Ask YC: Is an IPO Alternative Needed?
I've seen this idea going around for the past six months and I was curious about the feasibility/need for it. Currently there are barriers for companies to reach IPO (Sarbox, etc.) which in turn makes it much more difficult for a clean exit for early-stage investors.
So what has been suggested is to create a secondary market (see here: http://www.avc.com/a_vc/2008/08/a-secondary-mar.html) to help fill the widening gap between startup and IPO. This would in turn create some liquidity that would lead to less risk for founders and early investors.
Clearly there are some legal risks in actually creating a market. The only people that could participate would be accredited investors, and there would be some muddling with the SEC and possibly the CTFC.
I'm asking YC because the discussion doesn't seem to hit this demographic. What do you think?
13 comments
[ 6.0 ms ] story [ 50.8 ms ] threadthere really isn't a clear cut middle ground, all investments desire the profitable return. unless you can define what determines value for the middle stage investor, you're going to have a hard time gaining traction for this initiative.
There would have to be some form of financial transparency, but much more simpler than what the current standards are for public offerings.
Also, scams do exist in the public markets. Throw a dart at any stock under 2 bucks and odds are you've found one.
Craigslist doesn't like being part-owned by ebay. After all ebay sued craigslist for diluting its ownership by granting more shares to new employees.
Also, Sarbanes-Oxley is not the reason companies aren't going public right now...
It's a big reason many companies are considering de-listing at the moment - with no liquidity in the market there are few reasons to stay on right now.
Who said anything about limiting it to internet companies? There's plenty of capital out there that goes to businesses other than facebook.
It's not the sole reason, but it's a big one. Sarb Ox crap can add 1 MM - 10 MM in yearly expenditures let alone the countless man hours.
Right now the issue is liquidity, all the funds have been sh---ing bricks for the last few months - this chaos and panic needs to subside, then there needs to be a few months stability, then there will be a trickle of new investors, then will come a mad dash as people don't want to miss the next bubble.
One thing to consider at the moment is getting exposure to overseas funding - look at setting up a joint operation in another country e.g. if you are America look at Europe or Asia - having a joint operation will give you 2 places to seek funding and, if you are making any revenue, revenue in different currencies - this way you hedge against your country being sluggish coming out of the recession.
So my advice for starting up now is #think Multilingual#
Let me give an example - a lot of hollywood films are banked by people who want to get a good return on their investment. If you are an investor and you want to make money on your hollywood film, what you need to do is analyse the market, find out what the biggest consumer market likes, take a look at past hit films and create a derivate of that. If this type of movie factory turns out mediocre films with profits in the 10-20 million range, then just churn out a large number of them, and you'll make your money.
This type of speculatory investment means that the money tends goes in well known technologies that offer a clear path to returns. The investors are going to minimize risk as much as possible by avoiding experiment - and in my opinion, we are at the moment when we should experiment the most.
A web app does not need investment, it has a clear path towards profitability and costs can be kept very low. A robot building studio however, needs investment. A shoe discounter needs investment.
When an IPO is the goal of a company, it changes the very nature of the company - and it changes it for the worse. The company has to baloon its chest out and thump on how good its doing, and to do that, it cannot afford to be seen to fail in anything.
IPOs should become more difficult if anything, in my opinion.