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Washington Is Killing Silicon Valley

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Re: Washington Is Killing Silicon Valley

#21

Post by nostrademons »

coliveira wrote: post #17
wavesplash wrote: post #3

Pure subterfuge. A thinly veiled attempt to justify tax cuts and deregulation. AIG was killed by accounting? Try again. SOX hasn't killed the IPO, it's just made the hurdle higher and that's ok. IPOs are about consistent revenue generation - most of the firms of Web 1.0 didn't have it and didn't deserve to IPO. The WSJ has truly been compromised by Murdoch. NYTimes editorial on the death of the WSJ: http://tinyurl.co…

I think it is appalling that entrepreneurs agree with SOX regulations. Nowadays, only companies making at least $500M annually can afford an IPO. Very few companies will ever be this big. This is destroying the incentive for capital investment.

Entrepreneurs don't care about it because they're still getting rich. They either sell out to a large public company and take their millions, or they keep the company private and cash their dividend checks for millions.

The people really hurt by SOX are:

1.) Early startup employees. These people don't get rich unless the company gets really big - like, public-company big. Acquisitions tend to cut their growth potential and fold them into a larger corporation just as they're hitting their stride. And if the company just stays private, they never see liquidity on their stock options, and might as well not have them (in fact, many companies that intend to stay private just don't give out equity, because it complicates financial reporting). They're screwed either way.

2.) Customers. Because exits are smaller, capital costs are lower, and it's very difficult to convince someone to join your startup, recent startups tend to be less ambitious. That's why there're all these complaints about "frivolous" Web2.0 companies. Building an ambitious company, like another Google, after SOX would require convincing investors that the company can get big enough to justify the SOX reporting costs, convincing employees that it'll succeed in that, and then actually executing on that while shunning acquisition offers. It's much easier just to pick off the low-hanging fruit.

3.) The investing public. They're shut out of investing in promising growth companies. Instead, they have to put money into large existing companies, which blow shareholder wealth on overpriced acquisitions. The managers get rich, the entrepreneurs get rich, the retail shareholders get screwed.

It's telling that in Web1.0, most people dreamed about joining a successful startup. In Web2.0, most people dream about starting a successful startup. The incentives are not there for people to sign onto an existing company.

Re: Washington Is Killing Silicon Valley

#22

Post by Retric »

ohhmaagawd wrote: post #4
tokenadult wrote: post #2

Voted up because the premise of the article is interesting. But I disagree with the statement that Sarbanes-Oxley is killing entrepreneurship, so I'd like to hear comments about that from the entrepreneurs here. I'm also not sure that it is a sign of failure that many start-ups sell themselves to an existing big company rather than doing an IPO. It seems to me (again I would like to hear from the entrepreneurs here a…

I know a CEO of an Internet company that planned on doing an IPO in 2008. Of course the economy tanked so it's not happening. He told me that SOX required the company to have auditing/traceability and controls for everything. This meant they quit using any software as a service applications, they shut down IM, they have to keep track of everything on every machine, banned a whole list of applications that would inter…

IPO's are for large profitable companies who want to add liquidity. There is a huge pool of companies and people that invest billions in companies without an IPO, but there is a lot of laws setup to protect small investors. Anyway, there is a lot of overhead to going public, but if you want liquidity without selling then you need transparency or some company's are going to do huge scams.

PS: There are IM clients that large companies can use so clearly some of what he said was BS.

Re: Washington Is Killing Silicon Valley

#23

Post by mooism2 »

In a single paragraph, this article claims that options in start-ups aren't worth anything, and then claims that without start-ups being able to hand out options they can't attract the people they need. Are options highly valuable or worthless? It can't have it both ways.

