DFJ’s Draper on SOX
Late last year, Joe Cullinane and Roger Green began creating a series of podcasts called The Cullinane and Green Report. While eating lunch today, I listened to their recorded interview with venture capitalist Tim Draper of Draper Fisher Jurvetson.
Draper didn’t hold back much when it came to expressing his views on Sarbanes-Oxley (SOX) and the government’s approach to business in a flat world. His comments on SOX were so enlightening for me that I couldn’t help but transcribe them:
[SOX] is one of the big nightmares that we have in business now. [SOX] came, and rather than just fixing one or two companies that seemed to have some problems, they tried to do something that was blanketed to the entire US corporate world. It has made it so expensive for a public company that these companies that used to be able to go public with $20 million in revenues and growing, and things are going very well, are now in a position where they have to wait until they’re doing $100 million in revenues. So, what used to be a 5- to 7-year process [from start-up to IPO], is now a 10- to 12-year process. And the entrepreneurs are [now] saying, ‘Well gee, I think it’s time for me to sell out, because this IPO thing isn’t going to work for me.’ So this is one of those situations where the US is not properly competing. A lot of the entrepreneurs I’ve talked to who have very successful companies who are going to take them public are going to take them public on the London exchange, or the Singapore exchange, or the Hong Kong exchange, and not on NASDAQ or the New York Stock Exchange because the restrictions and [SOX] have just made it too difficult. Because, if a company is doing $20 million in revenues, and they make about $1 million a year in profits, that used to be enough to take a company public. Today, with [SOX], it takes about $1.5 million just to comply with all of the [SOX] laws. As a result, that company that was profitable and growing is now in a loss position because of [SOX], so it has been a real disaster.
You can find the entire Draper interview here.
Update:
Dennis Howlett makes a case for small UK accounting firms:
UK markets are more conservative than the US and might need to pick up some high tech expertise. They’re not the lesser for it - but knowledge is a powerful thing. the smaller folk could offer a more attractive fee structure for starters and a more personal approach than you get from the sales-led big boys.
He also mentions AIM, the London market for the kind of small but growing companies Draper mentions in his interview. From the AIM web site:
AIM gives companies from all countries and sectors access to the market at an earlier stage of their development, allowing them to experience life as a public company.
In 2005, the London Stock Exchange attracted a record 19 companies from the US to AIM, raising a combined total of $2,126 million. There are now a total of 29 companies from the US quoted on AIM.
A handful of my US readers might be thinking that I’m betraying the folks at NASDAQ, NYSE, and the US accounting firms. Hey, it’s a flat world and global economy now. Many of us shop at Wal-Mart, which gets most of its inventory from China. We’ve been buying cars from Europe, Japan and Korea for decades now. Nearly 60% of the oil we consume is imported (per the April 2006 update of this site) — many would probably be surprise by this list of sources of oil imports. We’re more than ten years into the practice of off-shoring IT functions such as software programming. I don’t even need to say, “Get used to it” — we already are.
Great stuff - my comment:
This is an opportunity for small firms to show their UK AIM credentials. $20 million is a tad over £11 million - easily accommodated in the smaller firm. Another reason for professional accountants to blog - they could link to Curt’s post and it might get picked up in the US - mine do…by about 30% of my total readership. Imagine what that could do for the firm?
UK markets are more conservative than the US and might need to pick up some high tech expertise. They’re not the lesser for it - but knowledge is a powerful thing. The smaller folk could offer a more attractive fee structure for starters and a more personal approach than you get from the sales-led big boys.
I’ve blogged this for later in the day publication CET.
Dennis Howlett on 28 April 2006 at 1:18 am
[…] In this post, I provided some of venture capitalist Tim Draper’s recent comments on how Sarbanes Oxley is driving increasing numbers of emerging U.S. companies to seek alternatives to capital from New York. USA Today confirms Draper’s views in Europe widens playing field, and presents other factors which are contributing to the growing role of London and Europe as global financial centers: Tougher U.S. regulations following the collapse of Enron are making New York less attractive to foreign and domestic companies seeking capital. And tighter immigration rules following the Sept. 11 terrorist attacks make New York less welcoming to financial firms and their clients and staff. At the same time, London and Europe are close to some emerging markets and are enjoying lower interest rates. The relaxation of economic and immigration borders in the European Union has stimulated foreign mergers and acquisitions, and made London, Amsterdam and Brussels more attractive to a highly skilled financial workforce. A less-stringent regulatory atmosphere across the Atlantic is attracting capital and emerging companies that seek it. […]
The Bell Curve Scar » The sucking sound from London, Europe on 8 May 2006 at 10:14 am
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