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Voted up because the premise of the article is interesting. But I disagree with the statement that Sarbanes-Oxley is killing entrepreneurship, so I'd like to hear comments about that from the entrepreneurs here. I'm also not sure that it is a sign of failure that many start-ups sell themselves to an existing big company rather than doing an IPO. It seems to me (again I would like to hear from the entrepreneurs here about this) that the whole point of starting a start-up is to have FLEXIBILITY to decide later how to cash out the business. Some like to sell to one company, some like to sell shares to the public at large, and some stay closely held for a long time. To each their own, methinks.



I know a CEO of an Internet company that planned on doing an IPO in 2008. Of course the economy tanked so it's not happening.

He told me that SOX required the company to have auditing/traceability and controls for everything. This meant they quit using any software as a service applications, they shut down IM, they have to keep track of everything on every machine, banned a whole list of applications that would interfere with SOX (iTunes, file sharing, and music app), etc.

They had to hire lawyers, more accountants, consulting firms. He told me they were looking at > 10m to comply. And that doesn't count lost productivity of having to act like a draconian big ass company where they had to have design docs for everything they do, detailed project plans, get rid of the tools they use (as listed above), etc.

In other words to go IPO now you give up agility, spend more money, and become less productive.


IPO's are for large profitable companies who want to add liquidity. There is a huge pool of companies and people that invest billions in companies without an IPO, but there is a lot of laws setup to protect small investors. Anyway, there is a lot of overhead to going public, but if you want liquidity without selling then you need transparency or some company's are going to do huge scams.

PS: There are IM clients that large companies can use so clearly some of what he said was BS.


Well it used to be for raising large amounts of capital (even for unprofitable companies). This is apparently no longer the case.


"but there is a lot of laws setup to protect small investors"

Or to prevent them from investing in private companies without giving a piece to NY bankers? (Not implying you necessarily disagree)

Cray started illegally with small investors who all ended up making a lot of money. In the Midwest too! Good thing Washington isn't allowing that to happen again.


This is one of Malone's more polemical pieces, and I imagine here he is willing to sacrifice some local nuances to appeal to a wider, non-SV audience. I think his overall argument is correct - we would see more IPOs if SOX were abolished, or at least reformed. From an editorial perspective, I think he should have included the comments of a CEO ala ohhmaagawd - Malone is certainly networked enough to do so.


I worked for a company a couple of years ago that was planning to public in a year or two. The CEO told us that complying with SOX would cost $3 million for the IPO and over $1 million per year after that. That's a huge burden for a company with revenues of $35 million at the time. I have read that it is now $5 million for an IPO and that no company with revenues under $100 million can afford to be public. Malone says that there were 6 high tech IPOs in 2008 compared with 269 in 1999, similar numbers in earlier years.

The failure of IPOs isn't going to affect entrepreneurship, but it could well affect VC funding because it eliminates their primary exit strategy.

Malone does have a point about the FSAB. Treating options as an expense does make them less attractive to public companies, but it was an attempt to correct some egregious excesses. As usual, slap the big guys and hurt the little guys. Mark to market is an attempt to keep companies from hiding their investment losses in bookkeeping. The downside is that it makes their net worth much more volatile. AIG was a blivet in any case.

Cutting capital gains was good. Giving Reagan credit for the boom of the 90s is pure BS.

Cut the WSJ some slack. This was an op ed piece from an outsider. Malone used to be a San Jose Mercury News Reporter. He usually has something useful to say and he has the interests of the developer/entrepreneurial community at heart.


Malone isn't crediting Regan for the internet boom of the 90's. He is saying that cutting capital gains taxes helped spur the electronics boom in the 80's. Since we have had relatively low capital gains taxes for the last 30 years, and most of us agree that low capital gains taxes are a good thing for innovation, why would we consider raising them now?

I do think its interesting that, even when Obama was talking about the potential for large cap. gains tax increases, he made a point to exempt "small businesses and startups." I'm not sure how we could draw that line, but it indicates to me that Obama has exactly Malone's general argument in mind.


But clearly something has changed. FTA:

"According to the National Venture Capital Association, in all of 2008 there have been just six companies that have gone public. Compare that with 269 IPOs in 1999, 272 in 1996, and 365 in 1986."

It's probably more complex than that, or he'd have hammered the point a lot more. I'd love to see a graph, for instance.


"I'd love to see a graph, for instance."

Tufte in The Visual Display of Quantitative Information points out that the Wall Street Journal is one of the least likely newspapers to display anything in a graph. Indeed, it would be a lot easier for visually minded people like me to check the Journal's arguments if they were displayed in bivariate plots more often.


I'm sure it went something like this: 1)Give the number from this economically disastrous year, 2)find the other years with the highest number of IPO's and list them. 3)Use this ridiculously skewed comparison to prove your point


2008 wasn't economically "disastrous" until the very end. Up until October, it wasn't too dissimilar from 2007.

http://lawprofessors.typepad.com/securities/2008/02/januarys... : "January [2008] was a slow month for IPOs, with only five that raised a total of $892 million. This compares with ten in January 2007 that raised a total of $2.25 billion." I quickly googled, and there's probably more to look at here, since either 5 of the 6 IPOs did it in January, or there's different counting methodology in action here. Still, it's down even in months that weren't bad. It's not just statistical gaming, even if that's in play. Asking what changed is still fair.


Take a look at the years since SOX was passed. IPOs have plummeted.


I would love to, if WSJ provided the aforementioned graph.


Not a graph, but here's a table of IPO data:

http://bear.cba.ufl.edu/ritter/IPOs2008VC.pdf


correlation != causation.




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