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Article from SFGate.

Facebook investors Accel Partners and Goldman Sachs plan to sell as much as $1.8 billion in shares of the top social network, becoming two of the biggest sellers in the planned initial public offering.

Goldman Sachs is selling 13.2 million shares, worth as much as $461.6 million at the high end of the range outlined Thursday by Menlo Park’s Facebook. Accel Partners, an early investor in Facebook, intends to sell as much as $1.3 billion of shares.

Facebook unveiled plans Thursday to raise as much as $11.8 billion in the largest-ever Internet IPO. Executives including Chief Executive Officer Mark Zuckerberg and backers such as Digital Sky Technologies will sell a total of 157.4 million shares for as much as $35 apiece, according to a regulatory filing. None will unload their entire holding.

On Friday, Facebook received a buy recommendation from Wedbush Securities and a target price of $44, its first rating since announcing plans to sell shares in an initial public offering.

Facebook should benefit from its large, growing user base that will help it attract more spending by advertisers and boost revenue and earnings, Michael Pachter, an analyst at Wedbush in Los Angeles, said Friday in a note to investors. Mobile advertising could play an especially important part of the growth in advertising, Pachter said.

“More users should drive more usage, which in turn should drive increased advertising revenue share,” wrote Pachter. “Facebook will capture an increasing percentage of spending on offline advertising, while growing share of online advertising as well, as usage continues to increase and advertisers become more comfortable with the cost-effectiveness of online advertising.”

Facebook would be valued at more than $90 billion, and executive and investor sales would yield $5.5 billion. Existing shareholders paid an average of $1.11 a share for Facebook, the filing shows.

Facebook is offering 180 million shares to raise funds for general corporate purposes.

While Goldman Sachs is one of the IPO underwriters, it failed to win the lead role after scuttling a private sale of Facebook’s stock to U.S. investors last year. Facebook said in January 2011 that it raised $1.5 billion from Goldman Sachs and Digital Sky Technologies, valuing the company at $50 billion. Goldman Sachs, affiliated funds and Digital Sky invested $500 million, while non-U.S. investors in a Goldman Sachs fund bought $1 billion of shares.

Michael DuVally, a spokesman for Goldman Sachs, declined to comment on the plans to sell Facebook shares. Richard Wong, a partner at Accel Partners, declined to comment.

Zuckerberg will offer 30.2 million of his 533.8 million shares in the sale, bringing him as much as $1.1 billion. The majority of his net proceeds will be used to pay taxes associated with exercising a stock option.

Accel, the biggest outside holder, invested $12.2 million in Facebook in 2005 and owns 11.3 percent of Facebook’s Class B shares. At the high end of the proposed IPO price range, Accel’s remaining stake would be valued at about $5.7 billion.

Digital Sky is selling 26.3 million shares to yield as much as $919 million.

Selling may be smart for holders with large stakes who haven’t had a chance to diversify their assets, said Erik Gordon, a professor at the Ross School of Business at the University of Michigan in Ann Arbor.

Other selling stockholders include Elevation Partners, Greylock Partners, Microsoft, Zynga CEO Mark Pincus and LinkedIn Chairman Reid Hoffman. The investors are selling only parts of their Facebook stakes.

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Article from SFGate.

BranchOut wants to beat LinkedIn at its own game: helping people use their social network to find a job.

Today, the company got a lot more backing to help it out. It announced a $25 million Series C round from Mayfield and other investors, bringing its total funding to $49 million in just over two years.

BranchOut isn’t setting up its own social network from scratch, but rather runs as a Facebook app. This lets Facebook’s more than 800 million users tap into their network of friends to look for job leads, recommend one another, and so on.

So far, the app has 25 million registered users.

They’re actually using it as well. Since December, monthly average usage has grown from 400,000 to more than 13 million. That’s mainly because BranchOut launched a mobile version of its app in December.

So does BranchOut REALLY think it can beat LinkedIn, which has more than 150 million registered users?

CEO Rick Marini thinks so, because Facebook’s audience of 850 million users is much larger, and includes more kinds of employees looking for more types of jobs.

“LinkedIn is a great company, and does a great job with 10% of the workforce” — executives and other high-demand professionals who make big salaries. “But the other 90% of the world is on Facebook. Those are the people we can finally give a professional profile to.”

