EDS Shares Soar 40% on First Day of Trading

In 1968, Ross Perot's startup Electronic Data Systems (EDS) made a significant impact on the American capital markets. The company's shares were offered at an impressive 118x earnings, a valuation that was considered risky at the time. Despite the risks, investors were eager to bet on the company, particularly those involved in the computer industry. Ken Langone, the investment banker who helped Perot with the IPO, acknowledged the high price but believed it would be justified as the company grew.

EDS closed its first day of trading 40% above the IPO price, marking a spectacular success for Perot. By the end of the year, Perot became history’s first tech billionaire, a feat that highlighted the unique nature of American capital markets. The United States was averaging more than one IPO per calendar day, while other developed countries relied heavily on bank loans for funding. This enthusiasm for risk-taking not only made founders like Perot wealthy but also contributed to America's overall prosperity.

The United States had a public stock market that was willing to absorb risk at much earlier stages than European and Asian markets. This capability allowed the US to finance ideas at the earliest stages and develop an ecosystem in Silicon Valley that supported the growth of embryonic companies in nascent markets. Some of these companies have grown into giants, with the United States now home to 21 of the 25 largest companies in the world.

Despite the success, there is a perception that the stock market is a misallocation of resources, often compared to a casino. However, studies have shown that increases in stock market capitalization and the number of listed companies are closely correlated with real GDP growth. This supports the argument that capital markets have played a key role in driving US prosperity. Greater stock market liquidity, as measured by trading volume relative to market size, has been found to causally contribute to long-run GDP growth.

The enthusiasm for risk-taking in American capital markets has not only made fortunes for founders but also for the country as a whole. The hope is that crypto capital markets, newly rebranded as "internet capital markets," could be the next place where risk-taking founders meet risk-taking investors. This could result in the creation of "net new assets" that could only ever be funded by crypto enthusiasts. While the results so far have been underwhelming, the potential for crypto to open markets to more traders and create new kinds of assets is worth taking a chance on.