One of the biggest arguments opponents of the Sarbanes-Oxley Act have made over the years is that compliance with the act is too expensive. Another is that many companies would rather go private than to take on the burden of the strict regulatory regime.
But a new survey conducted by venture capital firm DCM indicates that tech startups, at least, view Sarbox and the new regulations for public companies regarding disclosure of executive compensation similarly. In fact, many would go so far as to not even go public at all, just to avoid the regulations.
The New York Times reports only 19 percent of those responding to the survey said they planned to go public. Seventy-five percent of those who do not plan to do so cite the stiff regulations to which public companies are subject as a barrier to an initial public offering. The story quotes Zillow.com CEO and Benchmark Capital partner Richard Barton this way:
IPO has become a bad word in [Silicon] Valley.
Writer Claire Cain Miller points out only 18 tech start-ups have gone public in the past two years, down significantly from the 143 startups that did so in the two years before that.
Along with the paperwork problem that comes with regulatory compliance, many startups also forego IPOs because their founders focus on the windfall that they could gain with a private sale, the story says. Of those entreprenuers, Barton says:
What [they] don't realize when they take the money is that it's probably not the best path to create a company that your grandkids are going to know. It's selling out.