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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.

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