He also thinks that the connections on Facebook are more authentic than those formed on LinkedIn. “LinkedIn is somebody I meet at a conference for 5 minutes. Facebook are my real friends and family, my support network. These are people who will go out of their way to help me get job.”

He now has a lot more money — and time — to prove his thesis.

Marini said that BranchOut will use the funds to improve its infrastructure to support its growth, as well as to focus on mobile with new native apps for iOS and other platforms. (The current mobile app is an HTML5-based Facebook app.)

“Out of our 45 employees, we have one mobile developer who does mobile. The mobile app was basically built on the weekend.”

Read more here.

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Article from On Startups – The Community For Entrepreneurs.

Hey Everyone,

As you might know, besides writing as a co-author for Onstartups, I’ve been writing a book over the past year. It’s basically the book every entrepreneur should have starting out to find cofounders, get press, acquire customers, and raise funding. It’s based upon case studies from companies like Twitter, Dropbox, and Foursquare. The book comes out tomorrow, but I’m giving the book away for free today to read online at http://www.theultralightstartup.com (you can read it just like a blog or from your iPad like an app). If you don’t get a chance to finish it today or want to support the book, you can always keep it forever by buying it at https://bitly.com/theultralightstartup . Thank you again for being a great community to inspire my writing and the book.

Posted By Jason L. Baptiste

 

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Article from AboveTheCrowd.com  by Bill Gurly

A few relevant scenes from the recent blockbuster Moneyball:

Peter Brand: Billy, Pena is an All Star. Okay? And if you dump him and this Hatteberg thing doesn’t work out the way that we want it to, you know, this is…this is the kind of decision that gets you fired. It is!
Billy Beane: Yes, you’re right. I may lose my job, in which case I’m a forty four year old guy with a high school diploma and a daughter I’d like to be able to send to college. You’re twenty five years old with a degree from Yale and a pretty impressive apprenticeship. I don’t think we’re asking the right question. I think the question we should be asking is, do you believe in this thing or not?
Peter Brand: I do.
Billy Beane: It’s a problem you think we need to explain ourselves. Don’t. To anyone.
Peter Brand: Okay.

———————————

Grady Fuson: No. Baseball isn’t just numbers, it’s not science. If it was then anybody could do what we’re doing, but they can’t because they don’t know what we know. They don’t have our experience and they don’t have our intuition.
Billy Beane: Okay.
Grady Fuson: Billy, you got a kid in there that’s got a degree in Economics from Yale. You got a scout here with twenty nine years of baseball experience. You’re listening to the wrong one. Now there are intangibles that only baseball people understand. You’re discounting what scouts have done for a hundred and fifty years, even yourself!

These two scenes from Moneyball illustrate something that may be essential to modern business: the incredible value of youth and innovative thinking relative to traditional experience. It turns out that the Moneyball character Peter Brand’s real name is not Peter Brand (played by Jonah Hill), but rather Paul DePodesta. And he didn’t go to Yale, but instead Harvard. He was indeed young – twenty-seven when he went to work for Billy Beane – and he did have an actual degree in Economics. What’s more, as you can see in the interaction above, Billy valued Paul’s (Peter Brand’s) opinions and decisions – despite the fact that he was a complete novice with respect to baseball operations.

A month or two ago, I had the unique opportunity to share the stage with Billy Beane at a management offsite for one of the leading companies in the Fortune 500. We were both fielding questions about innovation, and what one can do to keep their organization innovative. I talked about how many of the partners that have joined Benchmark Capital have been extremely young when they joined, including our most recent partner Matt Cohler who joined us at the age of 31. At Benchmark, we believe that young partners have many compelling differentiators. First, they will ideally have strong connections and compatibility with young entrepreneurs, who are frequently the founders of the largest breakout companies. They are also likely to be frequent users of the latest and greatest technologies (all the more important with today’s consumer Internet market). Like the “Moneyball” situation described herein, young VCs are open to new ways of doing things. This form of “rule-breaking,” or intentionally ignoring yesterday’s doctrine, may in fact be a requirement for successful venture capital investing.

