As part of our new progressive, inclusive new politics we can turn to former enemy turned relevant free-market intellectual Newt Gingrich, who has a well-reasoned op-ed piece in today’s San Francisco Chronicle. In it, he calls for repealing Sarbanes-Oxley. This will help the broad economy and is essential for Internet innovation to continue.
One unfortunate result of the enormous wealth created by the Internet era was that it made the Initial Public Offering synonymous with “getting rich” as opposed to “raising growth capital.” It was less than 8 years ago that we referred to IPOs as branding events. In retrospect, this notion revealed how unsophisticated and foolish we were as an industry — investor and entrepreneur alike. Read Facebook director and and Accel partner Jim Breyer’s interview to take a stroll down memory lane.
During the past 8 years or so, startups have had really one path to exit — the acquisition. Very few companies — especially in the Internet industry — have been able or elected to go public. This is the result of two economic tragedies. First, was the demise of the IPO as method to raising less expensive growth capital. The willing participants of our industry — venture investors, bankers, lawyers, and enterpreneurs looked the other way and handed out friends and family shares with impunity. Second, the Enron collapse and the subsequent distruction of Arthur Andersen tarnished the entire private sector. Enron’s destruction was so swift and severe that their executives, Ken Lay, Jeff Skilling, and Andy Fastow became the latest in a long line of nefarious, avaricious American corporate executives.
The reaction by congress which had the duel agenda of a placating constituents and damaging the Bush administration (Enron had close ties) was Sarbanes-Oxley. As Gingrich points out, even with SarbOx, Bear Stearns, AIG, Lehman hit the wall. Repealing this legislation costs the government nothing (in terms of “stimulus”) and can potentially create thousands of new jobs even in the next year.
As an industry, we need the IPO market to return. Young companies need multiple paths to liquidity. But we — especially managers — must resist the temptation (often pitched by bankers seeking fees and investors looking for exits) to go public too early. Public companies need proven, growing, and reliable financial metrics in order to withstand the scrutiny of the public markets.
I believe the new administration can repeal or amend Sarbanes-Oxley in 2009 and companies should prepare for the changes.