SarbOx & The Trouble with IPOs

I see from the latest NVCA venture-backed IPO data today that the number of public offerings in 2005 will likely undershoot the same figure from 2004. (And both figures together don’t add up to the CY 2000 figure.) That is fairly remarkable, with most venture investors having hoped that this year would see last year’s upward trend continue, with public exits regaining some of their past prominence.

Why the fondness for IPOs? Because the venture business needs ‘em, of course. It is awfully hard getting enough liquidity at high enough prices to generate 10x overall returns when you are earning your profits one company M&A at a time.

Of course, most venture investors want to know when that will change. While there are many things underlying the anti-IPO problems, many blame Sarbanes-Oxley for making being a public company less palatable, so it is interesting to see that on the same day we have this latest data confirming how ugly IPOs remain there is a “let’s fix SarbOx” editorial in the Wall Street Journal (written by Bob Dole and Tom Daschle).

But SOX has also had unintended consequences that generate complaints from small and mid-sized capitalization companies who say that their access to capital from publicly-traded stock markets has been made prohibitively expensive.


  1. Brent Holliday says:

    Just to add to your “fondness” for IPOs from the VC perspective, Dick Kramlich and Michael Moritz were lamenting this very issue in June at an IBF forum in SF. They said they used to get 75% of their cash to investors from IPOs and 25% from M&A. They now expect the reverse. Moritz then said: “And remember, we tend to make more cash for our investors by holding on to the stock after the IPO rather than distributing at or just after the event.” Hmmm, let’s see, GOOG up 300% since IPO… hope he held.