SEC is backpedaling on Small Biz SarbOx Exemption

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According to BusinessWeek SmallBiz’s Summer 2006 edition, the Securities and Exchange Commission Chairman Christopher Cox has indicated that he and other SEC commissioners would rather make Sarbanes Oxley provisions work more efficiently, rather than exempting small businesses, according to an SEC spokesman. Prior to this May 17th decision, on April 23rd, a 21-person Advisory Committee on Smaller Public Companies had recommended to the SEC that the smallest public companies be exempted from compliance with Section 404 of the SarbOx regulations, which requires that companies complete an internal audit of controls they have already established. The advisory committee’s recommendations, if adopted, would have exempted 7,400 businesses with market capitalization under $787 million, representing 79% of public companies, but only about 6% of the total public market capitalization.

15 Things You Need to Score VC Funding

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Vivek Wadhwa tells “Business Week Online” fifteen things you need to know before you go for VC funding. The list includes ten things you need to have in place, and five insights about how VC’s conduct their due diligence on your business.

This article is truly a must-read for anyone thinking about seeking out VC funding for the first time. Venture Capitalists really leave no stone unturned to find out about you, your people and your track records before they invest. Also, please be sure to read to the very bottom of the linked article, including the last paragraph where it says VC’s are looking to make 5-10 times their investment in 3-5 years. By my calculation, this equates to an internal rate of return in the 60-70% range. If this seems greedy on the VC’s part, bear in mind that some investments never pay back a dime! – dr

Venture Capitalists Investing in Later Stage Businesses

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Venture capitalists are increasingly looking for established companies to invest in, the “New York Times” reported. For the first half of 2006, 46 percent of first-time venture investments went into established companies – three years or older, and with established revenue streams – up from 30 percent in 1995, according to the National Venture Capital Association. Reasons for the trend include a sluggish market for initial public offerings, and the ability of cash-laden venture capitalists to put more money to work in larger, more established firms.

Last October I helped an entrepreneur finish his business plan over a two week period, for a new medical device that had vastly better technology and ergonomics than what was currently in the market. He was looking for $2 million to stage the introduction. I just got a call from him, this past June, that he was close to securing financing….nine months later. If the trend of venture capitalists looking for more established companies continues, situations such as this will become even more common in the years to come. — dr

Sarbanes-Oxley Hitting Smallest Firms Hardest

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Enterprise Bancorp, a $55 million company based in Lowell, MA saw its audit costs increase by 100 percent, from $140,000 to $280,000, the first year it was public, CFO Jim Marcotte told the “Boston Business Journal.” Enterprise Bancorp’s experience is consistent with that of other small business companies, which is why the Greater Boston Chamber of Commerce filed a report to the SEC when the commission submitted its request for public comment on possible modifications to Sarbanes-Oxley to meet the needs of smaller firms. “Sarbanes-Oxley has become one more burden in the steep climb towards an initial public offering that is especially difficult for small companies,” states the report.

Wharton Panel Debates India vs. China

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A panel of Wharton faculty and experts in emerging markets private equity recently debated the relative advantage of private equity investment in India vs. China. India has solid underpinnings for economic growth, including a democratic government, a strong education system, widespread knowledge of English and a deep pool of expatriates experienced in Western businesses, according to the panelilsts. Wharton Professor Jeremy Siegel suggested that India’s “soft” attributes, such as a democratic government and a free press that is rooting out corruption, outweigh China’s more impressive investments in “hard” infrastructure such ports, plants, and transportation systems. Siegel is also concerned about China’s system of “guanxi” in which business is conducted more through elaborate networks of relationships than on merit.