[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
GOING PUBLIC--THE END OF THE RAINBOW FOR A SMALL BUSINESS?
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
GOVERNMENT PROGRAMS AND OVERSIGHT
of the
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
WASHINGTON, DC, OCTOBER 14, 1999
__________
Serial No. 106-35
__________
Printed for the use of the Committee on Small Business
U.S. GOVERNMENT PRINTING OFFICE
60-694 WASHINGTON : 1999
COMMITTEE ON SMALL BUSINESS
JAMES M. TALENT, Missouri, Chairman
LARRY COMBEST, Texas NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado JUANITA MILLENDER-McDONALD,
DONALD A. MANZULLO, Illinois California
ROSCOE G. BARTLETT, Maryland DANNY K. DAVIS, Illinois
FRANK A. LoBIONDO, New Jersey CAROLYN McCARTHY, New York
SUE W. KELLY, New York BILL PASCRELL, New Jersey
STEVEN J. CHABOT, Ohio RUBEN HINOJOSA, Texas
PHIL ENGLISH, Pennsylvania DONNA MC CHRISTENSEN, Virgin
DAVID M. McINTOSH, Indiana Islands
RICK HILL, Montana ROBERT A. BRADY, Pennsylvania
JOSEPH R. PITTS, Pennsylvania TOM UDALL, New Mexico
JOHN E. SWEENEY, New York DENNIS MOORE, Kansas
PATRICK J. TOOMEY, Pennsylvania STEPHANIE TUBBS JONES, Ohio
JIM DeMINT, South Carolina CHARLES A. GONZALEZ, Texas
EDWARD PEASE, Indiana DAVID D. PHELPS, Illinois
JOHN THUNE, South Dakota GRACE F. NAPOLITANO, California
MARY BONO, California BRIAN BAIRD, Washington
MARK UDALL, Colorado
SHELLEY BERKLEY, Nevada
Harry Katrichis, Chief Counsel
Michael Day, Minority Staff Director
Subcommittee on Government Programs and Oversight
ROSCOE G. BARTLETT, Maryland, Chairman
MARY BONO, California DANNY K. DAVIS, Illinois
PATRICK J. TOOMEY, Pennsylvania RUBEN HINOJOSA, Texas
RICK HILL, Montana CHARLES A. GONZALEZ, Texas
Nelson Crowther, Counsel
C O N T E N T S
----------
Hearing held on October 14, 1999
WITNESSES
Page
Lane, Brian, Director, U.S. Securities & Exchange Commission..... 4
Wall, John, President & CEO, National Association of Securities
Dealers, Inc................................................... 7
Moe, Michael, Director, Merrill Lynch & Company.................. 10
Ellison, Keith, Interim Director, The Wharton School, University
of Pennsylvania................................................ 12
Dankberg, Mark, President and CEO, ViaSat, Inc................... 14
APPENDIX
Opening statements:
Bartlett, Hon. Roscoe........................................ 33
Prepared statements:
Lane, Brian.................................................. 35
Wall, John................................................... 50
Moe, Michael................................................. 187
Ellison, Keith............................................... 194
Dankberg, Mark............................................... 201
Additional material:
Written statement of the North American Securities
Administrators' Association................................ 209
GOING PUBLIC--THE END OF THE RAINBOW FOR A SMALL BUSINESS?
----------
THURSDAY, OCTOBER 14, 1999
House of Representatives,
Committee on Small Business,
Subcommittee on Government Programs and Oversight,
Washington, DC.
The subcommittee met, pursuant to call, at 10:00 a.m., in
room 2361, Rayburn House Office Building, Hon. Roscoe Bartlett
[chairman of the subcommittee] presiding.
Chairman Bartlett. Let me call to order the Subcommittee
for Government Programs and Oversight of the Small Business
Committee.
I'm sorry that I was a few minutes late. C-SPAN just spent
a half hour with us talking about this subject. That was much
appreciated because the goal of our hearing today, the purpose
is simply to provide information to small businesses concerning
the process of going public.
And now, in addition to the information made available
through this subcommittee hearing, we have the audience of C-
SPAN who knows that we're holding the committee hearing and who
now knows something about how to go about getting information
for going public.
It's a pleasure to welcome you to this hearing of the
Subcommittee on Government Programs and Oversight of the House
Small Business Committee. I would especially like to thank
those of you that have traveled some distance to participate in
this hearing.
For many small businesses or a company that has begun as a
small business, going public can be the end of the rainbow, the
culmination of years of hard work and substantial monetary
reward for the owners of the business.
Few entrepreneurs going into business have not dreamed of
going public and being a company listed on a stock exchange.
This incentive may well be a major factor in the formation of
business enterprises and contribute to continued economic
growth.
As a nation of opportunity, innovation and invention,
business formation should be encouraged. A number of factors
need to be considered by businesses considering whether to go
public. It is anticipated that this hearing will provide some
of the answers to these questions.