Re: Washington Is Killing Silicon Valley

#24

Post by davidw »

ryanwaggoner wrote: post #15
wavesplash wrote: post #3

Pure subterfuge. A thinly veiled attempt to justify tax cuts and deregulation. AIG was killed by accounting? Try again. SOX hasn't killed the IPO, it's just made the hurdle higher and that's ok. IPOs are about consistent revenue generation - most of the firms of Web 1.0 didn't have it and didn't deserve to IPO. The WSJ has truly been compromised by Murdoch. NYTimes editorial on the death of the WSJ: http://tinyurl.co…

SOX hasn't killed the IPO, it's just made the hurdle higher and that's ok. IPOs are about consistent revenue generation - most of the firms of Web 1.0 didn't have it and didn't deserve to IPO. Wrong, wrong, and wrong. 1. SOX has killed the IPO; IPOs have plummeted since SOX, due to the ridiculously draconian laws that make compliance expensive and time-consuming. Startups and small companies just can't afford the cos…

I'm willing to buy the argument that SOX is bad for startups. It's easy to knock things, though, and harder to suggest something better. His only suggestion is to lower capital gains taxes. I think there's also an argument that if you can't trust companies' books at all, that creates problems as well.

Wikipedia has some useful information, as useful, see the 'Criticism' and 'Praise' sections:

http://en.wikipedia.org/wiki/Sarbanes-Oxley_Act#Criticism

My guess is that it's one of those technical things where reworking it to keep what's good about it (making the CEO and CFO sign off on stuff sounds sensible), and dumping some of the bad bits is the best course of action.

I also have a suspicion that perhaps lack of regulations wasn't the biggest problem, but lack of regulatory enforcement with some teeth to it.

Re: Washington Is Killing Silicon Valley

#25

Post by unrealwh »

totally the opposite! i can't think of one region that has benefited more from the Fed's policy of moving us to a bubble-based economy. the economic model of silicon valley in the last two decades has been predicated on transferring massive amounts of wealth from speculators to equity holders. normally this is a get-rich-slowly model. the Fed turned it into a get-rich-in-two-years model.

Re: Washington Is Killing Silicon Valley

#26

Post by indiejade »

indiejade wrote: post #14

It's actually the deregulation of Washington that's suffocated entrepreneurship. Because there were/are no checks and balances on the large monoliths' ability to kill or absorb rivals, a lot of little entities have suffered. Washington always says it wants to do what is best for "business," but it rarely distinguishes big business from small. . . it doesn't get the correlation between size and efficiency. The hum-haw…

Please don't downmod me without telling me why you've done so. Do you disagree with my points? Which ones? Are you pro-deregulation? If so, please provide some example about why you think big companies getting bigger by absorbing their competitors is good for entrepreneurship.

Perhaps you have something against me personally? For that, I have no remedy, but to tweet for help: http://twitter.com/indiejade/status/1072506322

Re: Washington Is Killing Silicon Valley

#27

Post by pg »

wavesplash wrote: post #3

Pure subterfuge. A thinly veiled attempt to justify tax cuts and deregulation. AIG was killed by accounting? Try again. SOX hasn't killed the IPO, it's just made the hurdle higher and that's ok. IPOs are about consistent revenue generation - most of the firms of Web 1.0 didn't have it and didn't deserve to IPO. The WSJ has truly been compromised by Murdoch. NYTimes editorial on the death of the WSJ: http://tinyurl.co…

SOX hasn't killed the IPO, it's just made the hurdle higher and that's ok.

Actually it has. It introduced a qualitative change in liability for corporate executives. Selling now has way, way less downside. The reason that's not "ok" is that a higher hurdle doesn't merely cause companies to wait before IPOing. They get bought instead. Result: no new public companies.

Re: Washington Is Killing Silicon Valley

#28

Post by wavesplash »

ohhmaagawd wrote: post #11
beastman82 wrote: post #9

Earlier quoted context omitted.

I'm sure it went something like this: 1)Give the number from this economically disastrous year, 2)find the other years with the highest number of IPO's and list them. 3)Use this ridiculously skewed comparison to prove your point

Take a look at the years since SOX was passed. IPOs have plummeted.

correlation != causation.

Re: Washington Is Killing Silicon Valley

#30

Post by ksvs »

beastman82 wrote: post #8

This article is heavily biased, makes ridiculously exaggerated claims, and bends statistics to its will. The computer boom came about because of capital gains tax cuts, huh? What a joke.

I suspect capital gains cuts did help. Founders are influenced by colleagues who've done startups, and what they see is the after-tax returns. And certainly big investors are influenced by tax rates on each class of investment.
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