I have to call foul on a surprisingly foolish article in today’s NYT. Less than a month into 2010, it is already a leading candidate for the dumbest article of the year. It reads like it was written by the PR firm for a group of VCs and Palo Alto law firms.

There were numerous ignorant comments in the article, but this is the one that actually made me laugh out loud:

“Newer restrictions, like those on executive compensation, have made I.P.O.’s even less attractive to some entrepreneurs, said Doug Collom, a partner at Wilson Sonsini Goodrich & Rosati, a Silicon Valley law firm. “Lawyers now have a profound significance in the boardroom,” he said.”

WTF is this idiot talking about? Last I checked, none of the Silicon Valley tech firms had received TARP money during the bailouts.  The exec comp restrictions this dimwitted Wilson Sonsini lawyer mentioned came with the nearly trillion dollar taxpayer bailout/subsidy for insolvent banks and the incompetent execs who ran them into the ground — not dot com start ups.

What a tool.

I cannot figure out who is more responsible for this brain dead exercise in ignorance and spin  — the writer who (re)typed it from a press release, or the editor who let this nonsense slide by.

Here’s some more stupidity:

“In the last two years, only 18 tech start-ups have gone public, compared with 143 in the two years prior. The Sarbanes-Oxley Act of 2002, which tightened corporate governance and accounting rules, has taken a lot of the blame.”

Astonishingly, the article fails to note the massive decrease in IPOs across all sectors due to the recent turmoil. Even more amazingly, the author somehow fails to deploy so much as one single word regarding the total collapse in the markets, or the simple fact that investors have seen precisely zero gains over the past 11 years.

Quite bluntly, I am embarrassed that this is what passes for Journalism today.


UPDATE: January 18, 2010 3:02pm

Here is a chart of IPOs going back about 3 decades. Note after the 1987 and 2000 and 2008 crashes, the IPO numbers plummeted. I do not know what the actual impact of Sarbanes Oxeley was on IPOs, but the data shows that after SARBOX passed, the number of new IPOs actually went up.

I am NOT suggesting there is a correlation between SARBOX and any subsequent increase in IPOs; I am merely pointing out that blatherings of those mentioned above is factually incorrect, and belied by actual data.

Have a look at these two charts, courtesy of Jim Bianco. They show the number, and the dollar amount raised in IPOs; There appears to be no correlation with SARBOX, but a huge correlation with market crashes.


IPOs by Deal Volume 1991-2010

click for larger chart

IPOs by Dollars (billions) 1991-2010

click for larger chart


More charts after the jump.


For Many Start-Ups, a Spot on the Nasdaq Is No Longer the Goal
NYT, January 17, 2010


Excel Spreadsheet for IPOs anbd secondaries, Bianco Research
Equity IPO And Secondary

Some Factoids about the 2009 IPO Market
Jay R. Ritter, Cordell Professor of Finance
University of Florida, Jan. 14, 2010


Chart courtesy of Prof Jay R. Ritter, University of Florida, Some Factoids about the 2009 IPO Market

Category: Really, really bad calls, Venture Capital

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

51 Responses to “Dumb Article of the Day: Why Start Ups Don’t Go IPO

  1. Transor Z says:

    Any data on how many new LOCs banks are extending to businesses in existence for less than a year? We’ve heard a lot about established small businesses getting shut off. Availability of credit might factor in also.

  2. DeDude says:

    Just the simple lack of logic in claiming that Sarbanes-Oxley from 2002 is responsible for something that happens 5-7 years later is unbelievable. Mind-numbingly stupid. Unfortunately with the success of Fox it seems that editors of right wing publications are a lot more worried about making their opinions support the ideology than they are worried about their opinions being in conflict with facts. I guess when you get used to making up your own “facts” you quickly lose your respect for real logic and facts – just spew it out with great conviction and most of the brain dead sheeple will swallow it.

  3. arcticpup says:

    Well… she went to Yale and Berkeley… but her NYT bio doesn’t list her grades… nor does it list her age… but hre photo makes me guess she’s about 25… and doesn’t have a clue about the economy because she still has a job… since… she can bullshit and write articles and fill papers… as you can see most of her other articles are fluff stuff… if you search her name on the NYT page… the question really should be… why would you read that kinda crap anyways Mr. BigPicture?

  4. Junius says:


    This is the new right talking point. You saw it on a number of weekend talk shows. David Frum used it on CNN as well. They try and tie the economy and American innovation to financial regulation. It doesn’t matter that the regulators are only interested in regulating the insured portion of the financial industry. It is a slippery slope and must be stopped. Such nonsense.

