Michael S. Malone is blaming Sarbanes-Oxley rules for killing the venture capital economy. In his column Washington is Killing Silicon Valley (registration required), he blames Sarbox for limiting us to a mere six high-tech companies going public this year. He then attacks every other accounting limit that the Valley doesn't like, including its precious ability to use options to print money for entrepreneurs.
I'm no fan of Sarbox, but let's be real -- these rules exist because Silicon Valley entrepreneurs were among those playing fast and loose, in ways that weren't helpful to their companies or their investors. Sarbox was a natural reaction to the terrible excesses of Enron, Worldcom, Tyco and other shenanigans of the tech bubble era. Like most regulation put together in anger, it was probably an overreaction -- but it helped restore global confidence that American markets weren't becoming a shell game.
Malone argues that Sarbox has driven competent board members away from Silicon Valley companies and created undue burden on poor startups that need to comply, and calls for voluntary observance of Sarbox. Excuse me, but doesn't Sarbox only apply to public companies? Doesn't that make it voluntary for privately held startups?
Let's face it. Silicon Valley has plenty of other problems, like housing costs tied to the value of options at its most successful firms, terrible public school systems in its major satellites of San Francisco, San Jose and Oakland, and natural constraints -- there's only so much land that can be developed. The Valley also has its own special herd mentality, and in the last few years that herd ran towards investing in clean tech and things that Google would buy. Neither strategy is going to produce glamorous public offerings, clean tech because the companies take a long time to develop, selling to Google for the obvious reason.
Let's also remember that going public only became the big game in Silicon Valley when there was easy money there. Right now, that's not where the easy money is, and venture capitalists aren't going to force the issue. Also, consider that in the last decade, two-thirds of the companies that went public in the U.S. didn't have a dime of venture capital money in them.
Finally, don't forget the main reason that we aren't seeing many high-tech IPOs: we're in an economic depression. We can fix all the accounting rules we like, and there still aren't going to be a ton of companies going public.