In 2001, Apple’s revenue fell by 33% in the depths of the dotcom bust. That same year, Steve Jobs decided to increase research and development spend by 13% — even as many public companies slashed budgets. The rest is history. Over the next five years, Apple created iTunes, the iPod Mini and the iPhone.
COVID-19 has driven the global economy into the worst financial downturn since the Great Depression. Instead of pulling back, our corporations should follow Jobs’ lead and invest in the very initiatives that can help get us out of this crisis: research and development, employee upskilling, and critical infrastructure. Visionary leaders see the light of long-term opportunity in dark economic times. We need that vision now more than ever.
Investing through a crisis is counterintuitive. As revenue contracts, orders slow, and capital markets freeze, conventional wisdom drives business leaders to cut costs and shy away from new projects. For businesses that are overleveraged or underprepared, there may be no other choice. But as competitors try to minimize losses by laying off employees, quitting partnerships, or halting production, great companies maximize long-term value by investing in the levers of sustainable growth.
Many of the most successful companies in Silicon Valley were formed in the depths of the Great Recession: Slack, Uber, WhatsApp, Venmo and Square all launched in 2009. That isn’t a coincidence. When economies crash, the inputs to innovation become exceptionally cheap. Expensive service providers are open to creative contracts and discounted pricing. Production facilities that were at capacity sit idle. Human capital that was difficult to attract in a strong economy becomes readily available. Over the past eight weeks alone, an unprecedented 22 million Americans have been laid off. Among them are likely the founders of our country’s next great businesses.
Unfortunately, our public markets are awash with investors seeking to profit off of short-term volatility instead of making the long-term bets we know create real value. That trend is exacerbated in a recession as day traders and hedge fund activists rush in to buy up equities from a market in free fall. This crisis could be different.
Instead of ceding control of our most important companies, at the most critical time, to the interests of our least inspiring shareholders, what if long-term oriented investors came off the sidelines to fund this recovery?
Attracting the right capital to support this kind of investment will require a new approach to fundraising in public markets. In private markets, entrepreneurs scrutinize investors before taking their money. Everyone knows there are good investors and bad investors. Values-aligned investors and predatory investors. Long-term investors and short-term investors. Smart entrepreneurs take all of that into account when making decisions about whom to partner with.
In a public market stock issuance, all investors are treated equally — the share price is the same regardless of how the purchaser might affect the future prospects of the business. That is a bizarre feature of public market fundraising and it should end.
Imagine if a public company’s stock issuance were priced to the quality of the investor. Those who agree to hold equities for the long-term and actively support significant, growth-oriented investments should be able to purchase shares at a discount to speculative day traders.
Financing this recovery on those terms would also provide a once in a generation opportunity to transform the shareholder makeup of our public companies. The societal benefits of that shift may long outlive this moment. Executives would be freed from the pressures of short-term share price improvements to focus on reducing systemic risks, creating breakthrough innovation and building sustainable companies.
In the years since the dotcom bust, Apple has gone from a market cap of $4.8 billion to over $1.2 trillion. It has grown from 9,000 employees to 130,000 and shipped more than two billion devices worldwide. Many of those devices are now being used to help mitigate the spread of this current pandemic. That is the human impact of bold investment in difficult times. It leads to more jobs, better technology and a stronger economy.
The public health solution to coronavirus will come in the form of a vaccine. The antidote to the economic havoc it has unleashed will come as visionary investors join together to finance the greatest recovery in U.S. history.