Loosen the Rules Stifling IPOs by Venture-Backed Startups
[Editor's Note: We asked selected Xconomists a series of questions designed to zero in on the big issues of the year, including "What would you be willing to throw a punch over?"]
What would I be willing to throw a punch over? Solving the small-cap IPO bottleneck … to unleash the job creating potential of emerging growth companies.
For more than 25 years, America’s entrepreneurs have benefited from a capital system that has uniquely supported their independence and innovation. Once they had developed their products using private capital, emerging growth companies could capture markets or invent wholly new ones by accessing public capital to continue their growth and compete successfully across the globe. High-growth companies that go public create more jobs, generate more revenues in the U.S., and grow at a faster pace than their public peers.
But because the hurdles and costs of going public are higher today than ever, more and more companies delay or cancel their plans to go public. In fact, most turn to being acquired—a job killer in the short run as redundant positions are eliminated. If you look at the number of venture-backed company IPOs as a proxy for all small, high growth companies, there was a 75 percent decrease in IPOs between the last two decades. The result is a dangerously threatened ecosystem that is delivering fewer jobs, creating less wealth, and delivering lower tax revenue. Like any healthy ecosystem, the American economy needs new companies and competitors to continue a prosperous cycle of growth and replenishment.
So how are we starving this engine of growth that has served the U.S. economy for decades?
Over the last 15 years, market regulations intended for large public companies have disproportionately impacted emerging growth companies—those very same companies that deliver the job growth our economy so desperately needs. For example, accounting scandals from massive public companies like Enron, Tyco and WorldCom forced legislators and regulators to respond with an understandable “never again” approach. However, the accounting and reporting compliance designed for the complex accounting structures of large conglomerates like these are not scaled to fit newly public companies.
But it’s not just recent legislation that has impacted the growing companies of the innovation economy. Truth is, the bulk of financial market regulation that guides public companies today was created before the computer had been commercialized or the polio vaccine invented. These rules and requirements should simply be … Next Page »