The panel of witnesses that are invited to this hearing
were carefully selected for their recognized expertise in the
process of listing and selling securities on a public exchange.
Your testimony and the testimony of the other panel members is
a vital public service to businesses, both large and small,
throughout this country.
The committee is hoping to have as broad a distribution of
the testimony in electronic and hard copy form as is possible.
Both public and private assistance is available to businesses
considering going public. And it is hoped that the hearing will
provide a public forum for communicating those sources of
information to businesses.
The committee is always open to suggestions of ways how to
improve or expand, where needed, federally funded information
sources and assistance. The committee would also appreciate new
legislative proposals.
The creation and expansion of small businesses are the fuel
which has generated and is sustaining our current economic
growth. America is the most prosperous nation in the world
because our stock market encourages the creation of wealth by
efficiently directing capital from individual investors to
reward both the investors as well as the entrepreneurs,
inventors and innovators who produce and distribute new and
better products and services to meet people's needs.
Again, welcome to our participants and guests. I look
forward to hearing your testimony on this most important
subject.
And I'd like also to welcome here on the dias my good
friend Duke Cunningham from California. And one of our
witnesses is in his district and we'd like to give him the
opportunity now of introducing this witness.
Mr. Cunningham. Thank you, Chairman Bartlett and Ranking
Member Davis. I want to thank you for the opportunity to
introduce Mark Dankberg.
Mark is the Chief Executive Officer of ViaSat headquartered
in Carlsbad, which is right in the heart of my district, the
North County of San Diego. ViaSat's is a high tech company
specializing in ultra high frequency communications for
satellite.
Before this hearing I was talking to Mark. He went to Rice
University and graduated in electrical engineering. But even
more important, he started ViaSat in 1986 in a spare bedroom in
his house. The number of his employees quickly rose. Ten years
later, he took it public, which this hearing is about.
But by then, he had created almost 400 jobs and ViaSat had
annual sales of more than $70 million. Today ViaSat continues
to be one of our community's leading companies and annually
generates more than $72 million dollars in revenue and has a
strong workforce.
Besides his work at ViaSat, Mark is an active member of our
San Diego community. He serves on the Board of Directors for
San Diego Telecom Council and is a member of the San Diego
County Council Regional Economic Task Force. He also is on the
Board of Directors at REMEC, a publicly traded manufacturer of
microwave products in San Diego, and Connected Systems, a
privately held high tech firm in Santa Barbara.
Mark's a winner, a successful businessman. And I'm excited
to meet John Wall, who I just met here this morning, of NASDAQ.
But I thank you for the opportunity to introduce Mark
Dankberg and listen to his testimony, Mr. Chairman.
Chairman Bartlett. Thank you very much. Let me now
recognize Congressman Davis for his comments.
Mr. Davis. Thank you very much, Mr. Chairman. And let me,
first of all, commend you for calling this hearing.
I also want to commend you for the outstanding job that you
just did on C-SPAN not only in terms of answering questions
related to the subject matter, but also I appreciated the deft
way that you handled those that were unrelated.
I really think that you did an outstanding job and wanted
to say that to you.
It's also a pleasure to note the presence of our
distinguished colleague, Mr. Cunningham, who is an outstanding
leader and member of the Congress. And, you know, there are a
lot of folks who wish they had the high tech valleys and
communities to represent.
I always say that San Diego has to be the most beautiful
city in this country, with due respect to all of the other
places, including where I live.
But Mr. Chairman, as you know, I'm very concerned about
small and very small businesses and the critical role they play
in the nation's economy. The country's 22 million small
businesses employ more than half the nation's work force and
produce more than half of its gross domestic product.
Small businesses are the source of most new jobs and most
of the innovation in our economy. On the back of the dollar
bill, there is an unfinished pyramid with a brilliant, glowing
eye at the top. It comes from the back of the great seal of the
United States and it was placed on the dollar bill by President
Roosevelt in 1935.
In the middle of the Great Depression, when the growth of
America was in sharp decline, the pyramid was meant to
represent economic strength and durability. The pyramid is
unfinished to symbolize the constant struggle to keep our
economy strong.
But I think that's what the exploration of small businesses
going public actually is a part of, and that is a part of the
continuing effort to find new ways, new approaches, new
opportunities, new possibilities for the American people to
become an integral part of the ownership of the greatness of
our nation.
When the concept first sort of began to emerge, I had some
thoughts and reservations about it. But then, the more deeply
that I thought about it, it occurred to me that what we're
really talking about are ways for individuals to become a part
of the ownership of something that, in all likelihood, they may
never do individually.
And that's why I'm such a great proponent of ESOPs; that
is, the employee owned businesses. And I guess that's why I
ride the airlines sometimes that I do. But it's really a great
concept. You're to be commended for giving us the opportunity
to look at it.
I certainly want to add my welcome to the distinguished
panel of witnesses and look forward to a great hearing.
Thank you very much.
