Competitive Intelligence for the Small Business: Is the Facebook IPO the new normal?
For strategy seminar students, the link above is to a post that serves as an example of what I have in mind for the current event posts. As I indicated in the Blackboard email, this would be an appropriate topic for several of the Strategy Seminar blog pages.
Please note, a one line link (like this one) will not suffice.
I do not think that it is fair to discuss what "poor little FaceBook" was "forced" to do because of the JOBS act. There are many things that the JOBS act was meant to improve. With all legislation, there is always the losing side. If we are discussing small business, which the act was intended for, then how can we even think of FaceBook? On the real subject-Competitive Intelligence for Small Businesses-the only real competitive advantage for small businesses is their own market niche information and tax law expertise.
ReplyDeleteI don't disagree with you, indeed part of what you are saying is directly tied to my problems with JOBS. I also like parts of JOBS - see the post about Kickstarter for an example of what I like about JOBS.
ReplyDeleteThe stated intent of JOBS is to help the job creation capabilities of small businesses, specifically tech start-ups. IPO's don't happen to start-ups, they happen to firms which have matured a fair bit. Firms which IPO are also not the ones which generate the propensity of job creation - startups do, so again including tech IPO's into JOBS (Jumpstart Our Business Startups act) is somewhat contrary to the intent of the law.
What the Facebook aspect of JOBS did was essentially walk back a part of the disclosure requirements under SOX. There was a reason we passed SOX.
Facebook wasn't forced to do anything, it was enabled to. There's a world of difference. It used to be illegal to misrepresent your financials - now it isn't. We have legislatively introduced an information asymmetry into the IPO process, markets require the absence of information asymmetries to function efficiently.
Here's another way to think about it.
ReplyDeleteIt's one thing to make an estimate of future sales and simply be wrong. For example, you tell everyone that you expect your sales to be $10bn next year and have them turn out to actually be $2bn. Everyone, including you, suffers. Your stock price will shift radically as the actual numbers are updated against the projections.
It's another situation entirely to tell one set of potential investors "we think our sales will be $10bn" and the tell another group "I know we're saying $10bn but we really think it's going to be $5bn." This is precisely what is Facebook allegedly did.
Under auspices of the JOBS act, the second scenario above may no longer be illegal. Facebook would not be protected by JOBS because their sales were above the protection mark of JOBS (at least under the pre-signed version I last looked at). So, FB may be subject to the type of investigation we would expect under SOX (and indeed, this appears to be shaping up).
However, for a firm facing an upcoming IPO, as long as they are below the JOBS threshold, they can do exactly what FB allegedly did - with potentially no recrimination.
That's what is chilling about the IPO aspects of JOBS. It might represent the new normal in tech IPO's.