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Comment by bokonist | Hacker News Reader

The recent IPO drought has been very disturbing. But does anyone know if the reason companies have not been IPOing? Is it a lack of cash flow and profits? Are the newest round of tech startups not making money? Or are the companies as good as ever, but investor interest has disappeared? If the profits are there, tech companies could just start paying dividends, and the investors will come. I'd buy stock in a tech company that paid a 4% dividend yield that grew each year. But buying stock in a non-dividend paying tech company is a game for speculators. The market for speculation is down, and I don't expect to see it come back any time soon.

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I really like the way you think. It's true that the stock market has become one big ponzi scheme over the past few decades. Dividends seem to have gone out of style, leaving capital appreciation by selling to a 'greater fool' as the only way to profit. I suspect that this train of thinking will change, but not right away. Give us 2-3 years of nuclear winter in the markets and things may change. Hey anything is possible, even MSFT now pays a dividend.

Even MSFT pays only 1.3% p/a. Even in that case, it's a gesture.

What if startups directly paid investors. Gave them back their money + some or paid dividends or something like that. Theoretically, that should be just a different way of doing approximately the same thing.

MSFT also does stock buyback which works like a dividend but with better tax implications.

Aren't those 'one -offs?'

No, they are ongoing. There is a lot of administrative overhead to dividends so you only want to do it 1 to 4 times a year. But, buybacks are best spread out over time so they don't cause the price to spike. MSFT decided on a 50 / 50 split with a massive dutch auction for 8.1% of the stock and then the other 20 billion as an ongoing buyback until 2011. Which they finished so they are now doing a 40 billion buyback until 2013. (This will probably also finish early.)

What's odd about buyback's is in theory they should have little effect on today's stock price, but because they concentrate value in decreasing number of shares they simulate exponential growth when the company is just milking a cash cow. Which should over time drive up the stock price and force a split.

"does anyone know if the reason companies have not been IPOing?"

SOX: http://en.wikipedia.org/wiki/Sarbanes-Oxley_Act

I get special pleasure from answering big questions with short answers :)

I'm talking about the drought in 2008 ( as compared to 2007 )

> I'm talking about the drought in 2008 ( as compared to 2007 )

SOX raised the cost but it takes time for folks to develop alternatives. Some companies could afford SOX in 07 or (more likely) couldn't afford to change strategy. The 08 candidates had an extra year to find an alternative to paying the SOX cost plus they were less able to afford it.

most recent startups aren't building revenues, they compete for eyeballs. friendfeed, twitter, youtube, slide... there's hardly a case for an IPO

But does anyone know if the reason companies have not been IPOing?

because IPOs are risky, and people are avoiding risk

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