Thursday, December 21, 2006

Regulation and Venture Capital: The Unintended Consequences Edition

There were some interesting Venture Capital related pieces in the paper over the last few days. Most are related to some of the "unintended consequences" of Sarbanes-Oxley and other recent regulatory changes. These changes might (repeat "might") have some benefits, but they were enacted without much serious consideration as to the costs they might impose on the capital markets. Here are a few more examples of these costs (nothing new, but still worth reading):
First, here's a Wall Stree Journal editorial by Michael Malone titled The Pump-and-Dump Economy. He lays out some pretty good arguments showing how the VC and Private equity world have been affected by Sarbanes-Oxley, Regulation FD, and the calls for options expensing. As a result, he argues that they'll end up having far-reaching effects on the rest of the economy.

Batting in second place is another article from the WSJ titled "Venture Capital's New Adventure". It discusses how the slowdown in IPOs from Sarbanes Oxley has made VCs job much harder. In particular, it highlights the case of Drew Lanza, a tech VC who's recently started doing roll-ups in the chip industry.

Finally, the NYtimes tells us that VCs are looking overseas for exits. It seems that the increased regulation in the U.S. market is making foreign markets more preferable for staging IPOs for exits.
as one of my econ professors always said, the Law of Unintended Consequences is like the law of gravity - you can tell yourself it's not there, but it'll get whether you believe it or not.

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