Stock investors shut out of growth businesses

The emergence of a new class of investment vehicle to back companies such as Facebook and Groupon has shut stock market investors out of the majority of the world’s most attractive high-growth businesses, said Niklas Zennstrom, one of the founders of Skype.

One result has been a bigger jump in the share prices of the few that have come to the public market, such as Chinese social networking site Renren, which floated in New York this month, he added.

According to two people close to last week’s $8.5bn private sale of Skype to Microsoft, Mr Zennstrom himself had argued privately that the internet telephone company would ultimately have been worth more if it had pushed ahead with an initial public offering. However, he refused to comment on Skype’s valuation, and would only say: “I was supportive of the deal.”

Following its earlier sale to Ebay and a 2009 buy-out in which Mr Zennstrom and co-founder Janus Friis took part, the deal marks the third time Skype has changed hands, without ever having gone public - once the preferred route for internet entrepreneurs.

Mr Zennstrom acknowledged that at one level he would have preferred Skype to stay independent.

“As a founder, you’re always going to have the desire to see your company be a lasting thing,” he said. “When we founded Skype back in 2002 we thought it was really a chance to transform the telecoms industry. We built the company to be a standalone company, we didn’t build it to be sold.”

However, he said that as commercial shareholders, he and Mr Friis had had to take a hard-edged view on whether there was more value to be gained from selling than holding on.

The Skype sale is part of a broader trend. Many of the most successful recent internet start-ups either sell to a bigger company or raise money from private investors to avoid or delay a full public offering.

Mr Zennstrom said it has left only 13 publicly traded companies worldwide that fall into the large, high-growth category, defined as having a stock market value of more than $1bn, with a growth rate and operating profit margins of more than 25 per cent each. There are now more private companies that fit this profile, he said.

A new class of late-stage growth funds like those set up by JPMorgan, as well as larger, venture capital funds created by firms like Kleiner Perkins, have provided the capital for other companies to stay private, he said.

Additional reporting by Maija Palmer

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