

Inflated Tech Valuations? Blame Uncle Sam - meadhikari
http://gigaom.com/2010/12/26/inflated-tech-valuations-blame-uncle-sam/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+OmMalik+%28GigaOM%3A+Tech%29

======
jdp23
"valuations of private, VC-backed tech companies on the secondary market have
risen a whopping 54 percent since June."

sounds bubbleicious to me ...

~~~
blatherard
The essay isn't really arguing that there's a bubble, more using that as a
stepping-off point. It's actually a (very weak) argument that the bubble is
partially the result of Sarbanes-Oxley.

~~~
jdp23
I know, but _I'm_ arguing there's a bubble so wanted to highlight this info

------
blatherard
The author claims that Sarbanes-Oxley is partially to blame for the supposed
valuation bubble, but provides no evidence.

He only provides two hard data points, seven paragraphs in. "A 2008 study by
the U.S. Securities and Exchange Commission found the average cost of Sarbox
compliance is $2.3 million per year. A whopping 70 percent of all smaller
public companies said compliance costs have prompted them to consider going
private, and 77 percent of smaller foreign firms reported considering
abandoning their American listings."

The first point, about average cost, includes companies of all size. Larger
companies will have larger compliance costs, smaller will lower costs. Without
some correlation between size of company and costs, the average tells me
nothing.

As for companies who "considered" going private, he doesn't say how many
companies actually followed through due to Sarbanes-Oxley costs. My guess is
it's much closer to zero than seventy percent, or else he would have used that
number.

------
trotsky
It's a bubble because Sarbanes-Oxley forces companies to stay on illiquid
secondary markets instead of going public, thus driving up the bid prices?

Yeah, that isn't a stretch at all.

------
thinkcomp
It should be noted that Eric Jackson, the author of this article, is known for
being ultra-conservative in his views.

<http://en.wikipedia.org/wiki/Eric_M._Jackson>

I don't think everyone would agree that it's the government's fault that
there's a valuation bubble, and I personally think that Sarbanes-Oxley has
nothing to do with it.

~~~
mattmcknight
It is important to separate the author from the ideas, regardless of whether
we agree with the conclusion.

The non-public market is worse for retail investors. The 31% price premium and
lack of liquidity are facts.

Sox has made it a much more challenging step to go public. IPOs are down.

The valuation bubble is red herring- there are always overvalued shares out
there. However, Sox is contributing to a larger private market in shares which
is disadvantageous to the retail investor.

