4 ms·

Most of the blame for this can be placed on Sarbox (https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxle

by arohner 10y ago

Most of the blame for this can be placed on Sarbox (https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act), and other regulations imposed by the SEC. Believe me, if you're a founder, you want to exit as well. The problem is, the cost for being a public company has gone up dramatically, due to increased regulatory compliance costs.

aanm1988 10y ago
We are talking about companies worth billions. They can't manage to exist in a more regulated environment? Or is it that they don't want to, in which case the obvious question is why?
- sokoloff 10y ago
  Why? Sarbox 404 compliance costs hundreds of thousands per year on the low end and low millions in the typical case. It adds basically nothing productive to a non-fraudulent company itself. (Maybe it makes you write down some policies and management controls and audit your compliance to them. Great. At what expense? At what RoI on that expense?) "You're worth billions; you can afford to casually light a couple million on fire every year for an epic Sarbanes-Oxley auditor-led bonfire." That isn't obviously a good thing (or even a true statement) to me.
  - aanm1988 10y ago
    I don't know, I just consider a rather nasty move to hand your employees piles of options with no intention of ever going public and making them worth something.
    - sokoloff 10y ago
      Selling to an existing public company makes the shares liquid just as well, without incurring (much) more Sarbox waste. Look at AppDynamics, Oculus, Supercell, Dollar Shave, and many others.
  - deleted 10y ago
    [deleted]
  - xyzzy123 10y ago
    So if (nominally) billion dollar companies can't afford to go public (or it's not worth it), who can? Another perspective is that there's a kind of members club investor thing going on, and the "actual market" (with their insistence on trivialities like profit and loss and audit of metrics) is an inconvenience to private games of high stakes poker that allow cap to be conjured out of powerpoint and closed door meetings. i.e, bulls%$t. Personally I think AMZN proves that the market can evaluate growth focused companies that don't make money (compared to cap) just fine.
    - sokoloff 10y ago
      I see a lot more private exits happening and likely to happen in the future. (Meaning sell to an acquirer who is already public themselves, generally.) This amortizes the Sarbox waste across a larger base. Your citing of Amazon (with a market cap of over $400BB) fits nicely into this model. They have done acquisitions and are amortizing their waste over that much larger base. Someone trying to go out standalone at $1BB market cap (which used to be viable) isn't necessarily viable just because $400BB is (more than) viable.
  - cylinder 10y ago
    Oh please. Do you know how many public companies there are? Some of them very small. Uber hands millions directly to consumers every week just to buy market share but they can't afford compliance? The reason they aren't going public is because they don't need to raise capital right now, and they know their financials suck and would get ripped apart in an IPO. They think "wall St doesn't get us!" They're waiting for their numbers to improve but it's not going to happen and meanwhile their valuations go up to unviable levels for the public market.
msvan 10y ago
Honestly, why would you as a founder of Uber/AirBnB/other big startup want to exit? You are probably already very rich. All your employees are staying put. If you need capital there's plenty to go around. No need to listen to Wall St. telling you what to do with your company. If anything it seems that going public is a necessary nuisance for many of these startups.
- arohner 10y ago
  That analysis makes sense, if you leave out the VCs. They would also like a return on their investment, and if they thought going public would be profitable, you can be sure it would have already happened.
- hawkice 10y ago
  If you're being paid $900k/year, why would it matter if you could sell your $500MM asset? I mean, I lead a simple life, so _I_ wouldn't care. But some people _do_ want that, and I see the appeal.
ubernostrum 10y ago
Ah, here's the expected comment blaming government regulation! Obviously it couldn't have anything to do with ridiculous valuations that the companies couldn't possibly live up to on the public markets. It must be that pesky regulation. Someone should disrupt it! (even your Wikipedia link says that the claims of correlation between Sarbanes-Oxley and reduced IPOs is questionable; maybe you should edit it?)

by arohner 10y ago

aanm1988 10y ago

We are talking about companies worth billions. They can't manage to exist in a more regulated environment? Or is it that they don't want to, in which case the obvious question is why?

sokoloff 10y ago
Why? Sarbox 404 compliance costs hundreds of thousands per year on the low end and low millions in the typical case. It adds basically nothing productive to a non-fraudulent company itself. (Maybe it makes you write down some policies and management controls and audit your compliance to them. Great. At what expense? At what RoI on that expense?) "You're worth billions; you can afford to casually light a couple million on fire every year for an epic Sarbanes-Oxley auditor-led bonfire." That isn't obviously a good thing (or even a true statement) to me.
- aanm1988 10y ago
  I don't know, I just consider a rather nasty move to hand your employees piles of options with no intention of ever going public and making them worth something.
  - sokoloff 10y ago
    Selling to an existing public company makes the shares liquid just as well, without incurring (much) more Sarbox waste. Look at AppDynamics, Oculus, Supercell, Dollar Shave, and many others.
- deleted 10y ago
  [deleted]
- xyzzy123 10y ago
  So if (nominally) billion dollar companies can't afford to go public (or it's not worth it), who can? Another perspective is that there's a kind of members club investor thing going on, and the "actual market" (with their insistence on trivialities like profit and loss and audit of metrics) is an inconvenience to private games of high stakes poker that allow cap to be conjured out of powerpoint and closed door meetings. i.e, bulls%$t. Personally I think AMZN proves that the market can evaluate growth focused companies that don't make money (compared to cap) just fine.
  - sokoloff 10y ago
    I see a lot more private exits happening and likely to happen in the future. (Meaning sell to an acquirer who is already public themselves, generally.) This amortizes the Sarbox waste across a larger base. Your citing of Amazon (with a market cap of over $400BB) fits nicely into this model. They have done acquisitions and are amortizing their waste over that much larger base. Someone trying to go out standalone at $1BB market cap (which used to be viable) isn't necessarily viable just because $400BB is (more than) viable.
- cylinder 10y ago
  Oh please. Do you know how many public companies there are? Some of them very small. Uber hands millions directly to consumers every week just to buy market share but they can't afford compliance? The reason they aren't going public is because they don't need to raise capital right now, and they know their financials suck and would get ripped apart in an IPO. They think "wall St doesn't get us!" They're waiting for their numbers to improve but it's not going to happen and meanwhile their valuations go up to unviable levels for the public market.

msvan 10y ago

Honestly, why would you as a founder of Uber/AirBnB/other big startup want to exit? You are probably already very rich. All your employees are staying put. If you need capital there's plenty to go around. No need to listen to Wall St. telling you what to do with your company. If anything it seems that going public is a necessary nuisance for many of these startups.

arohner 10y ago
That analysis makes sense, if you leave out the VCs. They would also like a return on their investment, and if they thought going public would be profitable, you can be sure it would have already happened.
hawkice 10y ago
If you're being paid $900k/year, why would it matter if you could sell your $500MM asset? I mean, I lead a simple life, so _I_ wouldn't care. But some people _do_ want that, and I see the appeal.

ubernostrum 10y ago

Ah, here's the expected comment blaming government regulation! Obviously it couldn't have anything to do with ridiculous valuations that the companies couldn't possibly live up to on the public markets. It must be that pesky regulation. Someone should disrupt it! (even your Wikipedia link says that the claims of correlation between Sarbanes-Oxley and reduced IPOs is questionable; maybe you should edit it?)