Ostensibly, the law makes it easier for startup companies (particularly tech companies, whose lobbyists were a driving force behind passage of this law) attract capital by, among other things, exempting them from independent accounting requirements for up to five years after they first begin selling shares in the stock market.
Is just wrong. You still need audited financials to be a public company (current, plus 2 years prior to IPO instead of 3). I believe what changed is some of the Sarbox rules related to rotating auditors, etc.
See
http://www.orrick.com/fileupload/4624.htm
for one leading law firm's analysis of the JOBS act.
(I am not affiliated with the firm)
There is certainly room to relax some of the regulations put on small public co's by Sarbox. That's part of the reason companies are listing on foreign exchanges, and let's be honest, you dont' see "fraud running amuck" on the London Stock Exchange do you?
I like 37 Signals approach to building products and many of their business philosophies but they seem to have a need to relentlessly attack any other way of creating a company or doing business. Not quite sure why.
Do you have anything other than "I believe what changed" - a memory you are uncertain of - to dispute the article? The doc you link does not mention auditors at all.
And for what it's worth, this NY Times article would seem to support the original Rolling Stone assertion:
"Under the JOBS bill, companies with up to $1 billion in annual revenue would be free to ignore — for their first five years as a public company — regulations that were put into place after the end of the dot-com bubble and the collapse of Enron. Among them are requirements to hire an independent outside auditor to attest to a company’s internal financial controls..."
http://www.nytimes.com/2012/03/23/business/senate-passes-sta...
I am a founder of a bootstrapped company, that has been profitable for a couple of years. The profits have been reinvested, and the company is growing. We never planned to take money. So far, we mainly see the negative sides of this bubble: it's harder to hire quality people, services (lawyers, bandwidth, etc) are becoming expensive or harder to get. How can we take advantage of this boom? How long will it last, or at least, what will be the mechanism for its deflation, because it's only limited to tech sector so far, unlike '99.
I agree - the problem with the bubble is that it makes all relatively sane business people seem insane. It now seems insane to create a profitable business that lives within its means...
If you want to build a sustainable business you should keep up the discipline of living within your means and grow slowly through the bubble.
If you want to make money rite now (and lots of it) ride with the bubble. The answer depends on what your objectives were when you started your business.
I don't think we're in a bubble. How can the author compare the IPO of Facebook, a company with a billion users and billion dollar in revenue, to those IPOs of the late 90s of companies with no revenue and no viable plan to have any in the foreseeable future? In fact most IPOs since LinkedIn started the trend are of mature companies. That's not what happened in the bubble days.
It's true that more companies are being created and seed valuations are going up. But the selection process still occurs at the series A stage and crappy companies usually still can't pass that hurdle.
As for the JOBS act: if I'm not mistaken investment is capped at (the lowest of) $10K or 10% of the annual salary. I believe you even have to go through a course before you can invest though the JOBS act. Conversely, in the stock market you can invest as much as you want, without any training, and lose everything overnight.
The fact is that economy fluctuates. Whenever there's an upswing people scream bubble. It's a result of the traumatic effect of previous bubbles. But the irony is that real bubbles sneak on you. Hardly anyone sees them coming. So keep screaming bubble, it makes me feel safe.
"But the irony is that real bubbles sneak on you. Hardly anyone sees them coming. So keep screaming bubble, it makes me feel safe."
I think there is a bubble and I can accept the rest of your viewpoint, but this part is not true. Most people who have a well developed understanding of an industry and basic financial sense easily recognize bubbles and have always done so in the past. The people who it sneaks up on are those who listen to the media and listen to their friends who listen to the media. Bubbles typically start out of real economic growth. The problem is that they outgrow market indicators when you get too many lemmings playing the telephone game and ignoring fundamentals. From what I see around the bay area there seem to be a lot of indicators of this social dynamic playing out. There is lots of money chasing other money to nowhere but Ill agree its not as bad as it was in 2000.
Bubbles are not about believing in the wrong trends, they are about believing the trend will materialize too fast.
E.g. dot com boom: Basic premise was right, "software will eat the world", only the speed at which it would happen is overestimated.
This is what makes growth investing so difficult: Quite easy to predict solar or electric cars will take off, very hard to predict which company in the cambrian explosion will win.
Overall history has proven over and again that in aggregate, value investing beats growth investing for exactly this reason.
I believe the critic is more about the fact Facebook buying a company with no business plan, let alone revenue, for $ 1b, and how that reflects on the industry.
Well I agree that there are many signals pointing towards a bubble (as david points out in his post). I don't think it will be as bad as the late 90s. Memories of the last tech bubble and the recent recession will hopefully dampen the rise and the subsequent fall this time.
