Wall Street used to be the dream destination for America’s fast-growing startups and small businesses. But these days, you’re more likely to find them accepting wires from large venture capital outfits, shunning the public markets to avoid compliance overhead, quarter-to-quarter thinking, and market volatility.

In fact, increasingly, Wall Street is seen as the final destination for fast-growing firms — a last resort for execs and institutional investors to cash out. It’s a reputation that has only become more solidified by the row of recent IPO flubs: Firms like Figma (-81%) and Venture Global (-63%) come to mind. The result is that everyday Americans aren’t just left out of the growth; in recent cases, they’re left buying the top.

This has been the way of the world for over a decade now. For decades, it was small caps that outperformed bigger firms on public markets, but since the mid-2010s, it has been the mega cap in the driver’s seat. Much of the underperformance from smaller firms can be ascribed to private firms staying private for longer, graduating from “startup” to “corporate giant” before they even go public. Alternatively, they might be bought up by private equity or never test the public markets at all.

Is that a problem for Americans’ portfolios? It depends on who you ask. After all, Americans’ nest eggs have been getting along just fine without the rising crop of corporate giants. The S&P 500 has booked three back-to-back years of double-digit returns, an impressive feat. But if you’re a portfolio maximalist, a lack of private market exposure might look like a glaring gap.

Rise of the (private company access) funds

Filling that exposure is increasingly going mainstream. Over the last two years, as more Americans have become acquainted with the word “venture capital,” publicly traded funds like the Destiny Tech 100 ($DXY) have aimed to meet the latent demand for fast-growing startups like SpaceX. Fintech company Fundrise made its own mark with an illiquid Venture Capital fund filled with AI upstarts like OpenAI, Anthropic, and Anduril.

Brokerage giant Robinhood is offering up its own crop of private firms to the retail crowd with its Robinhood Venture Fund I, a public fund that offers exposure to Stripe, Databricks, Revolut, and Mercor, among others. That fund will go public in the next few weeks, with its launch begging to create a big splash in the private-public market space.

It’ll be joined by Powerlaw Corp., a fund which owns stakes across many of the aforementioned names, per a Bloomberg report that says the fund will also test the markets in a listing of their own.

Fear of fees

Private investments have problems of their own: They’re expensive and risky.

Almost all private funds boast management fees in excess of 2%, making them wildly more expensive than exchange-traded funds tracking public companies. Not only that, but the valuation of the funds is shaped almost exclusively by demand; there is not a constant repricing of the underlying holdings in the low-liquidity venture capital environment.

If you’re in it for the long haul, that might not be much of a problem. But if you’re hoping for it to be a wealth builder, you might be better off sticking with your S&P 500 fund. After all, many popular private investments have already fetched valuations that defy explanation.

Some of Wall Street’s recent IPO flubs — firms like Figma (-81% since IPO) and Venture Global (-63%) — seem to validate some of the unrealistic valuation concerns. That begs the question of whether firms like Databricks, Stripe, or Anduril could actually live up to their privately raised valuations in an IPO.

Finally, there’s an understanding that not all of these private-public funds are made equally. While some firms have procured shares of the private companies directly, some have bought shares in so-called Special Purpose Vehicles (SPVs), which charge their own fees and create unnecessary legal complexity.

IPO season approaches

There’s an understanding that venture capital isn’t what it used to be, maybe unfairly laundering its reputation as the kind of investment that can 10x, 100x, or even 1,000x. That, of course, is unlikely to be the case for many of the companies that have found their way into these retail-marketed funds.

Therein lies a bigger problem: If firms can remain private, then go public at ridiculously outsized valuations, how is that not aportfolio risk for investors? We just mentioned SpaceX, a firm that recently merged with Elon Musk‘s Xai, taking on a valuation worth over a trillion dollars. How much more growth can a firm like that have?

We’ll probably get to answer that question this year as the fairly unprecedented happens: If plans for megacap IPOs come to pass, then firms like SpaceX, OpenAI, and others might crop up in indexes that underlie the retirement and health savings of millions of Americans.

The result, then, has the propensity to become something a little more worrisome. Soon, ordinary Americans might miss out on buying into rapidly growing private firms, then later, end up unwittingly buying into them at overly high valuations after their eventual IPOs via the funds in their retirement accounts.