    The irony is that if the core banking industry could not participate in deratives and risk markets they would have to return to their traditional businesses and might actually start lending to small business.

    Furthermore the venture capital industry would be able to fill their place but obviously do a better job of managing risk in financial instruments – or go under as is appropriate.

  5. Because I want to know what other people are reading / thinking /being misinformed about!

    Besides, when any of the major print media — NYT/WSJ/WaPo/LAT etc. opublishes sometihng like this, it is a window into the state of the media today . . .

  6. some_guy_in_a_cube says:

    The NYT writes what Corporate America wants you to think. The NYT hires people from places like Yale where they are indoctrinated to do this. What Corporate America always wants to do is suck up all of the wealth of the economy (most lately in the form of Too Big To Fail bailiuts), thereby starving start-ups, preventing future competition, and maintaining their entrenched position. They don’t give a rats ass about the social costs. And if you the budding entrepreneur are a slave to Corporate America just in order to get health care for you and your family, oh well, sucks to be you!

  7. arcticpup:
    Also, she used to work at Forbes magazine. Aren’t they one of the house organs for corporate America?

  8. Ryan says:

    I spent a few years covering start-ups for Inc. magazine and was
    nauseated every time I heard this kind of anti-SOX blather from the
    start-up community.

  9. Chief Tomahawk says:

    Do the Razzie awards cover journalism, or just movies and TV shows? If journalism too, BR, you may have found a nominee for the selection committee!

  10. call me ahab says:

    a different slant from Time-

    “Did Foreigners Cause America’s Financial Crisis?”

    “Much of the fault of the financial crisis has been heaped on Wall Streeters, unscrupulous mortgage lenders and weak regulators. But in a new research paper, economist Ricardo Caballero says there is another major group of contributors to America’s monetary mess who are not getting the blame they deserve: foreigners.”

    damn foreigners- knew it couldn’t be our own stupidity- lol


  11. michael m. says:

    I sent Barry’s article to her at NYT. Actually I think it would be a good idea for a lot of people to send it if possible. What an idiotic piece of work!

  12. catman says:

    I saw the headline and the nerdy vc, I turned the page. I’m too old to waste time filling in the blanks.

  13. call me ahab says:


    you yanked one of my timely comments?

    alright- so it wasn’t the least bit topic or market related- but still funny- and I like ol’ Ed

  14. hgordon says:

    As founder of 3 venture-funded tech startups, one of which was acquired by a public company, I respectfully disagree with your interpretation of this article.

    “Astonishingly, the article fails to note the massive decrease in IPOs across all sectors due to the recent turmoil. Even more amazingly, the author somehow fails to deploy so much as one single word regarding the total collapse in the markets, or the simple fact that investors have seen precisely zero gains over the past 11 years.”

    The massive decrease in IPO volume in the tech sector is a 10-year-old phenomenon that resulted directly from the dot.com blowout of 1999-2000. Tech IPO volume stopped dead in 2001, and has yet to recover. You can see the actual numbers here –


    Nifty chart shows graphically how IPO’s have lost favor to M&A -


    SOX is a factor in the expense of IPO’s, but investor appetite is a larger factor. “In a survey last week, the NVCA (National Venture Capital Association) asked its own members to name the three biggest reasons for the current IPO drought. Of the 662 venture partners who responded, 77 percent named “skittish investors” as a reason, while 64 percent pointed to the credit crunch resulting from the subprime-mortgage debacle, and 57 percent blamed the high cost of complying with Sarbanes-Oxley accounting rules for companies preparing to go public. A few other interesting reasons came up as well: lack of analyst coverage of smaller companies (18 percent), a generally poor selection of IPO candidates recently (15 percent), and the disappearance of investment banks willing to invest in early-stage companies (14 percent).”

  15. The Curmudgeon says:

    This is not unlike the myriad articles I read in the WSJ and elsewhere that assume there is a causative correlation between economic growth and inflation. Like in 2007 and now, how we get stupid articles blathering about the price of oil being determined by its demand, which even in the face of declining demand, has increased. There is very little in the way of intelligent thought out there.

    Here’s two underlying assumptions about economic performance that once and for all should be dispelled:

    1) That regulation impairs economic performance. This is simply not true. What is true is that a capricious, irrational and unpredictable regulatory regime will impair performance. If people know the rules, they’ll know how to play by or around them. If they can’t reasonably know the rules, they’ll do as little as possible until the rules become clear. Seven years on, SOX is hardly an impediment to making money, or floating IPO’s. Political upheaval, when rules are being changed daily, and whole swaths of the economy are being quasi-nationalized as was recently the case, make predictability very difficult, and thereby filter down to making floating an IPO potentially very hazardous.

