science fiction in the 1970s.

What has been consistent throughout is that innovation and great ideas need investment capital to cultivate them, and the capital markets have consistently facilitated the flow of these investments.

What has changed are the processes and mechanisms to do that. The fact that I was in what is essentially a studio to witness the Nasdaq opening bell, and not on the floor of the NYSE, is an example of that change.

I started my own career on the trading floor, as part of a training program, and sawafew bell ringing moments that were followed by the roar of a crowd of thousands of people who worked there. At that time, the NASD was literally an association of desperate securities dealers reinventing the concept of an exchange. It evolved to Nasdaq, centralizing the nationally associated securities dealers via an automated quotation system, which is what the Nasdaq acronym stands for. Further innovation created the ECNs, or electronic communication networks, allowing firms to trade directly with each other.

Now, I think it is time for the capital markets to change again. This process has started with the 2012 JOBS Act, and may accelerate with the recent changes to Regulation A+ approved by the SEC. Why is this important? In the last couple of years, the flow of capital has been constipated for earlier stage companies.

There was a time when an early stage company could more easily raise public funds for growth. Today, it has become very complex and expensive to raise money publicly. Companies that go public today often are larger, already have enormous scale, and go public to provide liquidity for their early stage investors. As a consequence, the opportunity for a broader investor segment to participate in the steepest part of a company’s growth curve has been removed from the public markets. It has been replaced by private equity, which provides growth capital at a potentially very lucrative time in a company’s evolution. The problem with this is that only a relatively small, very exclusive group of investors have access.

What has stayed the same is that great ideas need capital to flourish and grow. What is changing is the way these ideas receive capital and from whom. With Venovate Marketplace, the online brokerage platform that matches investors and fundraisers of private securities, we’re striving to be at the forefront of that change.