When I mentioned this intentional bias towards youth, Billy Beane abruptly concurred. He noted that injecting youth into the A’s organization is also a key philosophy of his. Paul DePodesta may have been the first young gun that Billy hired, but he was far from the last. Billy continues to recruit young, bright, talented people right out of college to help shake up the closed-minded thinking that can develop with an “experience only” staff. Also noted was the fact that if a certain “experience” is shared by all teams in the league, then it is no longer a strategic weapon. You can only win with a unique advantage.

The impact of youth on the technology scene is undeniable. The included table lists the founding age of some of the most prominent founders of our time. The facts are humbling and intimidating, especially for someone who is no longer in their twenties or early thirties. Can someone in their forties be innovative? Or, do the same things that produce “experience” constrain you from the creativity and perspective needed to innovate?

Lets look at some of the specific advantages of youth. First, as mentioned before, without the blinders of past experience, you don’t know what not to try, and therefore, you are willing to attempt things that experienced executives will not consider. Second, you are quick to leverage new technologies and tools way before the incumbent will see an opportunity or a need to pay attention. For me this may be the bigger issue. The rate of change on the Internet is extremely high. If the weapon du jour is constantly changing, being nimble and open-minded far outweighs being experienced. Blink and you are behind. Youth is a competitive weapon.

The point Billy raised regarding the fleeting value of experience is also important to consider. As the world becomes more and more aware of a trick or a skill, the value of that experience begins to decay. If word travels fast, the value of the skill diminishes quickly. Best practice becomes table stakes to stay-afloat, but not to get ahead. We see examples of this every day with Facebook application user acquisition techniques. Companies find a seam or arbitrage that creates a small window of opportunity in the market, but quickly others mimic the same technique and the advantage proves fleeting.

Back before the Yahoo BOD hired Carol Bartz, there was much speculation about the important traits for Yahoo’s next CEO. Most of the analysis honed in on two key traits for the company’s next leader – the ability to lead and the ability to innovate. I remember trying to think about leaders that I thought would have a chance at having a measurable impact. On one hand, you could put a very young innovative executive into the role, but it is hard to imagine handing a $15B public company over to someone remarkably inexperienced. The other side of the coin is equally difficult – thinking of a seasoned executive who has the ability to dramatically innovate Yahoo’s products and business model.

There were only a handful of people (as few as three) that I could think of at the time that fit this second profile. Thinking back now, they all shared the following characteristic: despite being experienced CEOs, these individuals all “thought young” i.e. they were open-minded and curious. And they did not believe that experience gave them all the answers. These type of executives love diving head-first into the latest and greatest technologies as soon as they become available.

If you want to stay “young” and innovative, you have no choice but to immerse yourself in the emerging tools of the current and next generation. You MUST stay current, as it is illusionary to imagine being innovative without being current. Also realize that the generational shifts are much shorter than they were in the past. If you were an innovative Internet company five short years ago, you might have learned about SEM and SEO. Most of the newly disruptive companies are no longer using these tools as paths to success – they have moved on to social/viral techniques. The game keeps changing, and if you are not “all-in” in terms of learning what’s new, than you may be falling rapidly behind.

Consider these questions:

  1. When a new device or operating system comes out do you rush out to get it as soon as possible – just because you want to play with the new features? Or do you wait for the dust to settle so that you don’t make a mistaken purchase. Or because you don’t want to waste your time.
  2. Do you use LinkedIn for all of your recruiting, or do you mistakenly think that LinkedIn is only for job seekers? How many connections do you have? Is your profile up to date? (When Yahoo announced Carol Bartz as CEO, I did a quick search on LinkedIn.  She was not a registered user.)
  3. When you heard that Zynga’s Farmville had over 80MM monthly users, did you immediately launch the game to see what it was all about, or do you make comments about how mindless it is to play such a game? Have you ever launched a single Facebook game?
  4. Do you have an Android phone or do you still use a Blackberry because your Chief Security Officer says you have to? I know many “innovators” who carry an iPhone and an Android, simply because they know these are the smartphones that customers use. And they want exposure to both platforms – at a tactile level.
  5. Do you use the internal camera app on your iPhone because it’s easy, or have you downloaded Instgram to find out why 27mm other people use that instead?
  6. Do you leverage Twitter to improve your influence and position in your industry or is it more comfortable for you to declare, “why would I tweet?,” before you even fully understand the product or why people in similar roles are leveraging the medium? Do you follow the industry leaders in your field on Twitter? Do you follow your competitors and customers? Do you track your company’s products and reputation?
  7. How many apps are on your smart phone? Do you have well over 50, or even 100, because you are routinely downloading each and every app from each peer and competitor you can to see how others are exploiting the environment? Do you know how WhatsApp, Voxer, and Path leveraged the iphone contact list for viral distribution?
  8. Do you know what Github is and why most startups rely on it as the key center of their engineering effort?
  9. Have you ever mounted an AWS server at Amazon? Do you know how AWS pricing works?
  10. Does it make sense to you to use HTML5 as your mobile solution so that you don’t have to code for multiple platforms? Does it bother you that none of the leading smartphone app vendors take this approach?
  11. When you are on the road on business, do you let your assistant book the same old car service, or do you tell them, “I want to use Uber just to see how it works?”
  12. When Facebook launched the new timeline feature did you immediately build one to see what the company was up to, or did you dismiss this as something you shouldn’t waste your time on?
  13. Have you been to Glassdoor.com to see what employees are saying about your company? Or have you rationalized why it’s not important, the way the way the old-school small business owner formerly dismissed his/her Yelp review.

