Why Private Company Boards Matter
When it comes to corporate governance, attention is trained on public companies, with good reason. Public companies drive the economy. They boost shareholder wealth, create jobs, deliver goods and services, fuel innovation, and influence communities. Thanks to reporting requirements, data for public companies is easy to come by, making them convenient subjects of study.
On the other hand, private companies in their earlier stages contribute to the economy on a smaller scale, they have fewer stakeholders, and they don’t report to the SEC so collecting data is difficult.
However, the economic and innovative potential of startups demands that this business sector not be overlooked in studies of board composition and corporate oversight.
Private Companies Dwarf Public Companies In Number
Fewer than 10,000 companies are traded on U.S. stock exchanges.
The number of public companies in this country is dwarfed by the more than 60,000 private, venture-backed companies founded here since 1999.
According to Crunchbase, these private companies have raised more than $1 trillion and employ more than 3 million people.
Today’s Private Companies Are Tomorrow’s Corporate Giants
Nearly half of public companies founded since 1979 began as venture-backed startups.
In fact, the S&P 500 companies known as the “Magnificent 7,” which represent more than a quarter of the entire U.S. market, all began as venture-backed startups and went public within the last 24 years. The cumulative value of those enterprises at the time of their IPOs was $132 billion. Those seven companies are worth $11.7 trillion today.
The market-movers of the future are getting their start today in kitchens, garages and dorm rooms around the country.
Private Companies Drive Innovation
In many ways, private companies are the country’s technology incubator, designing the future we will inhabit, from AI to health care to clean tech.
Consider rideshare services or social media platforms to appreciate how companies can change the way we and our families live. Uber and Meta (then Facebook) were privately held when they created the offerings that have become part of our everyday lives.
Before they hit the public markets, private companies build the products and define the business models that will shape society for decades to come.
The Opportunity For Significant Influence Is Early
It’s during these early years of rapid innovation, long before they go public, that companies come to codify their corporate DNA – their market offerings, their way of doing business, their corporate culture.
For that reason, the pre-IPO period is formative – a critical time for influence before the scrutiny of the public markets makes dramatic business changes more challenging and costly.
Yet Data On Private Company Boards Has Been Scarce
When Him For Her was formed in 2018, we looked for studies to help us understand board diversity and track progress. Annual reports from Spencer Stuart and Equilar, for example, provide insight into the boards of S&P 500 and Russell 3000 public companies, respectively. But we couldn’t find tracking studies focused on private company boards – not surprising since private companies aren’t usually required to disclose their boards in public filings.
To fill this data gap, we teamed up with Crunchbase and Professor Lauren Rivera from the Kellogg School of Management at Northwestern to create a methodology for researching the boards of the most heavily funded private companies. We released our inaugural study in 2019.
Five years later, we are releasing our latest annual report with a data set encompassing 735 companies and nearly 5,000 board members, responsible for overseeing roughly $220 billion in funding and nearly 300,000 employees.
One of the private companies profiled in our study, Virta Health, is working to reverse type 2 diabetes in 100 million people. “With a goal this ambitious,” says founder and CEO Sami Inkinen, “diversity must be a cornerstone of our approach. To build a great business we have to understand and identify with the people we serve.”
Successfully navigating today’s business challenges requires a breadth of perspectives. That’s as true for private companies as it is for public.
See our research on private company boards or request help with your board search.