The footnoted jobs program…
We try to stay away from politics for the most part, though of course that’s often difficult given that the SEC’s commissioners are appointed by the President and its budget is dictated by Congress. But we couldn’t help ourselves after catching a line in President Obama’s jobs speech (PDF) last night. In fact, we even started a bit of a twitter war with the regulation-is-the-root-of-all-evil crowd.
First, here’s the line that caused our ears to perk up like the Pets.com dog:
“We’re also planning to cut away the red tape that prevents too many rapidly-growing start-up companies from raising capital and going public.”
While this was less than 25 words in a speech that (as prepared) was just over 4,000 words, we couldn’t help but wonder: is the current system really preventing good companies from going public? Granted, we don’t tend to focus on IPOs here at footnoted. But we’ve certainly read our share of S-1s over the years (and the many amendments that are often tacked on before a company actually goes public) and I suppose that if we wanted to (and Morningstar added a few zeros to my budget) we could do a footnoted spin-off site that did nothing but IPOs. Maybe — and this is being super-ambitious here – we could even take it public!
There’s certainly lots of raw material to choose from: since the beginning of the year, there have been 757 S-1s filed with the SEC and it’s not uncommon for an S-1 to be several hundred pages long. That doesn’t include S-1/As. (LinkedIn (LNKD) for example, filed six of those before going public). We’ve also read plenty of comment letters and seen other investigations from the SEC seeking to clean up some of the seemingly insignificant details when high profile companies (hello, Groupon) file to go public. And then there are those delicious reverse-mergers that seem to take the really crappy companies public and serve them up to ordinary investors.
We took a quick skim of S-1s that have been filed over the past 10 years and there hasn’t been any shortage that we’re able to document. For the same 8 month period last year, just over 800 S-1s were filed. In 2009, a much more difficult year in IPO-ville, that number was 410. Keep in mind that counting S-1s isn’t a precise way to measure IPO activity since some companies file, but later withdraw. Or they file for a secondary offering or go public via a reverse merger.
The fact is that for every Amazon (AMZN) and Google (GOOG) and Apple (AAPL) that go public and make a lot of money for ordinary investors, there’s hundreds that meet a much different fate. They rise on the buzz only to peter out. The filings are full of these examples. Pets.com, anyone? Cord Blood America? The Globe.com? Webvan? How many more do we need to list in order to make our point?
So the idea that it needs to be easier for companies to go public is simply laughable. Our friend, Sam Antar, the former CFO of electronics chain Crazy Eddie (another winning IPO!) who now runs the White Collar Fraud site puts it succinctly with this tweet: “If I were still a white collar criminal, I’d support Obama’s call to make it easier for more companies to go public.”
If this admittedly small part of Obama’s plan does wind up passing, it could very well create at least a few more jobs for people like us who slog through the fineprint filed with the SEC, trying to separate the good from the bad and the even worse! (Not to mention the plaintiff’s bar). Perhaps we can even recycle the Pets.com logo and call it the footnoted jobs program!
Noon update: A helpful reader pointed us to the fact sheet that the White House put out with more precise details on the President’s proposal, which sounds infinitely better than what we heard last night. Here’s the key sentence:
As part of the President’s Startup America initiative, the Administration will work with the SEC to conduct a comprehensive review of securities regulations from the perspective of these small companies to reduce the regulatory burdens on small business capital formation in ways that are consistent with investor protection, including expanding —crowdfunding opportunities and increasing mini-offerings.
We still think that there are still better ways — short of going public — for smaller companies to access capital to grow. And there’s already significantly lower barriers when a company is below a certain size, like reduced filing requirements, longer deadlines to file, etc. But this additional detail sure sounds a lot better to us than last night’s making it easier for companies to go public line.
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