Sarbanes-Oxley affects small businesses wanting to go public
It's the dream of some small-business owners to create such a fast-growing firm that someday it will go public. But that's where the Sarbanes-Oxley law comes in.
While the legislation was meant to clean up accounting abuses at public companies, there's evidence that it is affecting private companies. Only 10 companies backed by venture capital raised $540.8 million through initial public offerings in the first quarter of 2006, according to the National Venture Capital Association. That total of funds raised is down 25 percent from the first quarter of 2005.
Conversely, the venture-backed mergers-and-acquisition market continued to perform strongly, with 95 companies being acquired with a disclosed value of $4.8 billion. That was the highest total in five years. Says Mark Heesen, president of the National Venture Capital Association: "We are becoming increasingly concerned about the economic implications of the lackluster IPO market for venture-backed companies. Although we are bolstered by the continued strength of the acquisitions market, we cannot rely on it as the only avenue to produce above-average returns for the venture industry."
One possible explanation: Sarbanes-Oxley compliance costs are so high that some private companies are choosing to be bought out rather than go public and assume that financial burden.