Ries and his fellow travelers argue that this sort of unchecked short-termism in public markets is especially disruptive to companies with long-term innovation cycles — the very companies we’ve come to look to for exponential returns. “If you’re a tech company, the product cycle lasts four to seven years, if you’re lucky,” says Margit Wennmachers, an operating partner at Andreessen Horowitz, a major LTSE shareholder. “You get continually disrupted unless you can make significant investment in long-term R&D.”

For all these reasons — plus the cost and general pain of hiring an investment bank to take you public and grinding through the ritual “roadshow” — companies have been staying away from IPOs in droves, remaining private as long as possible. The median time to IPO is now about seven years, versus roughly three years in 2010. The number of companies filing IPOs has plunged from 500 or 600 a year through the 1990s to 100 or 200 for most of the past decade.

“It looks like a falling knife on a chart,” says James Joaquin, co-founder and managing director at Obvious Ventures, an early LTSE backer. “The companies that have IPO’d recently have used duct tape and baling wire solutions, like dual- and triple-class shares, in an effort to insulate themselves from volatility.” (Such arrangements reward some shareholders, usually founders and early investors, with more say in corporate governance.) This isn’t just an issue for company founders, though — it’s a concern for the 55% of Americans who invest in publicly traded companies to fund college, retirement, and other big dreams.

Fundamentally, exchanges exist to connect companies with investors who believe in those companies — and everyone shares in the gains. The LTSE, Ries says, wants to help companies find investors whose timelines and broader priorities align with their own, letting them get off the quarterly earnings treadmill. It will do this, Ries says, by requiring all LTSE-listed companies to commit to a common set of principles. So, in addition to SEC rules that all public companies must follow — obligations to publish quarterly reports, have independent directors, and the like — LTSE-listed companies will also tell investors exactly how they will do things like promoting diversity and sustainability and — here’s the crux of it — focusing on “long-term value creation.” Companies that go public on the LTSE will commit to measuring success in years and decades, aligning executive and board compensation with long-term performance, giving boards explicit oversight of long-term strategy, and “engag[ing] with long-term shareholders.”

For each principle, companies are asked to adopt and publish specific operational policies responsive to it. The LTSE checks that the policies are, in fact, aligned with the principles. “If you come in and say that your sustainability plan is to burn a lot of coal,” Ries says, “we can say, No.” What the LTSE won’t do is to “independently verify that a company is in fact purchasing renewable credits for every ton of carbon they emit, or checking the solar panels on a data center in Des Moines,” says Michelle Greene, the LTSE’s president, a former Treasury Department official under Presidents Clinton and Obama who went on to run the NYSE’s global corporate responsibility program. “If we become aware that a company isn’t following its stated policy,” she says, “we would address it with the company.” Companies found to be significantly out of compliance with LTSE principles can be delisted. That leaves a big role for shareholders in keeping companies honest.

Ries’s most controversial proposals have to do with how companies can incentivize long-term shareholders. The specific mechanism is up to the company — they might offer a progressive dividend, create different share classes, or implement a system of time-phased or “tenure” voting, where the longer you hold your shares, the more your vote counts in matters of company governance. So, in an election of new board members, long-term investors might get two votes, while latecomers get only one. Such an arrangement, Ries argues, helps founders with a big vision fend off mettlesome investors long enough for them to realize that vision.

The cautionary tale of Etsy, which started as a socially responsible online market for handmade crafts, illustrates how short-term pressures can kill off a high-minded company mission. Etsy raised $267 million in its April 2015 IPO, but when a hedge fund holding 2% of the company’s shares started recruiting other large shareholders to push for “strategic alternatives,” including a sale, the board was pressured into laying off 80 people — 8% of the workforce — and ousting the CEO. Projects long in the works were shuttered, and soon another 140 jobs were cut. Etsy’s “Values-Aligned Business” team, which ran social and environmental efforts, is no more, and the company is no longer a B Corp, a certification indicating a commitment to high social and environmental standards.

If Etsy had been publicly listed on the LTSE, the founding management group might have used “super-voting” powers to fend off the hedge-funders’ assault. But would that have been a good thing? Consider what happened at Etsy after the shakeup: Bad vibes notwithstanding, sales and revenue have risen year over year; Etsy’s market cap is up threefold. Would the status quo have done that?

It turns out that the very tools of short-termism that Ries rails against — activist investing and short selling (often deployed in combination) — serve a purpose. “Activist investors and short sellers each play an important role in our market ecosystem,” says Jesse Fried, a Harvard Law professor who focuses on corporate governance and security regulation. “The former exerts a disciplining effect on managers, and the latter improves price accuracy.” Take that away, critics argue, and you have a sloppy system where power resides disproportionately in the hands of founders and a select group of institutional investors who can afford to buy and hold, consolidating power so they can effectively ignore other shareholders as they pursue bad ideas.

To help navigate what he calls “maybe the most regulated industry and the most regulated part of that industry,” Ries has recruited an all-star team of software engineers, Wall Streeters, and Beltway veterans.

That’s what worries the Council of Institutional Investors, a group representing long-term shareholders, which opposed the LTSE’s original application to register as an exchange, specifically objecting to “multiclass” shareholder voting. “The one-share, one-vote principle is a foundation of good corporate governance and essential to the equitable treatment of investors,” they wrote in a formal SEC comment letter. Further, they point out that rewarding “historical” shareholders isn’t the same thing as empowering investors with a long-term investment horizon; the structure simply penalizes all new investors, while giving power to long-term holders of any kind, including those who may be planning an imminent exit. (The CII later sent a letter of support for the LTSE’s proposed “Long-Term Policies” rules, published in July 2019, writing, “CII remains opposed to listing standards that permit [multi-class] stock structures,” but that the LTSE’s other long-term policies “are thoughtful, well-structured, and generally aligned with CII’s membership approved corporate governance policies.”)

