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Washington Is Killing Silicon Valley

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Re: Washington Is Killing Silicon Valley

#71

Post by prospero »

nostrademons wrote: post #61
Darmani wrote: post #37

Earlier quoted context omitted.

Small burdens are never directly visible. No entrepreneur thinks "If taxes were 5% lower, I'd start a startup." Instead, they think "If I had twice as much savings, I'd start a startup" without stopping to realize they're saving an amount equivalent to 5% of their taxes. In a similar vein, if my video game character gets -10% to speed (or +10%), I typically shrug it off as nothing, but it all too often is the differe…

In my philosophy class, there was something called the Heap Problem: "One grain of sand is not a heap. Adding a grain of sand to something that is not a heap will not make it a heap. By induction, then, heaps cannot exist." The conclusion, of course, is obviously false, because heaps of sand do exist. But you can't state at what point something that's not-a-heap becomes a heap. AFAIK, this was still an open question…

It's because we tend to think in terms of gestalts, and those don't play well with reductionist approaches. It's only a contradiction if you assume that we apprehend all the constituent pieces of the world at once, rather than the abstract whole.

Treating a pile of sand as an accumulation of individual grains which can be precisely abstracted through induction is an unnatural mode of thinking. Without focusing our attention on it, it will remain a single, fuzzy abstraction. That we see no clear distinction between these two modes seems more a neurological phenomenon than a philosophical one.

Re: Washington Is Killing Silicon Valley

#72

Post by Prrometheus »

timr wrote: post #70

The editorial went off the tracks right here: "FASB's "mark-to-market" accounting rules helped drive AIG and Bear Stearns into bankruptcy, even though they were cash-positive." Claiming that mark-to-market accounting killed Bear and AIG is a bit like claiming that seat-belt laws kill people who drive drunk. AIG and Bear were engaged in a fatal game, regardless of the accounting rules. Mark-to-market accounting may ha…

There are certainly companies whose cash flows were positive, but were driven into bankruptcy because the value of their assets crashed.

We were trying to raise money for a fixed rate subprime mortgage company in 2007. They had remarkably good underwriting and very low defaults. But the value of their assets kept on plummeting, and they were forced to meet margin calls by their creditors. That firm no longer exists.

However, the cash coming in from their assets could have paid their debt and operating expenses indefinitely. If there was no mark-to-market, then I would know a hundred or so extra people in New York with jobs.

Re: Washington Is Killing Silicon Valley

#73

Post by Prrometheus »

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…

There's always the foreign markets. You would be surprised how much ridiculously more rigorous US accounting rules are than anywhere else in the world. The EU, London, Australia, Hong Kong, take your pick. Nobody else has the rules we do, which is one reason why European exhcanges have gained in relative prominence in recent years.

Of course, they don't have a financial PATRIOT act to contend with (our Sarbox).

Re: Washington Is Killing Silicon Valley

#74

Post by Prrometheus »

wavesplash wrote: post #56
fallentimes wrote: post #45

Earlier quoted context omitted.

Do you have a source of the pre-SOX company IPOs vs post-SOX company IPOs? I'm more curious than anything. SOX didn't just eliminate fluff it eliminated many profitable companies who don't have the earnings and market size to justify going public. This is fine by me - going public is overrated anyway. The companies that are too immature to do SOX just simply don't deserve to IPO. It has very little to do with maturit…

Here's an IPO table covering 1980-2008: http://bear.cba.ufl.edu/ritter/IPOs2008VC.pdf Interesting to see that 2004-2007 there were over 150 IPOs. 2008 has just 20, roughly half venture backed.

That doesn't say whether or not it is US only.

And the 2000s still look sickly, at about half the trend of 1980-2000.

Re: Washington Is Killing Silicon Valley

#76

Post by indiejade »

mseebach wrote: post #36
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…

Would you mind sharing some examples? What promising start-ups have been killed or absorbed in an unfair manner, that used to be, or should obviously be, illegal? The article supplies pre- and post-SOX IPO counts, and while that doesn't prove anything in itself, they do smell like fish.

Well, the Yahoo/Microsoft thing comes to mind. If, as the WSJ article states, most business plans these days are ending with "and then we get bought by Google" wouldn't you, as the owner of a startup, rather have both Yahoo! and Microsoft vyying for (along with Google) your company? The more "buyers" the better, right?

Another point the article makes is that companies can't afford the massive legal costs of going public and SOX, and that is why so many of them are getting bought up (thus no new public companies). I would think by now that the "cost of going public" would be somewhere along the lines with "the cost of starting a startup" and going down as well -- with digitalization of documents, etc.

So, perhaps it's a matter of the regulation that is in place needing to play "catch up" with the reality of the times.

Re: Washington Is Killing Silicon Valley

#77

Post by strlen »

fallentimes wrote: post #49
nostrademons wrote: post #21

Earlier quoted context omitted.

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 potenti…

Keep the company private and cash their dividend checks for millions. Yes! I wish more people talked about this. Especially with the tax benefits, issuing dividends is the way to go.

Would employees see any of this? Or particularly an amount that would have justified taking a below-market salary, leaving an excellent position (remember that good help is hard to find? you have to woo great employees away from elsewhere) in big-co and working hours?

Re: Washington Is Killing Silicon Valley

#78

Post by fallentimes »

strlen wrote: post #77
fallentimes wrote: post #49

Earlier quoted context omitted.

Keep the company private and cash their dividend checks for millions. Yes! I wish more people talked about this. Especially with the tax benefits, issuing dividends is the way to go.

Would employees see any of this? Or particularly an amount that would have justified taking a below-market salary, leaving an excellent position (remember that good help is hard to find? you have to woo great employees away from elsewhere) in big-co and working hours?

Sure - anyone with equity would (under normal company structures). So all the founders have to do is give employees equity or institute a profit sharing program.

Re: Washington Is Killing Silicon Valley

#79

Post by timr »

Prrometheus wrote: post #72
timr wrote: post #70

The editorial went off the tracks right here: "FASB's "mark-to-market" accounting rules helped drive AIG and Bear Stearns into bankruptcy, even though they were cash-positive." Claiming that mark-to-market accounting killed Bear and AIG is a bit like claiming that seat-belt laws kill people who drive drunk. AIG and Bear were engaged in a fatal game, regardless of the accounting rules. Mark-to-market accounting may ha…

There are certainly companies whose cash flows were positive, but were driven into bankruptcy because the value of their assets crashed. We were trying to raise money for a fixed rate subprime mortgage company in 2007. They had remarkably good underwriting and very low defaults. But the value of their assets kept on plummeting, and they were forced to meet margin calls by their creditors. That firm no longer exists.…

One could make a reasonable argument that if their balance sheet was so tied up in sketchy mortgage assets that they were forced to meet margin calls when the market fell, then they weren't as solid as they seemed. Their problems started before they got in the car.

I realize that there's a bit of begging-the-question here, but even so, if you've borrowed a ton of money and secured it with "assets" of questionable value, then you're taking a risky bet. The accounting regulations didn't make the bet better or worse -- they just kicked the losers out of the game before they wanted to quit.

Re: Washington Is Killing Silicon Valley

#80

Post by pg »

happylancer wrote: post #19

i think most entrepreneurs in SV do not think of regulations when starting a company. for example, there aren't any tax laws to my knowledge that makes me go, "ah gotta take care of that before i can code." of course, there will be an impact if a company wants to IPO, but that comes much later on. However, even in that case, it's more about revenue/income generation. i'm interested in seeing what's going to be the li…

Investors, however, are very much influenced by whether a company has the potential to go public, and the availability of funding affects the number of startups that succeed.
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