The really great news is that being a “learn-it-all” has never been easier. With the Internet, high-speed broadband, SAAS, Cloud-services, 4G, and smart-phones, you can learn about new things, 24 hours a day, no matter where you are or what you do. All you need is the internal drive and insatiable curiosity to understand why the world is evolving the way it is. It is all out there for you to touch and feel. None of it is hidden.

There are in fact many “over 30” executives who can go toe-to-toe with these young entrepreneurs, precisely because they keep themselves youthful by leaning-in and understanding the constantly evolving frontier. My favorite “youthful” CEOs are people like Marc Benioff and Michael Dell, who frequently can be found signing up for brand new social networking tools and applications. Reed Hastings has more than once answered Netflix questions directly in Quora.  Jason Kilar frequently communicates directly with his customers through Hulu’s blog. Rich Barton, the co-founder of Expedia and Zillow is one of those people carrying both an Iphone and an Android, and is constant learning mode. I would also include Mark Cuban, whose curiosity is voracious. The other NBA owners never saw him coming. And lastly, there is Jeff Bezos, who seems to live beyond the edge, imagining the future as it unfolds. Watch the launch of Kindle Fire in NYC, and you will have no doubt that Jeff plays with these products directly and frequently.

Our last table highlights the stats from the Twitter account of some of these “youthful,” learn-it-all executives (sans Mr. Bezos – we all wish he tweeted). If you don’t find this list interesting, think about the thousands and thousands of executives out there who are nowhere to be found with respect to social media. They take the easy way out, likely blaming their legal department. They intentionally choose not to learn and not to be innovative. And they refuse to indoctrinate themselves to the very tools that the disrupters will use to attack their incumbency. That may in fact be the most dangerous path of all.”

Read more here.

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Article from NYTimes.

“On a recent Thursday night I stood motionless and perplexed on the dance floor of a San Francisco club. As I looked around, 300 or so people danced and darted back and forth to a free open bar while laser lights shot overhead. Cellphones glowed, like a video of luminescent jellyfish, as people snapped pictures and slung moments of the evening onto dozens of social networks.

What made the evening so perplexing was that the party I was attending celebrated Path, a mobile social network that just two months earlier was essentially written off in Silicon Valley. If the company held a party back then, people would have assumed it was a going-out-of-business sale. Now, after rebooting to positive reviews from the blogosphere, Path is again the talk of Silicon Valley. Some are even proclaiming that the company could be “the next Facebook.”

Watching the Valley’s perception of Path go from positive to negative and back has been like watching a hyperactive child with a yo-yo. The valuation has oscillated in near synchronicity.

This, I have learned, is the mentality of much of Silicon Valley, where decisions are not always made based on revenue or potential business models, but instead seem to be driven by a herd mentality and a yearning to be a part of a potential next big thing.

This is most evident in the valuations that are given to companies here. Two start-ups, each with 10 million users and no revenue, can be valued anywhere from $50 million to $1 billion.

Facebook is a prime example of this. The company does generate considerable revenue and is currently valued at $84 billion and is expected to reach $100 billion by the time of its initial public offering later this year. That’s a higher market valuation than Disney or Amazon.

