For impact enterprises looking to grow, shooting for an IPO is a complicated decision. Building public companies that are committed to achieving long-term social and environmental goals—that’s really hard when the enterprise has to worry about its quarterly earnings reports.
Enter the Long-Term Stock Exchange. Launched earlier this month as the 14th member of the National Market System (NMS), which regulates the disclosure and execution of trades across all exchanges, it’s the brainchild of lean startup guru Eric Ries. (He brought up the idea in his bestseller, The Lean Startup. Published in 2011, it quickly became a bible of tech entrepreneurs).
Tilting the Playing Field
Its aim, as the name suggests, is to address the difficulties faced by public companies seeking to build an enterprise with lasting impact, while also being required to focus short-term results. “The idea was to tilt the playing field toward companies taking a long-term view and connect them to like-minded investors,” says Jean Rogers, the exchange’s chief resilience officer and the founder and former CEO of the Sustainability Accounting Standards Board (SASB).
According to Rogers, companies taking that approach also, almost by definition, are focused on environmental, social and governance (ESG) issues and concerns about the long-term impact on a variety of stakeholders. “You can’t make progress on ESG without a long-term view,” she says. “We are all about building companies aligned with social and environmental goals to achieve transformational outcomes.”
A Long-Term Quest
As you might expect, forming an exchange from scratch and getting it approved by the SEC was also quite a long-term quest. Ries started mulling over the concept while writing his book. But he spent a good four years or so after publishing his tome looking into just how to go about creating a stock exchange from the ground up—and if it was even possible to do so. Eventually, he discovered the lengthy SEC form 1, the document anyone looking to form an exchange has to fill out.
In November 2015, Ries formed a company and started fundraising in earnest, attracting about $90 million in three rounds from such investors as Founders Fund, Andreessen Horowitz and Obvious Ventures. In May 2019, the SEC officially approved the exchange’s existence and okayed its listing rules a few months later. Other changes also were made along the way. For example, the original concept was to give extra voting rights to longer-term investors—the longer you held a stock, the more voting power you would have—but that ended up being scrapped.
Aside from the usual governance obligations demanded of any public company, the exchange has five listing standards companies have to adhere to and that they have to create policies around: a long-term strategy, with metrics that measure progress towards meeting those goals; a stakeholder engagement plan for the community, employees and the environment, along with a diversity and inclusion plan; a blueprint for engaging with long-term investors; board oversight responsibility for long-term strategy; and executive and board level compensation that is tied to that strategy.
Still, the exchange has to provide quarterly reporting. That’s not something Rogers and her colleagues are thrilled about, but, “There’s no way to get around it,” she says. She envisions that reporting will be done in the context of a company’s long-term strategy and the metrics set in place.
At the moment, there aren’t any enterprises listed. According to Rogers, “We are working with many companies in the process of preparing for an IPO.” She describes it as “a good number, all in various stages of development.” Companies that are already listed on another exchange can dual list.
She also points to current interest in impact and ESG approaches as a harbinger of things to come. “There is so much demand for a marketplace that aligns with ESG principles,” she says. The UN Principles for Responsible Investment, for example, has 500 signatories committed to ESG criteria and $90 trillion in capital. (Because of the way the NMS works, LTSE receives a “certain” portion of daily trades executed by all the exchanges in the system).
Listing companies won’t necessarily have to be impact-based. But those five principles mean such enterprises will naturally be attracted to the exchange, according to Rogers. “It’s going to be hard to write a stakeholder policy or show annual progress if you aren’t really committed,” says Rogers. “We want companies that are committed to their stakeholders with underlying plans that are authentic and report progress annually.”
A 10-person board, which is 80% female, according to Rogers, oversees operations. The exchange evaluates listing standards and reviews progress annually after a company comes on board.