“Capital goes where it’s treated best.”
— Wall Street folk wisdom
In this century full of Big Tech successes, Europe’s only big success is Spotify, whose shares are listed on the New York Stock Exchange.
I mention this because New York is not in Europe.
Spotify was founded in Sweden, incorporated in Luxembourg and keeps its accounts in euros.
At the time of its 2018 IPO, half of its workforce and more than half of its customers were in Europe.
But Spotify was one of 87 non-US companies that chose to list its shares primarily in the US that year.
It’s easy to see why: No market makes it easier to sell shares than the US does (no matter where the company’s from) and no market pays more for them.
This is not a recent development.
The US has been a magnet for international investment capital for at least 200 years, in part because it was always easier to both start a company here and sell shares in it.
In 19th century Europe, you needed a state or royal license to incorporate a company, for example.
In the US, you just filled out some paperwork and paid a processing fee.
The US had few restrictions on the issuance of stock at the time, so entrepreneurs could sell shares in those newly formed companies directly to the public with little, if any, regulatory oversight.
(Crypto-friendly readers may see where I’m going with this.)
The New York Stock Exchange required that companies be profitable and already have tradable shares, but there was an active over-the-counter market right outside the exchange where anyone could walk up and offer anything for sale to anyone.
In Europe, by contrast, public share offerings were viewed with suspicion and sometimes required ministerial approval.
Perhaps most importantly, the US developed a culture of small-scale shareholding far earlier than anywhere else did.
The Erie Railroad was one of the first to do so, selling shares directly to retail investors in the early 1830s. Its (relative) success helped develop a culture of public equity investing.
Retail enthusiasm for Erie shares inspired a wave of railroad IPOs, many of which were funded by European investors who had more capital than domestic investment opportunities.
Europe also built railroads, of course, but these were mostly funded through government concessions or syndicates of banks.
As a result, the US finished the century with a much bigger railroad network than Europe did, despite having far fewer people.
Americans’ enthusiasm for buying stocks has been one of the country’s biggest competitive advantages ever since.
Automobiles, aerospace, electronics, the internet and AI: These capital-intensive industries all gravitated toward the place where it was easiest to raise capital — US stock exchanges.
But is there anywhere easier to raise capital than crypto exchanges?
On Saturday, it took the memecoin launchpad Pump.fun just 12 minutes to sell $500 million of tokens. (At a retail-friendly price of just $0.004 per token.)
Like the Erie Railroad — and unlike modern IPOs — much of this capital was raised from retail investors: Blockworks’ Jack Kubinec reports that the median order size for pump.fun tokens was just $400, and that 20,000 accounts KYC’d with exchanges to qualify.
US investors were excluded because of the still-uncertain regulatory regime here, but the pump.fun ICO is a reminder that crypto markets are theoretically open to anyone with an internet connection, at any time of day or night.
The pump.fun ICO alone raised more on a Saturday than the NYSE has raised on all Saturdays since at least 1952 (when it stopped trading on Saturdays).
This could prove to be a competitive advantage for the emerging digital economy: If crypto capital markets become the easiest place to raise money, that’s where companies will go to raise it.
And like non-US companies raising capital in the US, non-crypto companies may someday raise capital in crypto.
There are risks!
Crypto’s lack of regulation has attracted projects more interested in avoiding oversight than in doing anything genuinely innovative or productive.
(The jury’s still out on pump.fun, in my opinion.)
That might have to change: In the US, investing in equities didn’t go truly mainstream until the SEC was formed, giving retail investors confidence that the market wasn’t rigged against them.
There is no such confidence in crypto markets.
But 19th century capital markets were largely rigged against retail investors and productive industries — banks, railroads, canals — managed to get funded and built anyway.