    2) That economic growth causes inflation. Malarky. Was everyone asleep during the eighties, when the economy grew lockstep with a decreasing inflation rate? How about the inverse, that economic contraction reduces inflation? I guess only Paul Volcker is old enough and mature enough to remember the seventies, when that was obviously not the case. Inflation and deflation are monetary phenomenon that can happen regardless of the state of growth in the economy.

  16. nweaver says:

    Even more:

    The Silicon Valley tech types are actually paid well, not stunnig. Solid, but not stunning.

    Where the big money is from is the option grants. Thus without the IPO, how are those in the company supposed to rake in the huge piles of money, because without it, the options aready granted are basically, well, toilet paper. Its the exact OPPOSITE of what the article suggests with regard to compensation.

  17. franklin411 says:

    I doubt if she’s really as stupid as she looks in this article. Venture capital is her beat, so I’d bet that she needs to repeat this propaganda in order to maintain her access to the wealthy sources she relies on. She probably does believe in the overall right-wing deification of the market as well, since she’s a Forbes-alumna.

    She’s not to blame for this as much as the business page editor, whose job it is to preserve the his section’s intellectual integrity.

  18. eightnine2718281828mu5 says:

    So US regulations are to blame?

    Conservatives held up Ireland as a bastion of right-thinking business folk insulated from the madness of US regulations and tax policies; has their IPO rate gone up or down over the last 3 years?

  19. mknowles says:

    “…I am embarrassed that this is what passes for Journalism today.” – me too. That’s why I keep coming here daily. Thank you!

  20. alfred e says:

    Junius is right.

    This is a new right talking point. And a chance for corporatAmerica to kill SOX off. Much like Glass-Steagal (sp?).

    The campaign continues.

  21. Andy T says:

    Yeah, how dare anyone suggest that excessive government regulations and market intervention has anything to do firms not wanting to be ‘public’ in the United States. Shameful….

    What we need is A LOT more regulations for ‘greedy businessmen’…we need more Congressional investigations into businesses of all kinds….It’s the only way to succeed as a society!!!

  22. mknowles says:

    I want to add that the New York Times will start charging for content pretty soon. I fantasize of the possibility of organizing people to refuse to pay until New York Times issues an apology for Judith Miller’s behavior and their involvement supporting a war in Iraq FOR NO REASON, THERE WERE NO WMDs.

    one can dream…

  23. TakBak04 says:

    BR: An interesting article that kind of goes along with your post about our “news” these days. Mentions Petersen Foundation and others influence.

    Special interests write `news’
    by Edward Wasserman/Miami Herald

    If you run a news business, staying fairly clean used to be fairly easy. What you published was produced, by and large, by journalists who worked exclusively for you. You didn’t accept material from outsiders apart from freelancers you knew or bona fide news agencies. PR firms and advocacy groups routinely offered you articles, but no self-respecting news outlet would simply publish them, even if the authors wore the sackcloth of public-spirited philanthropy.

    No longer. Today’s media, keen to save money, are deepening their reliance on part-time contributors, mainly because freelancers come cheap. And established media are keen to “partner” with a new breed of stand-alone journalism initiatives affiliated with high-minded foundations bankrolled by retired big-shots who want to be remembered for something other than the industries they pillaged.

    So you have more and more journalism produced by people who are financially dependent on shadowy offstage entities. The 300 bucks that freelancer gets for a story that took her a week obviously doesn’t pay her bills; so who does? The nonprofit that funds those in-depth stories on health reform — its backers really have no agenda?

  24. doug says:

    “…I am embarrassed that this is what passes for Journalism today.”

    BR, try taking a look at what is left of local newspapers. Most of them are even worse these days, with very little real reporting, and no investigative journalism. So, multiply your dismay by a gazillion….

  25. p3_contemplator says:

    I agree with your entire take on the matter Barry.

    Therefore, this is what I’m going to do. I’m going to cut & paste it here, then write “yeah” “yeah” yeah” “yeah” at the end (which probably mimics the publishing process that CCM and the NYT went through).

    What passes for content these days! Bring back ANALOG so we can stop repeating, and start thinking again!

  26. bsneath says:

    DeDude Says:
    January 18th, 2010 at 8:56 am

    “Just the simple lack of logic in claiming that Sarbanes-Oxley from 2002 is responsible for something that happens 5-7 years later is unbelievable. ”

    Perhaps during an environment of bubble equity prices, start-ups believe that the financial benefits of an IPO will outweigh the costs of becoming a public company, but in non-bubble, riskier times they do not. Sarbanes-Oxley is one of many variables that they consider. It does impact decision making because of added costs and personal liability risks, but so too does the general economy and equity environment during which the decision is made. Just simple bottom line analysis.

