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I'll take a bit more controversial side. I don't believe Sarbanes Oxley has anything to do with companies not going public. Its a crutch that week companies r

I'll take a bit more controversial side. I don't believe Sarbanes Oxley has anything to do with companies not going public. Its a crutch that week companies rely on.. I probably get ot speak with more CEO/CFO's than most people here and I've never once heard SarBox brought up as any sort of issue. What Sarbox will do is force companies to be a bit more mature with their own internal financial controls, ie they can't run their company using quickbooks anymore. From my perspective the biggest issues that companies who go public have are two fold: 1) They've come from the VC model where growth is held above all other things. Once you go public, growth is expected but its also expected to take a back seat to generating profits. This can be a very tough transition for some companies as it means quite often the things you were doing to please your VC are no longer the things you should be doing when you are public. 2) You can now be shorted. When you are private, its like the market for sports free agents. it only takes one VC/team to pay a company/player. There is now check and balance in terms of being able to short the company. Which means there is no real downward pressure that allows companies to find their equilibrium price. Unfortunately this means that many companies whoi go public find out later on that they were the sheltered child who was good at sports in their own small town, but when they got to the big city, they and their parents(VC's) overvalued their own abilities. 3) Most companies who go public don't know how to guide or handle wall street. You might get offended by this, "who is wall street to say what I can or can''t do with my company", but they are the owners of your company. Consider this scenario. Your friend raises a great Series A valuation, say $25 million. He then comes to you to complain that his VC's are pushing back on him for wanting to pay himself a $1,000,000 salary and the company buying a share of a private jet, and who are the VC's to say how the company should spend its money. You'd probably look at your friend with disbelief. Wall street is the same, once you go public they are the owners of the company and you need to know how to keep them happy. The best thing Twitter has done since going public was to hire Anthony Noto as their CFO (https://en.wikipedia.org/wiki/Anthony_Noto https://en.wikipedia.org/wiki/Anthony_Noto).

bko 11y ago
Do you think that regulation by the SEC has any adverse impact on innovation in the IPO market? I remember reading that during the Google IPO, the SEC was often unhappy with the unusual circumstances and that the Google founders thought that the regulations, such as the quiet period, were outdated.
vasilipupkin 11y ago
I am always frustrated by this 0 or 1 line of reasoning. "I don't believe Sarbanes Oxley has anything to do with companies not going public". So, you seriously believe that regulation that raised the cost of going public has contributed literally zero to the reduction in IPOs? I mean is it the only sole cause? No. But should it get zero weight? no
- chollida1 11y ago
  Ok, how about I rephrase this, I don't think there is a single company that would be successful as a public company that has chosen not to go public due to Sarbox. What Sarbox did was to put into law what companies should have already been doing in terms of corporate governance and financial reporting. The companies that consider thsi to be a burden were ones who are already doing either shady things with their accounting or who just weren't doing proper oversite to begin with, hence the small number of companies who where complaining about it when it first came out. Should Sarbox regulations get zero weight wrt to stopping companies from going public? Yes I believe its impact is so minuscule that you can give it zero weight.
  - vasilipupkin 11y ago
    what is the cost of Sarbanes-Oxley compliance to the company in dollars ?
    - batbomb 11y ago
      the salaries of a good CFO and a few lawyers.
      - phamilton 11y ago
        As an engineer at a company recently acquired by a public company, we had a decent amount of work to do to become compliant. Code review, deploy procedure, etc all needed to be documented and formalized. These weren't too difficult, but they definitely tied up engineering resources for a decent amount of time.
pdq 11y ago
Per #1, you are correct in theory. However I can counter with Amazon and Tesla, which have been increasing revenue rapidly but making losses for years. And their stocks are near all time highs. So I would say Wall Street prefers profits, but as long as you can keep increasing revenue, your stock will continue to go up regardless.
- potatolicious 11y ago
  I'd argue there's a big difference between companies with positive gross margins and companies with negative gross margins, though both may be making losses in total. Amazon most certainly has positive gross margins - and instead chooses to reinvest profits aggressively. Tesla is less certain, but I think a far cry from some of the unicorns that continue to run on deeply negative gross margins with the expectation that scale/future tech/vague fantasies will save them. On the other hand many unicorns don't currently have business models where they are selling dollars for more-than-a-dollar.
saosebastiao 11y ago
Your points are only valid if the founder of the company are making the decisions. VC Investors don't care about those points, and by the time companies tend to go public these days, the VCs are the ones making liquidity decisions and they don't give two shits what the founders have to say about it.
allenleein 11y ago
many companies whoi go public find out later on that they were the sheltered child who was good at sports in their own small town, but when they got to the big city, they and their parents(VC's) overvalued their own abilities. /// so true

bko 11y ago

Do you think that regulation by the SEC has any adverse impact on innovation in the IPO market? I remember reading that during the Google IPO, the SEC was often unhappy with the unusual circumstances and that the Google founders thought that the regulations, such as the quiet period, were outdated.

vasilipupkin 11y ago

I am always frustrated by this 0 or 1 line of reasoning. "I don't believe Sarbanes Oxley has anything to do with companies not going public". So, you seriously believe that regulation that raised the cost of going public has contributed literally zero to the reduction in IPOs? I mean is it the only sole cause? No. But should it get zero weight? no

chollida1 11y ago
Ok, how about I rephrase this, I don't think there is a single company that would be successful as a public company that has chosen not to go public due to Sarbox. What Sarbox did was to put into law what companies should have already been doing in terms of corporate governance and financial reporting. The companies that consider thsi to be a burden were ones who are already doing either shady things with their accounting or who just weren't doing proper oversite to begin with, hence the small number of companies who where complaining about it when it first came out. Should Sarbox regulations get zero weight wrt to stopping companies from going public? Yes I believe its impact is so minuscule that you can give it zero weight.
- vasilipupkin 11y ago
  what is the cost of Sarbanes-Oxley compliance to the company in dollars ?
  - batbomb 11y ago
    the salaries of a good CFO and a few lawyers.
    - phamilton 11y ago
      As an engineer at a company recently acquired by a public company, we had a decent amount of work to do to become compliant. Code review, deploy procedure, etc all needed to be documented and formalized. These weren't too difficult, but they definitely tied up engineering resources for a decent amount of time.

pdq 11y ago

Per #1, you are correct in theory. However I can counter with Amazon and Tesla, which have been increasing revenue rapidly but making losses for years. And their stocks are near all time highs. So I would say Wall Street prefers profits, but as long as you can keep increasing revenue, your stock will continue to go up regardless.

potatolicious 11y ago
I'd argue there's a big difference between companies with positive gross margins and companies with negative gross margins, though both may be making losses in total. Amazon most certainly has positive gross margins - and instead chooses to reinvest profits aggressively. Tesla is less certain, but I think a far cry from some of the unicorns that continue to run on deeply negative gross margins with the expectation that scale/future tech/vague fantasies will save them. On the other hand many unicorns don't currently have business models where they are selling dollars for more-than-a-dollar.

saosebastiao 11y ago

Your points are only valid if the founder of the company are making the decisions. VC Investors don't care about those points, and by the time companies tend to go public these days, the VCs are the ones making liquidity decisions and they don't give two shits what the founders have to say about it.

allenleein 11y ago

many companies whoi go public find out later on that they were the sheltered child who was good at sports in their own small town, but when they got to the big city, they and their parents(VC's) overvalued their own abilities. /// so true