Akamai CEO Paul Sagan yesterday complained about the Sarbanes Oxley act. He mentioned that while the act did not prevent the financial abuses by AIG, etc. the regulation are a significant drag on business. Paul said that in the early days of the implementation of the act Akamai spent up to 2% of the revenue (millions $) on compliance.
There is also this telling reflection of the devastating Sarbanes Oxley impact on the Israeli Tech by Sarah Lacy – Risk Aversion And The Perils Of Selling Too Early (Israeli Startups, Part II):
“SarbOx put a chill on small-but-growing companies’ ability to go public on the Nasdaq. The costs of being SarbOx-compliant are so high, that unless you have more than $40 million or so in annual revenues and strong growth, it’s just not cost effective. And other regulations surrounding the Chinese Walls between research and trading mean that small companies get little research coverage and are too thinly traded to really be considered liquid stocks.
This has hurt the Valley, when it comes to returns, for sure. But the Valley also is replete with large companies that buy each other for enough money that investors can eke out enough to keep going. Geographic proximity does help in working these kinds of things out. (You think YouTube didn’t benefit from sharing an investor with Google? VCs actually count this as one of their so-called “value adds.”) A good number of European companies have gotten around the SarbOx problem by going public on the London exchange over the last few years, to the extent where several articles were written about the London Stock Exchange becoming a bigger financial force than the Nasdaq.
So if it was a problem for all startups, why do I bring it up in relation to Israel? Because pre-Sarbanes Oxley, Israel had more Nasdaq-traded companies than any other country. Outside the Valley, they were, by definition, the most vulnerable to the change.”
I would like to add that IPO exist definitely is a significant VC marker but equally important is the stock trajectory over time. I suspect that dotcom legacy wealth reduction on the open market by the Israeli NASDAQ listed companies is momentous.
Further Reading: