While many small businesses have struggled to stay open during the pandemic, many small public companies have seen their stock prices, trading volume and access to capital grow to levels not seen since the dot com boom 20 years ago.
Small public companies are having their moment – big time. Some small cap companies are seeing their stock price and trading volume at all-time highs. The retail investor and social media trends from Reddit, that were the root cause of the trading frenzy of Game Stop, AMC and other companies, has also provided liquidity and price appreciation to many small public companies leading to a record number of equity and debt capital raises.
Retail investors are looking for the next Game Stop, but instead of always looking at fundamentals for long-term returns, they are focused on social media likes and followers that lead to short-term decisions. Small cap companies have capitalized, literally, on this increased risk appetite.
By way of example, OTC Markets Group, Inc., which operates the OTCQX® Best Market, the OTCQB® Venture Market, and the Pink® Open Market for 11,000 U.S. and global securities, publishes trading volume. In December 2019, trading volume was $23B and by December 2020, trading volume ballooned to $52B – more than double. Last month, there was $72B in trading volume; which is a nearly 300% increase over December 2020 volume.
Additionally, the number of public listings has grown from 10,465 in 2018 to 11,578 in 2019 – an increase of more than 1,000 new, small companies going public. The volume is not limited to crypto sectors and other hot sectors; it is across the board.
Small Biz Can Execute on Plans
The increase in trading volume for small public companies means those companies can raise more money to execute on their business plans – and the money is not just coming from the same old investors. Many companies are raising money from new investors that, until now, were not active in the space.
Companies go public primarily for access to capital. And when they needed it the most (during a pandemic), it paid off. On the other hand, for companies that are private, access to capital has dried up. This has left many with only the option of SBA funding which has been slow to fund.
Why has this happened? The boom in retail trading (as seen with Robinhood, AMC, Game Stop, etc.) has flowed down to the small cap, and micro-cap level. It might not be grabbing the headlines like Game Stop, but the impact is far greater. Think about it – the micro-cap space that has struggled to raise capital for at least 10 years, now often has multiple investors competing to get in.
Small Cap Part of K-Shaped Recovery
The K-shaped recovery that I wrote about earlier was previously only resulting in businesses such as Amazon, Door Dash, and other Goliaths benefiting from the pandemic economy. Now, small public companies can be added to the K-shaped recovery list of thriving businesses.
