Founder-led firms are making faster strides in share prices and profits than companies headed by C-suite executives, according to a Monday (Oct. 19) Reuters analysis.
Share prices have doubled for founder-led tech firms, surpassing a 7.8 percent gain for the S&P 500 index. Founder-led tech firms have also performed better than competitors led by hired managers, with profits growing around 30 percent over the past five years. Comparatively, profits for manager-led firms grew 6.7 percent.
“Great entrepreneurs thrive in down periods when tectonic shifts are occurring in how business is done. Resetting periods allow visionaries to do more with less,” David Brown, co-founder of Impellent Ventures, told Reuters. “We believe the next few years will create some absolutely amazing businesses. I would posit that investors will be well-rewarded by backing a portfolio of entrepreneurial leaders in the coming years.”
Founder-led stocks from the top 400 in all sectors have had a median price gain of 58.4 percent compared to a 10 percent return for the top 400 stocks led by others.
Amid the worldwide pandemic, investors are seeking out the companies that are better poised to bounce back fast. The Reuters analysis shows that capital expenditure (capex) plans are driving investors to perceive founder-led firms as having an advantage.
Founder-led firms are forecasted to grow their net income an average of 22.8 percent in the next three years, according to Refinitiv data. Firms led by others are expected to grow their income by 7.1 percent.
Price and profits at the majority of founder-led firms are expected to outpace non-founder-led companies this year, but founder firms are riskier, Ric Marshall, executive director of MSCI ESG Research, told Reuters.
“In my experience, the widely held CEO-led companies were the safer bet – less likely to outperform, but also much less likely to result in dramatic losses,” he said.
The Dow Jones Industrial Average (DJIA) is swapping out three stocks, including replacing Exxon Mobil Corp. with Salesforce.com. The 30 component stocks that make up the DJIA are all large-cap, blue-chip stocks generally known for growth and for being representative of their respective sectors. The DIJA is also now aiming to “add new types of businesses that better reflect the American economy.”
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