I was fortunate enough to sit through a presentation of a venture capitalist, I can't say who or what company because we operate on the principle of non attribution (you get better info that way). She had several extremely interesting points that I will attempt to weave together to get a little closer to the answer...
Up until 2003, IPO's were among the best ways for a company to acquire the funding needed to further a good idea. Granted there were several bad ideas that went public on the stock exchange but they were quickly weeded out by market forces. The bottom line is that IPO's are a great, market driven way for companies to raise money.
Sarbanes Oxley has increased auditing burden placed on public companies and discourages IPOs for companies less than 200 Million dollars in annual revenue because of the huge cost. To comply with the SOX (AKA Sarbanes Oxley), companies must hire a staff of auditors, accountants and attorneys to ensure their continued compliance with the new laws designed to prevent fraud in corporate America.
Congress mixed up market exuberance with fraud when they created SOX. Market exuberance is a natural psychological element of a market. Simply stated; when people get excited about an idea they throw their money at it. If the idea is really good it becomes self sustaining, making its investors a nice profit. If its not so good it falls short, costing the investors their stake in the company.
Fraud is when people with malice of forethought enter into an agreement with the intention of bilking their counterparts in the agreement out of their stake. This was the case with Enron, MCI and others in the early 00's.
SOX was put in place in response to Corporate Fraud to protect investors from the massive criminal behavior observed in the Enron scandal. Unfortunately, Congress didn't take into consideration the second order effect that it would have on the American entrepreneur. We should re-look at SOX and ask our selves these questions:
Up until 2003, IPO's were among the best ways for a company to acquire the funding needed to further a good idea. Granted there were several bad ideas that went public on the stock exchange but they were quickly weeded out by market forces. The bottom line is that IPO's are a great, market driven way for companies to raise money.
Sarbanes Oxley has increased auditing burden placed on public companies and discourages IPOs for companies less than 200 Million dollars in annual revenue because of the huge cost. To comply with the SOX (AKA Sarbanes Oxley), companies must hire a staff of auditors, accountants and attorneys to ensure their continued compliance with the new laws designed to prevent fraud in corporate America.
Congress mixed up market exuberance with fraud when they created SOX. Market exuberance is a natural psychological element of a market. Simply stated; when people get excited about an idea they throw their money at it. If the idea is really good it becomes self sustaining, making its investors a nice profit. If its not so good it falls short, costing the investors their stake in the company.
- This is good!
- This is Capitalism!
- This is what our economy is built on!
Fraud is when people with malice of forethought enter into an agreement with the intention of bilking their counterparts in the agreement out of their stake. This was the case with Enron, MCI and others in the early 00's.
- This is Fraud!
- This is Criminal Behavior!
- Protection from fraud is one of the most important roles a Government can have in a market based economy!
SOX was put in place in response to Corporate Fraud to protect investors from the massive criminal behavior observed in the Enron scandal. Unfortunately, Congress didn't take into consideration the second order effect that it would have on the American entrepreneur. We should re-look at SOX and ask our selves these questions:
- Is SOX making it to expensive for startups to access public funds?
- Is the reduced availability of venture capital hindering inventors and entrepreneurs?
- Did Enron start a chain reaction that will stifle a major American Innovation Engine?
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