  27. robinpeggy says:

    With all the talent business journalists having been laid off from Fortune, etc., that she is representing the Times in the valley is ridiculous and reminiscent….well, it reminds me of her predecessor Glenn Rifkin.

  28. catman says:

    Doug has a good point. Local rags are an echo chamber of sublet articles on time delay and brutal syndicated talking heads,i.e. Cal Thomas? I think high school sports, the obits and the occasional coupon are about all that’s left.

  29. DL says:

    I would agree that the author of the article is an idiot (or at least deliberately biased); but I would expect
    the sort of nonsense referred to in the article to be published in a right-wing periodical rather than in the NY Times.

  30. wunsacon says:

    Lot of good points. Just like to say to this:
    >> The NYT hires people from places like Yale where they are indoctrinated to do this.

    Please stop bashing top schools. Last I recall, the students there hold a range of political beliefs. Unfortunately, we hear more about the subset of self-selecting tools who go on to shill for the present-day shystem.

  31. Dumb journalism seems to be au courant when it comes to IPOs

    See : A Few Good IPOs?

  32. call me ahab says:

    “Obama’s Mistake: He Hasn’t Made It Clear That Everything Is Bush’s Fault”- Krugman

    well there we have it- LOL

    and they could amend that statement to read “that everything is Bush’s fault- forever and ever and ever”

    until the end of the Republic- scapegoat for all time going forward

  33. super_trooper says:

    “who is more responsible “?
    Editor! After the lies promoted by NYT in the build up for the war in Iraq how can you possibly pay for their new paper.

  34. hgordon says:


    I think you are still off-base. This article is about tech IPO’s, while your update charts refer to the entire IPO market. If you look at the links I posted earlier, you will see what I mean …



    That article was written in 2008, but little has changed with regard to tech ipos since 2002. Many of the investment banks that focused on the tech market have since been absorbed by others (Robertson Coleman, Hambrecht & Quist, etc) or moved on to other markets, e.g. financing sub-prime and alt-a debt swaps (Goldman Sachs, Morgan Stanley).

  35. FrancoisT says:

    @call me ahab,

    Please…read Krugman’s post again; but this time, try to muster a tad more calm. It helps removing any hindrance from the analytical part of the human brain.

    Krug never said blame everything and anything anytime on Bush. He said, Obama has been extraordinarily restrained (And I challenge you to prove him wrong here…good luck!), to the point that the American public seems inclined to already forget about the last 8 years. And he blames Obama for that.

    That is not a very sane reaction. After all, pain is supposed to TEACH something…provided we remember.

  36. call me ahab says:


    not sure I am catching you dude- but my point can be explained as follows-

    a coach does not take over a team and blame his losses on the previous coach- he attempts to put together a winning record on his own- much of that takes setting the right expectations-

    but I guess someone could just point a finger at what he inherited- it is certainly easier- but that doesn’t usually wash with folks except for a very short while-


  37. hgordon Says: January 18th, 2010 at 4:14 pm

    Somebody should do themselves a Favor, and pay attention to what hgordon is pointing out..

    He, actually, knows wtf He’s talking about, and He’s on point–of the thread topic..

  38. Andy T says:


    C’mon. You would have been better off just letting the “Update” go…those charts don’t support your argument AT ALL. SarBox nicely pegged the bottom of a trend, as most major Congressional actions are wont to do. However, it’s pretty easy to see a lower amount of IPOs in the several years after SarBox compared to the 1990′s. In fact, it’s glaring. You need to pull back and observe “the big picture.”

    I do not know the exact cause of this. It’s probably related more to general stock market indices than anything else, but to use this chart as “factual” counter-evidence in this argument is silly.

  39. bergsten says:

    Some reasons there are few Silicon Valley IPO’s at the moment…

    - Investment banks have much better, easier, safer ways to make money at the moment
    - People with money have much better, easier, safer ways to make money at the moment
    - The pipeline of start-ups is drained — venture capital is hard to find, and the terms are egregious
    - Whatever VC money is available goes to environment plays (even biomed is becoming passé)

    The “reason” I’d like to think is responsible for few Silicon Valley IPO’s at the moment…

    - No financially viable or novel ideas — the last thing we need right now are more social networking sites (10,000′s my limit), or online-advertisement-management firms (people aren’t buying, exactly who are you advertising TO?).

