A 2012 law that excused private firms from public reporting let tech companies stay private longer, blowing bubbles that eventually landed on retail investors.
Fourteen years ago, a well-meaning tweak to US law accidentally gave venture capital and tech companies a loophole: inflate valuations in private, then dump the risk on the public.
An old rule pushed Google and Facebook into the open
Since 1964, any company with more than 500 shareholders had to file reports like a public firm. Startups paid people partly in shares, so each new employee nudged them closer to the threshold.
Mark Zuckerberg figured: if the books have to go public anyway, why not go public and raise real money. Google was nudged down the same path.
Back then Microsoft floated at a $500 million market cap, Google at $23 billion, Facebook at $100 billion. Early IPO buyers could multiply their money many times over a decade, because companies hadn't been drained by venture capital yet.
After the fix, going public became the last stop
The JOBS Act of 2012 raised the cap to 2,000 shareholders and, crucially, stopped counting employees. From then on tech companies could dodge reporting indefinitely, and had little reason to go public early.
Hence today's unicorns: Instinct, a zero-revenue AI agent, is worth $10 billion because VCs tossed in $1 billion for 10% and the whole valuation follows from that multiple.
Anthropic wants to IPO at a $2 trillion valuation, priced like Meta and SpaceX, on a promise of $20 billion in yearly revenue someday. The IPO isn't about capital for these companies; it's a liquidity event for early investors offloading bad bets.
Why it matters
Venture capital now treats valuation like a wish factory, and the higher the wish, the harder it gets to find a buyer at IPO. But the bagholders are often our own pensions and index funds.
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