The NVCA survey issued in response to the poor IPO market for venture-backed startups reports that 57% of VCs it interviewed believe that Sarbanes-Oxley legislation is killing new issues.
When I reported about the effects of Sarbox in 2005, Mark Zanoli, head of tech banking at JPMorgan, gave me the best estimate for the costs inflicted on a pre-IPO company: $250,000. By his estimate, a startup would need an additional $10 million in revenue to offset this cost, given the typical profitability of new tech issues.
There has certainly been a chilling effect on would-be board members as well, but that might be readily overcome by closer scrutiny (again with an associated hit to the bottom line).
So let’s say, all in, would-be tech IPOs need an additional $15 million in revenue each year to offset the Sarbox costs. Is that really what’s breaking the back of the VC industry? Would such a marginal increase in required revenue to meet the IPO hurdle cause every would-be public company to shy away?
It just doesn’t add up.
What’s been your experience with the REAL cost of Sarbox? Service providers, pipe up. Pretend I’m your typical private company with yearly revenue between $50 million to $100 million: what’s it gonna cost me to comply?