4 ms·

Inflated Tech Valuations? Blame Uncle Sam

16 points by meadhikari 16y ago

thinkcomp 16y ago
It should be noted that Eric Jackson, the author of this article, is known for being ultra-conservative in his views. http://en.wikipedia.org/wiki/Eric_M._Jackson http://en.wikipedia.org/wiki/Eric_M._Jackson I don't think everyone would agree that it's the government's fault that there's a valuation bubble, and I personally think that Sarbanes-Oxley has nothing to do with it.
- mattmcknight 16y ago
  It is important to separate the author from the ideas, regardless of whether we agree with the conclusion. The non-public market is worse for retail investors. The 31% price premium and lack of liquidity are facts. Sox has made it a much more challenging step to go public. IPOs are down. The valuation bubble is red herring- there are always overvalued shares out there. However, Sox is contributing to a larger private market in shares which is disadvantageous to the retail investor.
jdp23 16y ago
"valuations of private, VC-backed tech companies on the secondary market have risen a whopping 54 percent since June." sounds bubbleicious to me ...
- blatherard 16y ago
  The essay isn't really arguing that there's a bubble, more using that as a stepping-off point. It's actually a (very weak) argument that the bubble is partially the result of Sarbanes-Oxley.
  - jdp23 16y ago
    I know, but I'm arguing there's a bubble so wanted to highlight this info
blatherard 16y ago
The author claims that Sarbanes-Oxley is partially to blame for the supposed valuation bubble, but provides no evidence. He only provides two hard data points, seven paragraphs in. "A 2008 study by the U.S. Securities and Exchange Commission found the average cost of Sarbox compliance is $2.3 million per year. A whopping 70 percent of all smaller public companies said compliance costs have prompted them to consider going private, and 77 percent of smaller foreign firms reported considering abandoning their American listings." The first point, about average cost, includes companies of all size. Larger companies will have larger compliance costs, smaller will lower costs. Without some correlation between size of company and costs, the average tells me nothing. As for companies who "considered" going private, he doesn't say how many companies actually followed through due to Sarbanes-Oxley costs. My guess is it's much closer to zero than seventy percent, or else he would have used that number.
trotsky 16y ago
It's a bubble because Sarbanes-Oxley forces companies to stay on illiquid secondary markets instead of going public, thus driving up the bid prices? Yeah, that isn't a stretch at all.

16 points by meadhikari 16y ago

It should be noted that Eric Jackson, the author of this article, is known for being ultra-conservative in his views. http://en.wikipedia.org/wiki/Eric_M._Jackson http://en.wikipedia.org/wiki/Eric_M._Jackson I don't think everyone would agree that it's the government's fault that there's a valuation bubble, and I personally think that Sarbanes-Oxley has nothing to do with it.

mattmcknight 16y ago
It is important to separate the author from the ideas, regardless of whether we agree with the conclusion. The non-public market is worse for retail investors. The 31% price premium and lack of liquidity are facts. Sox has made it a much more challenging step to go public. IPOs are down. The valuation bubble is red herring- there are always overvalued shares out there. However, Sox is contributing to a larger private market in shares which is disadvantageous to the retail investor.

jdp23 16y ago

"valuations of private, VC-backed tech companies on the secondary market have risen a whopping 54 percent since June." sounds bubbleicious to me ...

blatherard 16y ago
The essay isn't really arguing that there's a bubble, more using that as a stepping-off point. It's actually a (very weak) argument that the bubble is partially the result of Sarbanes-Oxley.
- jdp23 16y ago
  I know, but I'm arguing there's a bubble so wanted to highlight this info

blatherard 16y ago

The author claims that Sarbanes-Oxley is partially to blame for the supposed valuation bubble, but provides no evidence. He only provides two hard data points, seven paragraphs in. "A 2008 study by the U.S. Securities and Exchange Commission found the average cost of Sarbox compliance is $2.3 million per year. A whopping 70 percent of all smaller public companies said compliance costs have prompted them to consider going private, and 77 percent of smaller foreign firms reported considering abandoning their American listings." The first point, about average cost, includes companies of all size. Larger companies will have larger compliance costs, smaller will lower costs. Without some correlation between size of company and costs, the average tells me nothing. As for companies who "considered" going private, he doesn't say how many companies actually followed through due to Sarbanes-Oxley costs. My guess is it's much closer to zero than seventy percent, or else he would have used that number.

trotsky 16y ago

It's a bubble because Sarbanes-Oxley forces companies to stay on illiquid secondary markets instead of going public, thus driving up the bid prices? Yeah, that isn't a stretch at all.