Ries assures critics that still-undefined exchange rules will help address such concerns. “We allow the company to define the specific way that reward program works,” he says. “If you have dual-class ownership, when the founders have permanent super-voting control of the company, there has to be a way for long-term investors to join you eventually in that better class so that you have codetermination at the company. We need the founders to have a special role here, but we have to have a way to not just have people be emperor for life. ”

The LTSE won’t do anything to stop investors from selling shares when they want to. “We still believe in full liquidity,” Ries says. But only investors who “buy in” get to benefit from companies’ long-term “loyalty programs.” Investors must agree to disclose the beneficial shareholder of a stock in order to enjoy super-voting privileges and other programs. (One of the LTSE’s unique value propositions is automating the ability of companies to track their long-term investors, a technically challenging problem.) That’s a level of exposure not normally required of public-company shareholders, and it’s key to Ries’s vision.

“I spent a lot of time researching a way to implement LTSE without having to become a freaking national securities exchange,” he says. “Could we be just a Good Housekeeping Seal of Approval? Could we just be a pledge? Could we just be a club or a coalition or an index? But none of these had the two-sided teeth that a multi-sided market needs. We have to be able to regulate the behavior of corporations and investors at the same time, and they each have to be able to make binding pledges to take this seriously.”

Ries took his first steps to form a new stock exchange in August 2012, when he incorporated a company called LTSE Services, which launched its first product in 2015. Today, it’s a stand-alone business that provides about 65,000 companies with a suite of freemium software tools to help them implement best practices for everything from managing cap tables and predicting burn rate, to implementing diversity and inclusion plans, to mapping out the path to an IPO. It was a shrewd play on Ries’s part — as the regulatory process of getting the exchange approved took its slow course, the services platform not only generated some income, but started to build a pipeline of users that Ries hoped ultimately to convert into IPO customers. It was also an MVP — minimum viable product — for the exchange itself. “This exchange we are launching is not the first thing we ever built,” Ries says. “We [already] run the world’s largest platform for corporate governance for private companies.”

To help navigate what he calls “maybe the most regulated industry and the most regulated part of that industry,” Ries has recruited an all-star team of software engineers, Wall Streeters, and Beltway veterans. A key hire was Zoran Perkov, a Croatian American software engineer whose geek-celebrity status rivals Ries’s. Perkov has spent most of his career building electronic trading systems, as global head of operations at Nasdaq, and more recently, as the architect of the IEX Group’s Investors Exchange, the latest new stock exchange to launch in the U.S., in September 2016. IEX’s key innovation was its introduction of software “speed bumps,” intended to dampen the impact of high-speed “flash trading” on markets. His role in creating the trading platform also made Perkov a character in Michael Lewis’ book Flash Boys.

Perkov left IEX soon after its launch, in December 2016, and joined the LTSE, as VP of operations, in June 2017. Two years later, Perkov became CEO of LTSE’s exchange business, while Ries is CEO of the LTSE Group, an umbrella for the exchange and the software-services business, which operate independently. (In 2018, the LTSE proposed using IEX’s trading platform as the host for listing its companies, but the proposal was withdrawn a few months later.)

The two exchanges shared similar big ambitions, Perkov says, but while the IEX was created to service investors and traders primarily, “the LTSE is more of a multi-stakeholder engagement, involving employees, customers, and investors. That begs a different set of dynamics internally.” Designing “policies, procedures, and technology to protect the integrity of the system,” while staying inbounds of SEC regulations, was right in Perkov’s wheelhouse. “The bureaucracy, to me, is like a warm hug,” he says.

Perkov envisioned the LTSE as a “very simple market.” In contrast to exchanges that allow investors to place orders without publicly revealing their intentions until the trade is executed — creating “dark pools” in pricing that high-frequency traders can take advantage of — all trades on the LTSE are transparent. “Everyone with a view of the market can interpret the buyer’s intentions,” Perkov says. “The inputs match the outputs, so it’s a level playing field.” The LTSE will also be the first “cloud native” exchange, which helps reduce its operating costs.

“This is the first time I’ve ever worked on a startup that is being actively opposed. It has real enemies.”

In addition to Perkov and Greene, the LTSE’s current team of about 30 includes big players in government and banking like chief commercial officer Martin Alvarez, who brings over 20 years’ experience structuring equity deals at Piper Jaffray and Morgan Stanley; chief resilience officer Jean Rogers, who founded the nonprofit Sustainability Accounting Standards Board; and Carolyn Dee, the LTSE’s chief of staff, who comes from the White House Office of Management and Budget. “This is one of those ideas that has deep, deep resonance for the people who work in this system, who feel like they struggled with it and have the scars,” Ries says. “As I would speak it aloud, people were drawn to come work on it.”

On the other hand, says Ries, “This is the first time I’ve ever worked on a startup that is being actively opposed. It has real enemies.” Few of them are willing to name themselves publicly, which Ries says makes him feel like a conspiracy theorist for talking about it. He points to an early article about the LTSE that quotes an anonymous hedge fund manager saying that LTSE was “disgusting.” Says Ries: “I wore that as a badge of honor.”

Apart from hedge funds, the LTSE’s natural enemies include deep-pocketed incumbents — the big three exchange operators: Nasdaq, NYSE’s parent company Intercontinental Exchange, and Cboe Global Markets. And, he says, there’s “a cadre of people who make a fortune from the status quo in financial services. You’re always up against their intrinsic suspicion of anything that might disrupt their immense profits.”