Buzz Archive:
Reopening the IPO Window

by Joseph W. Bartlett, Founder of VC Experts.com, 1/22/2008

An EVITA (Entrepreneurial, Venture-backed, Information-dependent, Technology-flavored Activity)-driven economy is not, at first glance, a hostage to malfunctions in federal securities laws that govern the issuance of stock in startup companies trying to commercialize science and technology innovation. After all, startups are privately held until they go public or are purchased by listed companies. Young tech companies have plenty of freedom to prosper or fail before they ever ask a public investor to buy their stock.

What's more, private stock sales are advantaged by the safe harbor in Regulation D, whereby young companies can access capital from accredited investors who are deemed sufficiently sophisticated by regulators to understand the risk of investing in high-risk, high-reward private equity. This means young entrepreneurs and their private capital backers have legal, although limited, access to the vast pools of alternative-investment players in U.S. and global capital markets.

There is, however, room for significant improvement in our federal securities laws to help young and promising—though still very risky—emerging growth companies tap the public markets for funds to fully commercialize their products and services. Why? Because Initial Public Offerings historically have been a pillar of U.S. venture capital. An open and liquid public market receptive to high tech companies in relatively early stages of their development allows entrepreneurs and their VC backers to construct their pricing models and to value their portfolios.