Paul Kedrosky, an investor and entrepreneur, explained in an interview that one reason valuations are so wildly inflated is that venture capitalists want to be associated with a potentially successful start-up just so it looks good in their portfolio. This, he said, has driven absurd buying on the secondary private market, where stocks are bought and sold before a company goes public.

“There is massive buying on the secondary market by venture guys just for the showmanship of it,” he said. “These buyers are much less price sensitive and just want a company in their portfolio so they can stick the logo on their Web site.”

A report released last week by SecondMarket.com, such an online marketplace, said it had $558 million in transactions in 2011, up 55 percent from the year earlier. Almost two-thirds of those transactions were for consumer Web sites and social media start-ups.

Other investors give money to several companies hoping to strike it rich with at least one. I call that the Peter Thiel Effect. Mr. Thiel, a co-founder of PayPal, gave $100,000 to Mark Zuckerberg, a founder of Facebook, when the company was starting out. That investment is expected to be worth $1 billion when Facebook goes public.

In other instances, you have spite investing. This is when venture capitalists will give millions of dollars to a start-up simply because they were not given the opportunity to invest in the competitor with the original idea.

Some investors no longer even need to hear about a company to hand out money. Jakob Lodwick, an entrepreneur and co-founder of Vimeo, recently raised $2 million simply on the promise that he might have a good idea for a company in the near future.

It’s as if someone found out where Hasbro prints Monopoly money and gave every venture capitalist a key to the company’s storage facility.

“I have never seen such a generation of people shorting tech stocks,” Mr. Kedrosky said, noting that he too has chosen to bet that Groupon, Zynga and LinkedIn will fall significantly in value. “Usually the short community is more nervous about it, but there is a monolithic view that this generation of technology I.P.O.’s is completely broken.”

Read original article here.

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Article from BusinessInsider

“You’re walking around blind without a cane, pal. A fool and his money are lucky enough to get together in the first place.” – Gordon Gekko in “Wall Street”

A week before Groupon’s initial public offering, Henry Blodget was telling readers he wouldn’t touch it with a 50-foot pole for reasons that amounted to, “It’s an insider’s game.”

As Blodget expected, insiders were indeed the big winners. Investors who bought at the peak that opening day are now down about 20 percent since then. The only good news for investors: at least they’re not in the territory of Demand Media, which now trades about 70 percent below its first day of trading back in January.

Investing in IPOs today screams “caveat emptor.” But do we listen? The prospect of investing in something that all our friends are using seems to be as irresistible as super-sizing a fast-food meal — and can be equally bad for our (fiscal) health.

There’s also the view that if people are buying things they don’t understand, they should lose their money. It’s called capitalism, redeploying money to smarter people so it can be invested more intelligently.

Better Ways To Invest?

I agree that capitalism should not reward stupidity but we also should make it a little safer for non-insiders to invest. Why not increase transparency and let outsiders see what’s really going on in a company?

Perhaps it’s time for the equivalent of nutritional content labels on investments that outline, in plain language, just how much risk we’re taking. And maybe it’s time we also start asking if there are better ways to invest, not just for us but the health of our planet. That’s happening now with a growing trend called “impact investing,” defined as for-profit investment made to solve social and environment problems.

TonyGreenbergImg“Impact investing will need to scale to an enormous level for these solutions to be achievable,” said Eric Kessler, founder and principal at Arabella Philanthropic Investment Advisors, which advises philanthropies like Gates Foundation and Rockefeller Foundation and touches nearly $1 billion in grant and impact investment portfolios a year for. “Profitable, socially-driven businesses are the only sustainable solution. Philanthropists are awakening to that now and transforming themselves into impact investors.”

As things currently stand, it’s turned into a bit of the Wild West for investors. In an era of Occupy Wall Street and too many investing scandals, the impulse is to blame fraud or at least insiders who take liberties at the expense of the rest of us.

True, neither Groupon nor its underwriters held a gun to anyone’s head to buy a single share. Key information, from insiders taking money out to decelerating revenue growth, was thoroughly and publicly documented, as per all SEC regulations and rules.

