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Welcome to the Lost Decade (for Entrepreneurs, IPOs, and VCs)

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Re: Welcome to the Lost Decade (for Entrepreneurs, IPOs, and VCs)

#21

Post by jbooth »

cjy wrote: post #17
startuprules wrote: post #15

US is in for another lost decade ahead for innovation, as: - US venture capital industry is expected to shrink considerably ( http://techcrunch.com/2010/07/13/report-u-s-venture-capital-... ) - Immigration brain drain takes place. Only 18,000 applications had been filed for regular H-1Bs so far this year. ( http://money.cnn.com/2010/06/14/news/economy/immigration_bra... ) - US manufacturing jobs keep slipping away, a…

Manufacturing jobs are disappearing but real manufacturing output has actually been steadily increasing over the last 50 years.

Very true, but still not a great place to be. Whether the boogeymen are robots or chinese workers, not having a market for manufacturing labor is a bad position for an economy.

Re: Welcome to the Lost Decade (for Entrepreneurs, IPOs, and VCs)

#22

Post by jbooth »

gojomo wrote: post #16
_delirium wrote: post #9

Earlier quoted context omitted.

SOX took effect in late 2002, but the big seismic shift had happened by 2001 (look at the drop-off in IPOs between 2000 and 2001, which never recovered). Seems like the dot-com crash leading to greatly decreased public demand for tech shares is a lot more likely explanation.

Clearly the dotcom bust (and closely-following recessions and wars) explained the immediate drop in IPOs. But those are cyclical matters. Why they haven't come back 10 years later is what requires some structural explanation. SOX is both proximate in time and plausible as a mechanism, on the 10-year scale. Never mind the crazy IPO levels of bubble years 1999-2000. Why can't we get back to the modest 100-200 IPOs a ye…

SOX is a pain in the ass but it's hardly relevant. If you're planing a multi-100-million dollar IPO, having to do more accounting work isn't your primary or secondary driver.

Re: Welcome to the Lost Decade (for Entrepreneurs, IPOs, and VCs)

#23

Post by http-kid »

rlyboslavsky wrote: post #19
wheaties wrote: post #7

That's scary because Web 2.0 companies aren't the be-all end-all of the world. We're in a decidedly fantastic spot, don't get me wrong. However, people are going to need batteries that last longer, they'll want windows in their houses that change shade, or soil that repairs and replenishes itself (South America looking at you.) This type of thing takes the hard money web companies don't need. It's the real source of…

Tom Seibel once said during an interview at Stanford that Big Innovation in software is over. 90s won't come back and another startup of Microsoft/Google is unlikely. When asked what are the areas of future growth/innovation he said: energy, water management and green technologies. My take on this is that software has changed so much, that it became kind of enabling/supporting service that nobody can do anything with…

What's water management?

Re: Welcome to the Lost Decade (for Entrepreneurs, IPOs, and VCs)

#24

Post by anamax »

Robin_Message wrote: post #10
edw519 wrote: post #6

Hmmm, the seismic shift from MoreLikelyToIPO to MoreLikelyToGetAcquired happened around the same time as Enron and its ensuing government yoke, Sarbanes-Oxley. Coincidence? I doubt it. When compliance raises expenses 1%, no big deal. But if that number approaches 50% for small, nimble, well-leveraged tech start-ups, then public markets become closed to them. SOX is an awfully big variable to not be considered.

Surely the whole tech bubble is a much bigger factor in this? Although correlation is not causation... :) Here's my thinking: In the bubble, IPOs abounded and investors were buying whatever shit they could lap up if it had "e" in the name. Post-bubble, tech companies that survived have been successful (by definition) and have sought to absorb smaller companies both to gain technologies and to kill off competitors; wh…

> Do any VCs accept dividends instead of a buyout?

VCs aren't the issue - the investors, the folks/companies who put money into their funds are.

VC funds are partnerships which divvy up the stuff bought with the money. The investors value liquidity.

Re: Welcome to the Lost Decade (for Entrepreneurs, IPOs, and VCs)

#25

Post by aspiringsensei »

j_baker wrote: post #8
edw519 wrote: post #6

Hmmm, the seismic shift from MoreLikelyToIPO to MoreLikelyToGetAcquired happened around the same time as Enron and its ensuing government yoke, Sarbanes-Oxley. Coincidence? I doubt it. When compliance raises expenses 1%, no big deal. But if that number approaches 50% for small, nimble, well-leveraged tech start-ups, then public markets become closed to them. SOX is an awfully big variable to not be considered.