  40. Andy T says:

    And also, Mr. Data/Analysis/Objectivity/Ritholtz, you would need to overlay the charts with the number of firms/value, that “went private” over the same period. How many firms delisted? How many went overseas? How many went private or agreed to be bought out?

    I have no idea what that data would show, but to be comprehensive it should be included….

  41. call me ahab says:


    that picture is funny(-:

    I have never seen a meatball necklace before- lol

  42. bergsten says:

    Another reason I forgot to mention…

    - Big companies are awash with cash and are taking advantage of the economic times to make strategic acquisitions. Maybe not as big a reward as an IPO but faster and cleaner.

    Anyone thinking that VC’s don’t make out in IPO’s is delusional. In fact in many cases, insiders have a holding period and VC do not — meaning that, since most times prices go down after an IPO, founders do not do as well as VC’s!

    Those wondering what Andy T is on about — said necklace is here

  43. bergsten says:

    OK, let’s try again (this day has been one massive fail

    Said meatball necklace is here.

  44. bergsten says:

    @ahab 9:37 — sorry, meant you not Andy. I’m telling you, FAIL!

  45. DeDude says:

    “Of the 662 venture partners who responded, 77 percent named “skittish investors” as a reason, while 64 percent pointed to the credit crunch resulting from the subprime-mortgage debacle, and 57 percent blamed the high cost of complying with Sarbanes-Oxley”

    If even a survey of those who have the absolute strongest incentive to convince themselves and the public that its “all because of SOX” cannot make SOX more than number 3 on the list of reasons, then that claim is obviously a joke.

    As anything else, the IPO issue is all about incentives. The incentive to do an IPO is the idea that it will make people gazillionaires. Before the IPO, they carry a fair amount of personal risk and would in most cases go bankrupt if some other new invention made their patents and product obsolete. Weighed against that risk is the desire to have more to show at the time of the IPO, so the value of the company can be hyped and the profits from doing the IPO can be greater. After the IPO they can harvest a big fat profit from their stocks and options, provided it is a success. However, if it is not a success they have simply given away their potential for a big fat profit. That is why IPO’s crater when the amount of risk willing capital crater.

    It is quite simple. If the market is so hot that even dumb a$$ loser ideas/companies can be sold for billions, everybody line up to do an IPO. If the risk aversion is so high that you have to give away the company for a pittens, only the desperate will do it. Nobody will say, hey I will give it away now because without SOX it is so much easier, nor will anybody say, ooh I don’t want to become a gazillionaire because SOX has made it such a hazzle and may swallow a few hundred grand of the gazillions I will make. SOX only have a marginal effect on the incentives and therefore no visible effect on the IPO market. If anything it may create a slight increase in demand for IPO’s at times of high risk aversion, because it does provides some assurances for scared investors.

    To make a meaningful evaluation of the simple # of IPO’s you have to have some idea of the number of startups with venture capital. Without startups there will not be IPO’s with or without SOX.

  46. Eric K says:

    Barry, the article doesn’t say there aren’t any startup IPOs because of SarBox, only that it has “taken a lot of the blame”.

    Do you think most startup CEOs want to spend their time managing quarterly results for Wall Street or building the business for long-term value?

    The allure of running a public company is gone. For founders without a lot of personal wealth, building a company for sale is much more appealing than taking the low-odds bet that you can build a billion $ company.

    That’s a problem for VCs, who need billion $ exists to generate a net return after their bad bets and fees. Although Yelp wasn’t mentioned, Yelp’s decision to turn down the $550 million offer from Google is a classic case of a VC pushing a company to go for the $1 billion IPO instead of a sale. But Yelp raised so much money from Benchmark and others that the VCs call the shots.

    It costs much less to run a tech startup than it did 10 years ago. Companies can use affiliate networks and AdSense to monetize their site before bringing in a direct sales force.

    That means startups need to raise less capital, so the founders can have a life-changing exit even though the VCs didn’t put enough money in to get a huge return.

  47. Transor Z says:

    WRT to the question I asked up top, I found this from the St. Louis Fed January report. Check out Commercial and Industrial lending from Nov 2008 to present:

    Look at the bottom chart. Notice anything from Jun/Jul 2009 to present? Looks to me like a steepening of the downward slope. Howard Gordon cites the “credit crunch” as a factor mentioned by VC execs. (Thanks for your comments, Howard.)

    Sure, investors may want to see more gestation (i.e., proven stability) in start-ups than they did during the Tech Bubble, but IPOs are still all about growth. And you don’t grow without leverage. Duh.

  48. [...] – The ‘dumbest’ article of the year? [...]

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  50. [...] Would I have to add the FT to our growing collection of media criticism (WSJ and NYT) [...]