But months before Groupon went public, breathless news stories were estimating a $25 billion valuation for the site. By the time the IPO put real numbers on those estimates, Groupon was valued at $13 billion instead, but even that seems optimistic for an unprofitable company founded three years ago.

Sky-High Valuations

Groupon is not the only example of misplaced “IPO-ptimism.” Zynga, the online game company, was reportedly seeking a $20 billion valuation. It now expects to go public with an estimated value of about $14 billion, though some seasoned analysts think $5 billion is more realistic. Facebook valuations currently range from $60 billion to $80 billion, up from $500 million just four years ago, though the social media behemoth has yet to announce when in 2012 it may actually go public.

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Ask a venture capitalist about these sky-high valuations and their response ranges from a shrug of their shoulders to a gleam in their eye. The bottom line, though, is they don’t know what to think. This is uncharted territory, with companies only a few years old riding huge valuations to ridiculous riches, at least for a few.

“The biggest risk I see in today’s extraordinary Internet company valuations is the short length of time these companies have been in business,” said William Edward Quigley, co-founder and managing director of Clearstone Venture Partners.  “The longer a company has been operating, the more secure its competitive position in the market and the more predictable its revenues.  Predictability is a core ingredient in successful public companies.”

Quigley points to LinkedIn, which went public after a full decade of operations, with a seasoned executive team, strong internal and financial systems and a proven business model. Groupon, by contrast, has had none of those advantages.

“A pubic investor should be more cautious when investing in companies that are still figuring out their business.” Quigley says.

IPOs Hit The Skids

This brings us back to what we are investing in and whether those investments are wise. One recent report looked at the dismal performance of new companies in the IPO market. During the past 15 years, the number of young companies entering capital markets through IPOs has plummeted relative to historic patterns, hobbling job creation.

The report, “Rebuilding the IPO On-Ramp,” also had a number of recommendations, including the need “to improve the availability and flow of information for investors.”

tonygreenbergimage

Regulations have driven up costs for young companies looking to go public, the report says. At the same time, institutional investors are leery of buying stock in startups because their risk levels are much higher.

“Right now, there is very little capital available to these emerging companies,” said Wall Street investor Terren Peizer, chairman of Socius Capital Group. Peizer said more than 4,000 publicly traded companies have market capitalizations of less than $300 million each. Companies that small just aren’t attractive to choosy institutional investors.

“These companies are unable to attract capital on viable terms, if at all,” said Peizer. “Increased regulatory pressure has had the unintended consequence of choking off capital access for the small companies.”

“In today’s regulatory environment, it’s virtually impossible to violate rules … and this is something that the public really doesn’t understand. It’s impossible for a violation to go undetected.” – Bernard Madoff

All of this leads me to hope there will be a greater emphasis on impact investing, which may be help resolve these problems.

The Rockefeller Foundation started looking at these issues in 2008 when it developed a set of guidelines for “Impact Investing and Investment Standards,” or IRIS. As part of the process, the foundation developed a common reporting language for impact-related terms and metrics.

Out of IRIS came the Global Impact Investing Network Investors’ Council. GIIN was set up to identify how investor funds define, track, and report the social and environmental performance of their capital, in a way that’s transparent and credible.

In my company, which deals with similar issues of managing risk in an opaque environment, I’ve learned that it’s not about making a single right decision. Instead, it’s about hedging, diversifying, and understanding your risk vs. reward. It’s also about doing what’s right.

So much of what’s wrong with the investing picture today stems from the basic human impulses of fear and greed. People are afraid they will miss out on something big, which is the attitude that helped puff up the housing bubble. And that fear leads to greed, as people pay big bucks now, hoping to reap huge returns later.

Perhaps it’s time we put fear and greed back into the bottle and focus on how to invest for a better tomorrow that makes all of us winners.”

Read more here.

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Article from SFGate.

In recent years, LinkedIn, Groupon and Demand Media all suggested they were profitable while privately held. But when the businesses were forced to file audited financial statements as they prepared to go public, those years or quarters in the black mysteriously vanished.

That’s just one of many reasons why it’s disturbing to see legislators hard at work on laws that would actually make it easier for companies to seek investments without also providing thorough and transparent financial data. And it’s why the proposals demand serious scrutiny.

