The High Cost of IPOs Depresses Venture Capital in the United States
Dale A. Oesterle
Ohio State University (OSU) - Michael E. Moritz College of Law
Ohio State Public Law Working Paper No. 75
The fundamental reason for the small numbers of IPOs is the reluctance of public investors to buy IPO stock. The technology bubble burst in 2000 and investors still remember their losses in the IPO industries. But the IPO market would be more active if IPOs were not so expensive. They cost too much to do and, once done, a company has much higher ongoing costs. The higher ongoing costs are a significant bone of contention, particularly with the implementation of Section 404 of the Sarbanes-Oxley Act of 2002.
Lowering the cost of IPOs would not only enable small companies to net more money per offering, it would also enable small companies to float smaller offerings. And lowering the cost of IPOs is something that the Securities and Exchange Commission could do by allowing small companies to make their IPOs over the Internet. The SEC's foot-dragging on the use of the Internet for IPOs is depressing venture capital in the United States. The most active venture capital IPO market for small companies is now the AIM market in London.
This comment briefly describes the current regulation of IPOs, describes an alternative system of public offering that uses the Internet, and concludes with a discussion of whether there are regulatory problems with a system of Internet IPO.
Number of Pages in PDF File: 10
Keywords: initial public offering, underwriting, DPO, direct public offering
JEL Classification: G18, G24, G28, G32, K22
Date posted: August 11, 2006