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Tim Draper: Are Acquisitions Replacing IPOs?

Tim Draper: Are Acquisitions Replacing IPOs?

by Rick Turoczy on June 20, 2006

It’s a complicated answer, but I’ll give you a few of the data points. I never wanted to sell Skype. It’s is a wonderful phenomenon; eBay got a great deal and is going to do great things with it. But does that create a trend; does that mean that there is a tendency for more of these companies to be bought out by Yahoo or eBay or whatever? No. Sarbanes-Oxley has been a disaster for all entrepreneurship. There is no way. We used to be able to take a company public that was profitable at $20 million in sales. But today Sarbanes-Oxley means that you have to pay your accountants and lawyers about $2 million a year to keep the thing going. So that $20 million company is now in a loss position, and it doesn’t make any sense to go public.

So companies have to go a lot longer before they’re really big enough that I can take them public. But entrepreneurs became impatient. They said, ‘There are going to be another four years? I’ve put six, seven years of my life into this thing, and now it’s worth a lot. I can live really well if somebody buys it.’ That created a great opportunity for big companies like Google and Yahoo and eBay to pick those things up.

Tim Draper: Are Acquisitions Replacing IPOs?

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