This week, Sens. Pat Toomey, R-Pa., and Tom Carper, D-Del., introduced a bill that would raise the number of shareholders that companies are allowed to have before being forced to routinely disclose finances. Under the proposal, the threshold would rise from 500 to 2,000, minus employees.

Companies often feel compelled to go public when they near the 500 mark, because the disclosure requirements are nearly the same as those for a public company. Observers were quick to note that the law could ease IPO pressure on businesses like Facebook, which is bumping up against that threshold, further inflating private trading markets without adding any financial clarity.

“Lots of companies with fairly substantial market capitalizations would avoid the transparency of being reporting companies,” said John Coffee, a law professor at Columbia University.

Crowd funding

Separately this week, the House approved legislation proposed by Rep. Patrick McHenry, R-N.C., that would allow small businesses to raise capital through what is called crowd funding. That would mean startups could solicit investments from a pool of small investors, not just high-net-worth investors.

Individuals could invest the lesser of $10,000 or 10 percent of their annual income. As long as the firms raise less than $1 million a year, they could provide scant if any financial disclosures (though they would have to highlight the risky nature of the offerings).

Meanwhile, the private-equity and investment-banking industries are pushing for even bigger changes. Last month, a group calling itself the IPO Task Force – including representatives from Hummer Winblad Venture Partners and the law firm Wilson Sonsini Goodrich & Rosati – submitted an audacious wish list for policymakers.

Complaining about the paucity of IPOs in recent years, it recommended a looser set of rules for “emerging growth companies” with less than $1 billion in annual gross revenue.

These companies would be able to take advantage of a five-year “on-ramp” period that would reduce requirements for disclosures of historical financial data. The bill would also exempt companies from regulations concerning shareholder voting rights on executive compensation and loosen rules regarding analyst conflicts of interests.

Some corporate governance experts think the very premise of an on-ramp is flawed.

The first five years “is exactly when you would need to have the best disclosures,” said Charles Elson, director of the center for corporate governance at the University of Delaware.

The argument in favor of these proposals is that freeing companies from onerous regulations put in place in recent years would allow them to more easily build capital, accelerate innovation and create jobs.

Advocates for the task force recommendations contend that the rules are directly responsible for the decline in IPOs in recent years. Without that potential payday, venture capitalists and other investors have less incentive to take chances on young companies.

“Given the urgency to get America back on the path to economic growth, we need to get capital back in the hands of companies that create jobs,” said Kate Mitchell, chair of the task force and managing director of Scale Venture Partners, in a statement.

These are all tantalizing promises in the current economic climate. But we’ve seen again and again why transparent information is critical for the investing public..

Shareholders of Enron lost $11 billion and employees saw their life savings evaporate when it turned out the company was hiding billions in shell firms and fudging its balance sheet.

More recently, Lehman Bros., Bear Stearns and AIG crashed and nearly took the global financial system with them after losing highly leveraged, complicated and opaque bets on toxic mortgages.

These economic crises prompted laws like the Sarbanes-Oxley Act of 2002, which required more thorough disclosures of things like off-balance-sheet transitions. Similarly, the Dodd-Frank Act, passed in the aftermath of the 2008 economic collapse, granted greater oversight of complex instruments like credit default swaps.

Watering down

But political memories are short, and the instinct to enact reforms to prevent future catastrophes fades as constituents shift their frustrations to stubborn unemployment rates. And so now, we see proposals to water down the protections that were just passed.

From the moments these rules went into effect, industry has lamented how the burdensome and expensive regulations harm business and discourage IPOs. But maybe these things should be burdensome and expensive.

There’s a great responsibility that goes along with accepting millions of dollars from college endowments, pension funds, mom-and-pop stock pickers and, yes, even accredited investors.

I’d submit that the decline in IPOs had at least as much to do with the market crashes brought about by dot-com pump-and-dump schemes and the subprime mortgage and derivatives fiasco.

In other words, the private-equity and investment-banking industries haven’t exactly proven themselves worthy of lighter regulations. On the contrary, they’ve repeatedly demonstrated an unconscionable eagerness to get away with exactly as much as they can, even at immense cost to the broader economy.

Obviously, this isn’t universally true, and not all startups, venture capitalists or investment banks should be tarnished by the acts of a few. But the best way for the rest of us to know the difference is through crystal-clear transparency.”

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