Silicon Valley’s new stock exchange opens for business
Trading is starting on the Long-Term Stock Exchange. Next up? Attracting a listing.
A new stock exchange backed by Silicon Valley heavyweights is opening for business Wednesday. The Long-Term Stock Exchange can now trade all U.S. exchange-listed stocks, and it will now start soliciting new listings from companies that commit to policies around diversity, sustainability and long-term planning.
"I will view this as a success just if every company from now should have to consider it," said the LTSE's CEO, Eric Ries. "Just like they have to consider where to list — they have to hear a pitch from NYSE, they have to hear pitch from Nasdaq — we just want them to hear our pitch, too."
Silicon Valley entrepreneur and "Lean Startup" author Ries designed the exchange to reward founders and investors who are thinking years down the road. Quarterly reports are still an SEC regulation, but the LTSE requires companies who list on the exchange to agree to a set of five principles designed to promote long-term thinking, including which stakeholders are important, a company's environmental and community impact, a company's approach to diversity, how a company invests in its own employees, and how it rewards them for its long-term success. The exchange doesn't set strict quotas or standardized rules, like requiring a woman on the board, but companies interested in listing have to set up policies that adhere to the principles to be eligible to list.
As of Wednesday, the LTSE is open to stock trading, but the real challenge will be getting a company to sign on to list specifically with the LTSE or through a dual listing. The exchange is now allowed to solicit listings from companies, a process that can take between 18 and 24 months, but Ries has already been running informational meetings to start familiarizing companies with the LTSE.
"This is for companies who have a big vision, who are investing consistently in innovation, who see the fact that their employees are activists not as a negative but as a positive, who care about sustainability, diversity, equality," Ries said. "This has become a bit of a cliche, but this is for those companies that genuinely believe that corporations can be a force to change the world."
The launch of the LTSE comes at an interesting moment in the markets. Private companies, and particularly the tech startups that share many of the same backers as the LTSE, are already eyeing new paths to going public. Direct listings, favored by Spotify and Slack, were trendy until the SPAC took its place as companies needed cash. Now, everyone is either launching a SPAC, short for a special purpose acquisition vehicle, or taking their company public through a merger with one.
"I hope that people will see this as the next logical step after those more-modest reforms," Ries said. "I never had to sell something like this before where the hardest thing about it for customers is to believe that it exists. I never talked to the CEO who says they think it's a bad idea, they wouldn't want to do it. It sounds too good to be true."
The Long-Term Stock Exchange was an idea Ries had in 2010 when he wrote about it as an epilogue for his 2011 book, "The Lean Startup." "I never imagined having to do this project myself," he said. "That was my favorite thing about being an author, was that you could write things for other people to do."
But the idea stuck with him, and with no one else leading the charge, Ries and his team started working on the LTSE in 2015. They first built software and raised venture capital while pursuing SEC approval for the exchange. In 2019, the LTSE was approved as the 14th public exchange, and shortly thereafter closed a $50 million series B round. It's raised a total of around $90 million from investors including Andreessen Horowitz, Founders Fund, Initialized Capital and Obvious Ventures.
Its roster of backers, and Ries' own background, have labeled it "Silicon Valley's" exchange, although Ries stresses it's open to anyone. But critics have panned the LTSE as a mere marketing exercise that allows companies to escape accountability in the founder-friendly world of Silicon Valley. Others have said that the existing stock market already values long-term thinking; just look at Amazon, which went public as an unprofitable retailer and now has a $1.5 trillion market cap.
"I'm in favor of experimentation, innovation and more competition — so I applaud those trying to make the LTSE work," Harvard professor Jesse Fried told Marker in February. "However, I have trouble seeing why the LTSE is necessary. R&D spending by public firms is at a record high in absolute terms and relative to revenues. Long-term investors have done and continue to do very well."
Nearly a decade after Ries floated his original idea, the LTSE was ready to launch at the end of the first quarter in 2020 and had a whole ceremony and launch planned. But the pandemic forced Ries to call for a delay. "At the time, it was very disappointing to give it all up," he said. (He's also been working on some education ventures during the interlude.) Last month, the team started testing some trades on the LTSE.
The markets will still have to decide whether Ries' idea has value, and getting a company to actually list on the exchange and agree to its long-term principles will be its next big test. But for Ries, it's still an emotional moment in a yearslong journey from an idea to day one of a new exchange.
"To do it in the midst of the pandemic and these other overlapping crises — I mean, the fires, hurricanes, protests for social justice — all of it coming together in this moment is very overwhelming," he said.
Update: This post was updated Sept. 11 to correct the amount the LTSE has raised.
Biz Carson ( @bizcarson) is a San Francisco-based reporter at Protocol, covering Silicon Valley with a focus on startups and venture capital. Previously, she reported for Forbes and was co-editor of Forbes Next Billion-Dollar Startups list. Before that, she worked for Business Insider, Gigaom, and Wired and started her career as a newspaper designer for Gannett.