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SOX hasn't killed the IPO, it's just made the hurdle higher and that's ok.

Actually it has. It introduced a qualitative change in liability for corporate executives. Selling now has way, way less downside. The reason that's not "ok" is that a higher hurdle doesn't merely cause companies to wait before IPOing. They get bought instead. Result: no new public companies.

"Result: no new public companies."

Thanks for answering my implicit question about why an investing member of the general public should care about whether start-ups get bought out by existing companies or go public themselves. It makes sense that over the long haul, a more diverse ecosystem of publicly traded companies makes for a more resilient economy and more opportunities for small investors to make profitable investments.

Of course, the current tanking of the stock market all around the world, by no means only in the United States, might suggest that small investors need to know that the ecosystem does have selection pressure for transparency and accuracy of corporation statements to investors. I appreciate the replies by various participants here on how Sarbanes-Oxley has a different cost burden for new, smallish start-ups as contrasted with established, large public companies. Perhaps adjustment of some rules to take into account the size of a firm is in order.

Or they issue dividends :).

What's wrong with having fewer public companies?

Concentration of wealth and less efficient capital markets.

There's really nothing wrong with it from most entrepreneurs' POV: they build something people want, they get paid for it.

The problems occur at the margins: the businesses that could be started with enough outside capital but can't be bootstrapped off initial cash flows, or the small investors that are perfectly capable of doing due diligence on companies but are banned from investing because all the attractive investment targets are private. It's really an opportunity cost issue: things work okay, nobody gets visibly screwed over, but all sorts of little transactions that would make life better for everyone never take place.

But wouldn't other outside capital forces emerge (e.g. private equity, VC, etc?).

Like Goldman Sach's private stock exchange? Sure, but as they grow they run into the same problem as public capital markets. Eventually somebody prominent gets screwed, they make a big stink about it, and the government regulates them as if they were public.

This is basically the story behind investment trusts, mutual funds, and hedge funds. Back in the 20s, everybody put their money into investment trusts. They got screwed by the Great Crash, so the government put all these restrictions on public investment vehicles (can only invest in stocks & bonds, can have no more than 1.5% of assets in any one security, etc.) and the trusts were reborn as regulated mutual funds.

Then people realized that because mutual funds were so regulated, they were leaving money on the table, and all these alternative asset classes like commodities, timber, derivatives, venture capital, etc. were ripe for the taking. So they created a new class of investment vehicle, hedge funds, without the regulations but only open to people who supposedly know what they're doing.

Now ordinary people are investing in hedge funds indirectly, through funds-of-funds and pensions, and they're getting screwed. So there're calls to regulate hedge funds now.

Financial markets treat regulation as damage and route around it. Unfortunately, they sink many suckers in the process and create demand for new regulation, and so on.

But the thing is, if it's so cat & mouse does it really matter if they are fewer public companies? That was my point.

It's hilarious because hedge funds are a scam (based on traditional 2 & 20 fees alone). Then someone creates fund of funds, which is a scam of a scam. And people are dumb enough to buy it.

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