I don't know about that. Individual actors may have long memories, but financial markets as a whole often have the collective memory of a goldfish. During the height of the bubble, there are always people who are proclaiming, "No, this time its different," and "We learned our lesson from last time." And they're right! The actors in the market did learn their lesson from last time. It's just that they make entirely new mistakes that lead to the same end result.
Now isn’t that swell. Enable people with an extreme financial incentive to spin the truth, or outright lie about the numbers, a 5-year get-out-of-jail cover
Removing independent accounting requirements isn't the same thing as making fraud legal.
[+] [-] joeag|14 years ago|reply
Matt Taibbi from Rolling Stones reports:
Ostensibly, the law makes it easier for startup companies (particularly tech companies, whose lobbyists were a driving force behind passage of this law) attract capital by, among other things, exempting them from independent accounting requirements for up to five years after they first begin selling shares in the stock market.
Is just wrong. You still need audited financials to be a public company (current, plus 2 years prior to IPO instead of 3). I believe what changed is some of the Sarbox rules related to rotating auditors, etc. See http://www.orrick.com/fileupload/4624.htm for one leading law firm's analysis of the JOBS act.
(I am not affiliated with the firm)
There is certainly room to relax some of the regulations put on small public co's by Sarbox. That's part of the reason companies are listing on foreign exchanges, and let's be honest, you dont' see "fraud running amuck" on the London Stock Exchange do you?
I like 37 Signals approach to building products and many of their business philosophies but they seem to have a need to relentlessly attack any other way of creating a company or doing business. Not quite sure why.
[+] [-] mapgrep|14 years ago|reply
And for what it's worth, this NY Times article would seem to support the original Rolling Stone assertion:
"Under the JOBS bill, companies with up to $1 billion in annual revenue would be free to ignore — for their first five years as a public company — regulations that were put into place after the end of the dot-com bubble and the collapse of Enron. Among them are requirements to hire an independent outside auditor to attest to a company’s internal financial controls..." http://www.nytimes.com/2012/03/23/business/senate-passes-sta...
[+] [-] unknown|14 years ago|reply
[deleted]
[+] [-] cft|14 years ago|reply
[+] [-] Retric|14 years ago|reply
If you want to cash out early I would trying to sell your company early in the boom.
If you think you can grow vary quickly take some outside investment.
If you just want stability build up a little cash hoard so you can grow during the crash and pickup talent cheaply.
[+] [-] volandovengo|14 years ago|reply
[+] [-] sks|14 years ago|reply
If you want to make money rite now (and lots of it) ride with the bubble. The answer depends on what your objectives were when you started your business.
[+] [-] anon808|14 years ago|reply
[+] [-] motti_s|14 years ago|reply
It's true that more companies are being created and seed valuations are going up. But the selection process still occurs at the series A stage and crappy companies usually still can't pass that hurdle.
As for the JOBS act: if I'm not mistaken investment is capped at (the lowest of) $10K or 10% of the annual salary. I believe you even have to go through a course before you can invest though the JOBS act. Conversely, in the stock market you can invest as much as you want, without any training, and lose everything overnight.
The fact is that economy fluctuates. Whenever there's an upswing people scream bubble. It's a result of the traumatic effect of previous bubbles. But the irony is that real bubbles sneak on you. Hardly anyone sees them coming. So keep screaming bubble, it makes me feel safe.
[+] [-] moocow01|14 years ago|reply
I think there is a bubble and I can accept the rest of your viewpoint, but this part is not true. Most people who have a well developed understanding of an industry and basic financial sense easily recognize bubbles and have always done so in the past. The people who it sneaks up on are those who listen to the media and listen to their friends who listen to the media. Bubbles typically start out of real economic growth. The problem is that they outgrow market indicators when you get too many lemmings playing the telephone game and ignoring fundamentals. From what I see around the bay area there seem to be a lot of indicators of this social dynamic playing out. There is lots of money chasing other money to nowhere but Ill agree its not as bad as it was in 2000.
[+] [-] ebaysucks|14 years ago|reply
E.g. dot com boom: Basic premise was right, "software will eat the world", only the speed at which it would happen is overestimated.
This is what makes growth investing so difficult: Quite easy to predict solar or electric cars will take off, very hard to predict which company in the cambrian explosion will win.
Overall history has proven over and again that in aggregate, value investing beats growth investing for exactly this reason.
[+] [-] hcarvalhoalves|14 years ago|reply
[+] [-] sks|14 years ago|reply
[+] [-] quanticle|14 years ago|reply
[+] [-] methoddk|14 years ago|reply
Hands down the funniest thing I've read in a while.
[+] [-] richcollins|14 years ago|reply
Removing independent accounting requirements isn't the same thing as making fraud legal.
[+] [-] franciswolke|14 years ago|reply
[+] [-] carguy1983|14 years ago|reply