Reviving the Downtrodden IPO Market

Moderating a panel on initial public offerings on Tuesday, the CEO of the government's newly created Startup America Partnership, Scott Case, asked for a show of hands of those who had taken a company public in the last 10 years. A half dozen hands went up. When he asked "who would do it now?" hands dropped.

"I'll say it bluntly here," Case told a smaller breakout group, "it's a pain in the (neck)" to run a public company. (As the co-founder of, Case would know.)

Such is the sad state of the U.S. IPO market today. So where's the next Cisco (NASDAQ:CSCO), which went public in 1990 with a $225 million market cap and now employs 73,000?

While the U.S. IPO market is looking a bit healthier than in the last couple of years (with $12.5 billion raised so far this year), the bulk of that has gone to established, private-equity owned firms. Many believe the way for small companies to grow into big companies, and big job creators, is through the public markets. Companies like Facebook are shunning the IPO market, at least so far, instead raising money from private investors.

It's against this backdrop that the Treasury Department sponsored "Access to Capital Conference," aimed at generating ideas to foster growth and innovation for small companies.

Treasury and SBA officials heard a litany of complaints from entrepreneurs about the hurdles of raising money from the capital markets. The founder of Opower, Alex Laskey, told a panel led by Treasury Secretary Timothy Geithner that the idea of running a public company is not as appealing these days.

"The idea of standing at attention when Fidelity calls, of wining and dining hedge fund managers, of setting earnings expectations and beating them routinely in an age in which stocks are traded every three months … makes the decision to go public more difficult and unappealing. More needs to be done to facilitate a long-term perspective on investing." (Opower was recently named by The Wall Street Journal as one of the top 10 clean energy companies.)

Alternative methods of financing have also run into roadblocks. Companies like Second Market and SharesPost, which have created a market for individual investors to buy into companies like Facebook, Twitter, and LinkedIn, are operating under a cloud of uncertainty from the Securities and Exchange Commission. SharesPost President Greg Brogger says the basic securities rules his company is operating under were written after the stock market crash of the Great Depression more than 80 years ago.

"Until the system is blessed and we have defined rules, we are stuck in the 1930’s," he said.

Government officials also heard from the financiers who were assembled about the unintended consequences of 15 years of increasingly tightening regulation, from Sarbanes-Oxley to Dodd-Frank. While goals of transparency and investor protection may be laudable, Paul Dellinger, managing director of Evercore Partners, says they have "crushed the small-cap IPO market."

Carter Mack, President of JMP Group, a firm that specializes in taking small-cap companies public, says SarbOx is one example of many "knee jerk, one-size-fits-all" reactionary regulations that are costly to small business. But he says there is capital for smaller firms, and "the IPO dollar figure doesn't tell the whole story." He points out that 17 out of 28 IPOs this year were below $500 million market cap.

Presidential economic advisor Gene Sperling closed the conference, saying the ideas and discussions that took place there will help the administration shape policy and new small business initiatives.