I think a simpler explanation is that IPOs simply weren't a good idea for most technology firms, which is part of what led to the dot-com crash.

Exactly - if you need proof that equity of tech companies is a different investment than equity of staid, ordinary companies, look at the capital structure of successful tech companies.

Google, Microsoft, Nvidia, Apple...No Debt.

The existence of large cash cushions on these balance sheets is insurance against a rainy day, and changes the risk profile. If these companies had been levered during the 03-07 expansion, they would have exploded in value.

They didn't, because it makes no sense to lever a tech company to the hilt, even if you believe it makes sense to lever a manufacturing company to high heaven. Cashflows are too variable and too prone to disruption.

It takes a special kind of tech co to go public, and many (i'm lookin' at you pets.com) weren't that kind.

Re: Welcome to the Lost Decade (for Entrepreneurs, IPOs, and VCs)

#26

Post by kaib »

http-kid wrote: post #23
rlyboslavsky wrote: post #19

Earlier quoted context omitted.

Tom Seibel once said during an interview at Stanford that Big Innovation in software is over. 90s won't come back and another startup of Microsoft/Google is unlikely. When asked what are the areas of future growth/innovation he said: energy, water management and green technologies. My take on this is that software has changed so much, that it became kind of enabling/supporting service that nobody can do anything with…

What's water management?

In general it seems to refer to the fact that drinking and irrigation water is becoming more scarce in parts of the world and we need both technological and social systems for managing this resource. Aside from pure diminishing of water stock a practical example could be one country building a dam upriver from some other country.

Re: Welcome to the Lost Decade (for Entrepreneurs, IPOs, and VCs)

#27

Post by gojomo »

jbooth wrote: post #22
gojomo wrote: post #16

Earlier quoted context omitted.

Clearly the dotcom bust (and closely-following recessions and wars) explained the immediate drop in IPOs. But those are cyclical matters. Why they haven't come back 10 years later is what requires some structural explanation. SOX is both proximate in time and plausible as a mechanism, on the 10-year scale. Never mind the crazy IPO levels of bubble years 1999-2000. Why can't we get back to the modest 100-200 IPOs a ye…

SOX is a pain in the ass but it's hardly relevant. If you're planing a multi-100-million dollar IPO, having to do more accounting work isn't your primary or secondary driver.

Higher accounting costs and legal risks every year of being a public company doesn't make being a public company less attractive? Companies don't care about expenses?

Re: Welcome to the Lost Decade (for Entrepreneurs, IPOs, and VCs)

#28

Post by jbooth »

gojomo wrote: post #27
jbooth wrote: post #22

Earlier quoted context omitted.

SOX is a pain in the ass but it's hardly relevant. If you're planing a multi-100-million dollar IPO, having to do more accounting work isn't your primary or secondary driver.

Higher accounting costs and legal risks every year of being a public company doesn't make being a public company less attractive? Companies don't care about expenses?

We're talking about people making a decision to go public or not. Those legal risks were there anyways (it's illegal to defraud shareholders, even by accident), and if you're raising an IPO you're gonna be skyrocketing your accounting and other overhead costs anyways.

Your single-minded obsession with SOX is missing about a million other general and business-specific factors that would go into this decision, many of which represent a much higher dollar figure than sarbox compliance.

Heck, the costs of actually executing the IPO probably dwarf typical sarbox compliance costs (this statistic totally made up but plausible).

Re: Welcome to the Lost Decade (for Entrepreneurs, IPOs, and VCs)

#29

Post by travem »

It would be interesting to see how may of the M&A's were planning an IPO prior to being acquired.

A recent study shows that a better price can be extracted from the acquiring company if the sellers adopt this dual-track strategy. See http://news.byu.edu/archive10-jun-dualtracksellouts.aspx

Re: Welcome to the Lost Decade (for Entrepreneurs, IPOs, and VCs)

#30

Post by _delirium »

gojomo wrote: post #27
jbooth wrote: post #22

Earlier quoted context omitted.

SOX is a pain in the ass but it's hardly relevant. If you're planing a multi-100-million dollar IPO, having to do more accounting work isn't your primary or secondary driver.

Higher accounting costs and legal risks every year of being a public company doesn't make being a public company less attractive? Companies don't care about expenses?

They're not irrelevant, but we're seeing a margin much bigger than they could account for. If there were companies that today could exit with 1990s-style $500m IPOs, I don't think they would walk away from them because of SOX. They're not having those IPOs because there are very few companies today that could convince investors to pay $500m for their stock.

Those who do have a business model, outlook, and revenues that makes them attractive, like Google, can and do still IPO successfully, but there aren't many of them.

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