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Washington Is Killing Silicon Valley

sec.online.wsj.com

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Re: Washington Is Killing Silicon Valley

#91

Post by pg »

strlen wrote: post #90
pg wrote: post #86

Earlier quoted context omitted.

I haven't seen this happening directly. I haven't seen founders thinking "We can't go public, so we'd better build something small." It could be happening via investors, though. It could be that e.g. Google decided to go for the big time partly because there was so much funding available in 1998, which in turn was true because investors were hoping for IPOs.

> I haven't seen this happening directly. I haven't seen founders thinking "We can't go public, so we'd better build something small." You haven't seen them say it directly, but how many applications do you get that are for fairly ambitious and big projects? What percentage are front-end heavy web-apps/aggregators? What percentage are fairly ambitious and require a serious research, development and have a huge potent…

When I said I hadn't seen founders thinking that, I was also implying that I have deep enough conversations with them that if they were thinking that, it would have shown.

I'd say many if not most of the startups YC funds have the potential to go public, if the founders were sufficiently driven. (In saying that I'm relying on the fact that practically no companies that go public look like they will at the start. Apple started out as a company that was going to sell plans for computers.)

Re: Washington Is Killing Silicon Valley

#92

Post by strlen »

pg wrote: post #91
strlen wrote: post #90

Earlier quoted context omitted.

> I haven't seen this happening directly. I haven't seen founders thinking "We can't go public, so we'd better build something small." You haven't seen them say it directly, but how many applications do you get that are for fairly ambitious and big projects? What percentage are front-end heavy web-apps/aggregators? What percentage are fairly ambitious and require a serious research, development and have a huge potent…

When I said I hadn't seen founders thinking that, I was also implying that I have deep enough conversations with them that if they were thinking that, it would have shown. I'd say many if not most of the startups YC funds have the potential to go public, if the founders were sufficiently driven. (In saying that I'm relying on the fact that practically no companies that go public look like they will at the start. Appl…

> In saying that I'm relying on the fact that practically no companies that go public look like they will at the start. Apple started out as a company that was going to sell plans for computers

Wow that's something I haven't entirely considered, despite knowing it to be true. Somewhat adds to my argument, however, without the chilling effects of regulation we may have seen a more interesting and diverse market -- but now I am in purely speculative realm.

Re: Washington Is Killing Silicon Valley

#94

Post by [deleted] »

ksvs wrote: post #31
indiejade wrote: post #26

Earlier quoted context omitted.

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/10725…

"Resist complaining about being downmodded. It never does any good, and it makes boring reading." http://ycombinator.com/newsguidelines.html

[deleted]

Re: Washington Is Killing Silicon Valley

#95

Post by quoderat »

Pabulum for people who have Rand or Heinlein poisoning.

Saying that Bear Stearns and AIG were cash positive is absolutely meaningless, as if I just bought $5 million worth of stuff on my credit card, make $40,000 a year and haven't gotten a bill yet, I'm still cash positive.

It's a little different, and much more complex, but I don't think the article writer really cares to understand any of that -- he just wants to beat the dereg drum, no matter how much sense it makes or doesn't.

Re: Washington Is Killing Silicon Valley

#96

Post by bokonist »

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.…

Why were they forced to meet margin calls if they had enough cash flow to pay their debt and expenses?

Re: Washington Is Killing Silicon Valley

#97

Post by Retric »

mmmurf wrote: post #81
timr wrote: post #79

Earlier quoted context omitted.

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 val…

The purpose of mark-to-market exceptions are to allow temporary price volatility not to drastically impact a firm's balance sheet. The FASB rule specifies that it's an acceptable practice to suspend mark-to-market in "fire sale" conditions. But the real issue is the flawed risk ratings on the MBSs. If your asset is AAA then it really shouldn't matter whether you are marking it to market or not, as it's supposed to be…

I think a requirement for a random subset to be inspected by a real independent group like the SEC would cut down on a lot of this crap. You would see a lot of stuff get through but it would put a dampener effect on bubbles. You would also need to keep track of how the agency rated vs each company.

Re: Washington Is Killing Silicon Valley

#98

Post by sabat »

I rarely if ever agree with the WSJ, but here's an example of where I think they've mostly got everything right. Ayn Rand was naive but did have a point: innovation happens when you leave the innovators the hell alone and let them invent. Washington is indeed fooling with that formula.

Re: Washington Is Killing Silicon Valley

#99

Post by mseebach »

indiejade wrote: post #76
mseebach wrote: post #36

Earlier quoted context omitted.

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 pub…

> Yahoo/Microsoft

I'm not sure I agree with you, but anyway, that deal fell through because of regulation. But observing that one aspect of regulation works, is hardly an argument that deregulation is bad.

> "cost of going public"

Other comments in this thread (http://news.ycombinator.com/item?id=406433) suggests that going public means slightly more than digitizing documents. No SAAS, no IM, no iTunes, more lawyers, more accountants. But, arguing "regulation is not hurting that much" is hardly an argument that deregulation is hurting more.

Re: Washington Is Killing Silicon Valley

#100

Post by timr »

bokonist wrote: post #96
Prrometheus wrote: post #72

Earlier quoted context omitted.

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.…

Why were they forced to meet margin calls if they had enough cash flow to pay their debt and expenses?

Think of it this way: you make $60k a year, but somehow borrow $1M to short a bunch of stock. Unfortunately, the market goes up, and margin calls come in on the $1M you borrowed. It doesn't matter that you can cover your living expenses with your salary (i.e. that you're cash-flow positive); the banks want their $1M back, and you don't have it. You're insolvent.

The situation in the banks is similar: there are collateral requirements that have to be met, trades with other banks that have to be honored, etc. A bank can cover its day-to-day operational expenses and be cash-flow positive, but if it suddenly has to pay someone else a big chunk of money that it doesn't have the liquid assets to provide, then it's still insolvent.

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