On Tuesday, the U.S. House of Representatives passed a small-business exemption to the Sarbanes-Oxley accounting rules, permanently waiving the audit requirements for all companies with market caps under $75 million. Venture capitalists and entrepreneurs have long bemoaned the newly repealed requirements, which were intended to prevent Enron-style scandals in big companies, but have also contributed to the IPO drought among small ones. The exemption, somewhat surprisingly urged by White House Chief of Staff Rahm Emanuel in order to pass a broader regulatory overhaul bill, could widen the IPO gate.
Couple that with the unusual form of Open Table's IPO--they sold only three million shares on opening for a total of $60 million; 18 million are still owned by investors and other insiders.
$60 million raised and only 14% of the ownership floated--that's like a big D Round. But Open Table does come away with some incredible branding as the Tech Company That Beat The Drought. This was perfect timing to pour the marketing budget into accounting to make the IPO happen.
Between Open Table's precedent and permanent SarbOx relief, I'm wondering if the SMB IPO will become standard practice.
Great article Matt. However, a "market cap" of $75 million is very, very small no matter how you measure it. Still, how you measure it does matter with respect to if this relief (which is welcome) will result in quality deals getting out the door. If its number of shares outstanding X offering price (or bid price), it may make a nice space for biotech companies that have lost favor with private money but need to buy time, but not a lot of other companies relying on the venture model (even with NASDAQ small cap requirements, it’s a tight range of value before all of a sudden their audit and legal fees double). As a result, the costs of going public for these companies (which also impacts value) probably won’t change materially. If the market cap ceiling is based on the value of shares held by the public (or the float * offering or bid price), that would of course open the door to a lot more companies and provide meaningful financial relief. Either way, this is progress. But the beneficiaries (for better or for worse) are probably very, very small pubicly traded companies with little or no real trading volume. Perhaps the Senate will increase the limit to under $200 million :)