The decline of the $10 million IPO, and why it matters

#1: This is really a consequence of the other factors he cites.

#2: Decimalization made stock trading massively cheaper. When prices were quoted in eighths, the price at which you could sell was 12.5 cents lower than the price at which you could buy. This difference went straight into the pockets of brokers, not investors. It was basically free money.

#3: Internet brokerages. What, you'd rather get on the phone and call someone to make a trade? I love the convenience of E*TRADE and similar platforms.

#4: The growth of prop trading, in and of itself, didn't push out IPOs. It merely filled the void in profits left when IPOs stopped making as much money for the banks.

#5: Keep in mind how research used to be done: banks would effectively promise to write good research on stocks they brought to market. I think it's absurd and insulting to new companies to suggest that no one would buy their stocks unless accompanied by heavily biased "research."

#6: Guess what, shareholders are the owners of the companies. They should have a say in how companies are run. There's a balance between their interests and management's interests, but the author merely asserts that things went to far without providing evidence.

#7: While there's plenty of wealth outside the US, international investors are still able to invest in the US. I don't see why this is a negative for IPOs.

#8: Larger funds: I'll admit that I'm unsure about this criticism. I don't know enough about this area of the market.

#9: Keep in mind that Sarbox was passed to prevent Enron and Worldcom. Its requirements may be onerous, but they're designed to help prevent specific types of fraud that were extremely damaging to the economy. While Sarbox may have reduced IPOs, it also may have reduced the risk of fraud. It's difficult to say.

Interesting... I wonder when Google went public... undoubtedly it was back in the heyday of small tech IPOs, otherwise they would have had to sell themselves!

Seriously though:

His other example, Wal-Mart - inflation adjusted would be >$100mm today at IPO.

To expand on hristov's list, some recent, smaller IPOs:

AcelRx: $85mm market cap (ie. post-money)

Kip's Bay Medical: $130mm market cap

Trunkbow International: $170mm market cap

Ossen Innovation: $87mm market cap

SGOCO: $80mm market cap

UniTek: $150mm market cap

through the midpoint of November. Some slightly larger ones as well that I've skipped.

Not to say that increased regulation and disclosure requirements have had a negligible chilling effect on the decision to go public, but this blows it out of proportion.

What may be a legitimate worry is that companies are choosing to stay private through sales to VCs and PE funds, saving millions in public company costs and the time that would otherwise be devoted to dealing with the general investing public. Whether this is a good or bad thing is debatable, but it does keep these companies out of reach for certain investors.

It isn't the only cause, but Sarbox has hammered public companies with huge regulatory costs for absolutely no benefit-- indeed, there is some evidence that corporate malfeasance is easier today because the rules are so complex, the true risks are easier to bury. SarBox certainly didn't stop the corruption in public mortgage finance and investment banks. You could argue that the law was tougher pre-SarBox-- at least Enron and WorldCom crooks went to jail.

http://byline.timetric.com/2011/02/14/uk-inflation-bad-decis...

(which has subsequently been picked up by a couple of UK papers.)