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SOX hasn't killed the IPO, it's just made the hurdle higher and that's ok. IPOs are about consistent revenue generation - most of the firms of Web 1.0 didn't have it and didn't deserve to IPO.

Wrong, wrong, and wrong.

1. SOX has killed the IPO; IPOs have plummeted since SOX, due to the ridiculously draconian laws that make compliance expensive and time-consuming. Startups and small companies just can't afford the costs, closing one of the two viable exits for founders and investors.

2. "Raising the bar" for IPOs makes it sound like we're just going to get higher quality. The reality is that most companies can't afford to IPO, and even if they can, they're now hampered by greater costs and the distractions of compliance. If the bar needs to be raised, let the market raise it.

3. IPOs are not about consistent revenue generation: they're about raising capital. There's absolutely no reason why a growth business like Facebook that is not profitable shouldn't be able to IPO. If the market likes their odds of succeeding in the long run, their IPO will be a success. If not, it won't. In your model, someone apparently gets to decide who "deserves" to IPO. This kind of thing has never worked and almost always has the opposite effect of that desired.




I'm willing to buy the argument that SOX is bad for startups. It's easy to knock things, though, and harder to suggest something better. His only suggestion is to lower capital gains taxes. I think there's also an argument that if you can't trust companies' books at all, that creates problems as well.

Wikipedia has some useful information, as useful, see the 'Criticism' and 'Praise' sections:

http://en.wikipedia.org/wiki/Sarbanes-Oxley_Act#Criticism

My guess is that it's one of those technical things where reworking it to keep what's good about it (making the CEO and CFO sign off on stuff sounds sensible), and dumping some of the bad bits is the best course of action.

I also have a suspicion that perhaps lack of regulations wasn't the biggest problem, but lack of regulatory enforcement with some teeth to it.


It was conceived at the worst possible time (after Enron, Worldcom, etc); it was bound to be a failure. There's a reason why it's not wise to go shopping hungry. I agree, though, the answer is probably somewhere in the middle.


This is fun because before doing a startup I was an auditor at Deloitte and then worked in transactions services. It's good to be out. :)

Great points Ryan...just wanted to add a few things:

1. This is mostly true. Going public can add 5 MM - 20 MM in overhead easy...let alone all the additional TPS reports and devoted man hours to bureaucracy. Also, it's significantly harder for companies that are bleeding money to go public; it didn't used to be, which is good and bad.

2. Agreed. Seriously, fuck going public. Going public is for companies who are not profitable, desperately need liquidity (e.g. Google) or capital. You can issue dividends, institute profit sharing programs and even have internal company stock exchanges without being a public company.

3. Just wanted to add that raising capital includes making the company liquid so people can cash out. Private equity firms and some tech shops that went public are a good example.


There's always the foreign markets. You would be surprised how much ridiculously more rigorous US accounting rules are than anywhere else in the world. The EU, London, Australia, Hong Kong, take your pick. Nobody else has the rules we do, which is one reason why European exhcanges have gained in relative prominence in recent years.

Of course, they don't have a financial PATRIOT act to contend with (our Sarbox).


1) I dug up the following table - it doesn't appear that SOX killed the IPO. There were over 150 IPOs each year from 2004-2007:

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

(The question is what the heck is going on in 2008?)

2) Yes, we are getting better quality. If you were around for the fluff IPOs of the late 90s you'd agree. For every Kana Communications there were at least 9 other immature flops like pets.com, etoys.com, flooz.com that died within 3 years.

3) Companies get to choose their own destiny. If they're ready to IPO they'll swallow the $5million overhead of SOX and head out to the market. Those that can't swallow the cost or time will either have to wait or find alternate means.

That said, SOX is still a beast born of a knee-jerk reaction and I'd love to see it streamlined. But there's some good in there.


[deleted]


Do you have a source of the pre-SOX company IPOs vs post-SOX company IPOs? I'm more curious than anything. SOX didn't just eliminate fluff it eliminated many profitable companies who don't have the earnings and market size to justify going public. This is fine by me - going public is overrated anyway.

The companies that are too immature to do SOX just simply don't deserve to IPO.

It has very little to do with maturity. Just like the Patriot Act, SOX was an overreaction. It adds layers & layers of red tape & costs (even if it has "worked", which I don't know one way or the other). While it has certainly weeded out some bad companies, it's discouraged some good companies from going public as well.


Here's an IPO table covering 1980-2008:

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

Interesting to see that 2004-2007 there were over 150 IPOs. 2008 has just 20, roughly half venture backed.


That doesn't say whether or not it is US only.

And the 2000s still look sickly, at about half the trend of 1980-2000.


Thanks for the link.

M&A has taken a blow too (article is slightly dated):

http://www.americanbanker.com/usb_article.html?id=20080325E4...


stock jockies lead to the first bubble? and the fed drastically cutting the lending rate in 1995 had nothing to do with an expansion of the money supply?




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