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To push back on part of the post: "Many have blamed the decline of the IPO market on regulatory changes, such as the Sarbanes-Oxley Act.. There’s another impor
by akkartik 10y ago
To push back on part of the post:
"Many have blamed the decline of the IPO market on regulatory changes, such as the Sarbanes-Oxley Act.. There’s another important reason fewer and fewer startups go public these days, though: acquisition by an established company is a far easier, and, often, more lucrative, exit strategy.. A few extreme outlier exceptions such as Google and Facebook notwithstanding, acquisitions have been by far the most viable exit for small tech companies since the end of the dotcom bust."
Acquisitions have been more viable than IPOs for _precisely_ the same period we've had Sarbanes-Oxley. How the heck is this 'another' reason, then?
- georgeecollins 10y agoLet me quibble with "_precisely_ the same period we've had Sarbanes-Oxley." Sarbanes Oxley passed in 2002. IPOs increased from 2002- 2004. Source: https://www.quandl.com/data/RITTER/US_IPO_STATS-Historical-US-IPO-Statistics https://www.quandl.com/data/RITTER/US_IPO_STATS-Historical-U... I suspect that Sarbanes-Oxley did suppress IPOs but if you can't think of some other reasons for fewer IPOs. I will offer some: - Much more capital available in private markets from hedge funds, sovereign funds, etc. Think of how much money Uber can raise today as a private company. That didn't used to be possible. - Tech companies have really resisted offering dividends because they are believed to be tax inefficient and a sign that those companies can't grow and invest. So instead they have huge amounts of cash on their balance sheet that they need to invest.
- gaius 10y agoSOX is trivial if you are a large public company, you just spin up a dedicated group to deal with it, for some rounding error of your cost of doing business anyway. It is much harder for a small public company. But I believe it kicks in anyway if you are a large private company with >50 shareholders, so there is that to consider too...
- akkartik 10y agoOk, it seems you know more than me about this so let me try to poke holes in an attempt to learn further. Was there really more capital available in private markets before 2008? I thought that was just because of post-2008 QE. That timing doesn't seem to work either. Didn't Microsoft have billions in cash on its balance sheet in the 90's? I thought tech companies always hoarded cash when they were cash cows, and that it was at least partly a consequence of tax regulation, with cash sitting in one jurisdiction (say Ireland in recent years) costing too much to move around. The fact that the delta in IPOs went up doesn't necessarily seem so indicative. There's a holding capacity for IPOs in an economy. I think your graph shows just how far the holding capacity dropped after SOX.
- justincormack 10y agoQE really doesnt make that much difference, it only affects the bond market directly a bit. VC is getting more money as the returns have been good (finally, historically they werent), while say hedge funds have had bad returns. The amount of money in private markets depends highly on risk preferences.
- mifreewil 10y agoThis is not quite accurate. Sure, directly it only affects the bond market. But the bond market is not isolated from the rest of the markets. After you push loads of money into it, it lowers the returns on relatively low-risk bonds. We now are seeing government bonds with near-zero interest rates (ZIRP). The low returns on bonds pushes capital that otherwise would have gone into those bonds into risker and risker assets, a direct consequence of QE. This has people chasing higher returns in stocks, and yes, VC as well.
- jnordwick 10y agoI don't think guidance from SEC was even issued for parts of SOX until 2005 and even into 2007 for the SOX 404 stuff, but I'm not a compliance person, so hopefully somebody in the know can chime in.