See this post by venture capitalist Fred Wilson, guest bloggging on Business Insider (nee Silicon Alley Insider) and re-posted on his own well regarded A VC blog, entitled The End of the IPO Drought is Coming.
The five key points of the argument are:
- VCs have been in the penalty box for the dot-com era for nearly 10 years. It may well be time to let them out.
- There are a lot of solid companies in the IPO pipeline
- Many of those solid companies have annuity business models
- When investors want to buy small company stocks again they are going to want to buy simple, one-product businesses they understand that drive growth and aren’t too fancy (i.e., no financial tricks). That’s what VC creates.
- Sarbanes-Oxley is now well sufficiently well understood so that compliance costs are dropping.
I agree with the first 4 points. On the last one, I’m not yet convinced. Certainly, experience has made things better, but my friends who run small public companies still describe SOX as a 2-4% tax on revenues, which is doubly difficult because these companies often have single-digit margins to begin with, and ergo end up unprofitable after SOX costs.
In addition, he discusses the NVCA (not to be confused with the NCVA at whose events I recently spend too much time) and its proposed four-point plan to restore liquidity to venture capital.
Well done Mr. Kellogg. The elephant in the room is named SOX. It sits on top of small business, which is the lifeblood of a healthy economy. Having passed 100 days, The Obama Administration ought to consider pushing for Sarbanes-Oxley reform. Today’s post is an example of why your Blog wins awards. Thank you.