Lawndale Capital

There’s a great story in the Journal this morning about how the JOBS Act, which allows small new public companies to do various lazy things in their financial reporting, actually isn’t having that effect, because the companies hold themselves to a higher standard. Here is a representative passage:

Thanks to the law, Vienna, Va.-based software company Eloqua Inc.met with a large mutual-fund company to gauge interest in its stock about a month before its August IPO. The JOBS Act allows smaller companies to engage in such discussions with select investors before the SEC gives companies its approval to market an offering.

The meeting helped executives hone their pitch to investors ahead of the company’s “roadshow” to market its shares, Eloqua Chief Executive Joseph Payne said. But the company won’t take advantage of another provision allowing it to put off hiring a public accounting firm to audit its internal controls, though Eloqua estimates the audit could cost up to $400,000 each year. “We might look like a little-boy company when we worked really hard to be a big-boy company,” he said.

ISN’T THAT ADORABLE? I want to give Eloqua a hug.

This story fills me with warm feelings about not just Eloqua but also America and our capital markets and our investors and our regulators and, just, everyone, group hug guys. One story you could tell about IPOs is that they are a thing that unscrupulous stock promoters do to trick dumb investors into giving them money to support their frauds, and that without strict SEC standards for accounting and offering-document review all of our grandmothers would be losing their money on ideas that sounded great but were actually not great. An alternative story is that the investors who drive the success and pricing of IPOs tend to be big intelligent institutions and are unlikely to be conned into parting with their money by a few lame magic tricks. Evidence is perhaps somewhat mixed – things about Facebook go here1 – but little – sorry! big! – Eloqua is good evidence for story #2. Read more »