Chairman Bartlett. Thank you very much.
I'd just like to comment on one of the observations you
made, and that was that small businesses and very small
businesses provide most of the new jobs. I mentioned this on C-
SPAN a few moments ago. I'd like to repeat it here for the
record.
And I couldn't believe these data until they were confirmed
to me. When we came out of the last recession, if you divide
our companies into categories relative to size from the largest
down to the smallest, companies of 5,000 and more employees
produced a few new jobs to bring us out of the recession.
No other group of companies, until you got down to the
smallest, produced any new jobs. And 90-some percent of all the
new jobs produced when we came out of the recession were
produced by companies with zero to four employees.
Now that's small companies. And you know, Microsoft started
just that way, in a garage in New Mexico, I think, and they
went public and look where they are today. And so small
business is not only the energy that drives our society, it's
the engine that produces most of the new jobs when we need new
jobs.
And the focus of our hearing today is simply to make public
the requirements, the benefits, the rewards, the challenges of
going public.
Let me welcome our witnesses: Mr. Brian Lane, Securities
and Exchange Commission from here in Washington; Mr. John Wall,
National Association of Securities Dealers, Washington; Mr.
Michael Moe, Merrill Lynch & Co.; Mr. Keith Ellison, the
Wharton School, University of Pennsylvania; and Mr. Mark
Dankberg, who has already been introduced to us.
I want to thank you all very much for joining us, and we'll
start now with Mr. Brian Lane.
Let me say that your testimony will be made a part of the
record and you can feel free to summarize. And then when you
have all finished, we will have an opportunity for questions
and answers and we'll invite participation of the panel in
addressing the concerns and the testimony of other panel
members.
We'll begin now with Mr. Brian Lane.
STATEMENT OF BRIAN LANE, DIRECTOR, DIVISION OF CORPORATE
FINANCE, U.S. SECURITIES AND EXCHANGE COMMISSION
Mr. Lane. Thank you, Mr. Chairman, members of the
subcommittee.
My name is Brian Lane. I am the Director of the Division of
Corporation Finance at Securities and Exchange Commission. And
the Division of Corporation Finance, through its Small Business
Office, is at the forefront of the Commission's efforts to help
small businesses and deal with the regulation on going public.
What I thought I would do in my oral remarks is summarize
very briefly the mechanisms that exist for small business, the
regulatory mechanisms for going public, and take a few moments
to mention some of the special programs that we have at the SEC
and outreach that we've done for small business.
As you noted, small businesses need to raise capital, but
the capital raising process is a difficult one, as you'll hear
from other members of the panel here. Initially, small
businesses are going to be raising capital from friends and
family and from personal savings.
Then the entrepreneur may seek loans from others. If funds
are sort of sought through the sale of securities to the
public, the SEC has what's called a Seed Capital Rule, Rule
504, which allows an entrepreneur to raise up to one million
dollars free from federal registration.
They would still have to satisfy state registration
requirements. And they're permitted to raise up to one million
dollars in a 12 month period without having to worry about
registering with us. Obviously they would be still subject to
the anti-fraud rules though, the federal anti-fraud rules.
If a company wants to sell stock in a non-public manner--
for example, to a so-called angel investor or someone like a
venture capitalist or something like this--they're permitted to
raise unlimited amount of money without registering with the
SEC.
This is the so-called Private Placement Exemption. In the
federal securities laws, the investors receive restricted
securities. It is the difference that entrepreneurs find with
the private placement route.
If a company decides that it wants to raise money by
selling securities to its employees, you heard about ESOPs in
the opening program, note that the Commission adopted a rule,
Rule 701, which allows companies to sell--non-public, private
companies to sell securities to their employees with no cap.
It used to be up to a five million dollar cap. But they can
sell at a minimum of one million, regardless of their size, to
their own employees. If they sell over five million in the year
to their employees, they have to provide some minimum
disclosure documents.
So again, we give significant breaks to small companies
selling to their own employees who already have some knowledge,
working knowledge, of the company and, therefore, are in a
better position than just strangers to know about the company.
The next step in the company's growth process is to sell
securities to the public. If a company wants to raise more than
one million dollars a year beyond the seed capital exemption
but less than five million dollars, they can use what we call
Regulation A, which is an exemption from the registration
requirements and it has many advantages.
It has reduced reporting requirements. It permits unaudited
financial statements, no ongoing reporting obligations, and it
permits what we call a ``testing the waters'' provision.
Because the federal securities laws regulate offers rather
than sales, people are generally prohibited from just walking
up without a registration statement to say ``if we wanted to
sell securities, might you be interested in investing in our
company.''
You can't do that unless you have a registration statement
on file with the SEC. But under Regulation A, you are permitted
to test the waters in advance; to go, before you spend money on
hiring accountants and lawyers and all of that, that you could
walk around to your suppliers, your customers, whatever and say
``might you be interested'' and give some the details on that.
So that's been a very popular program as well, and it's a
very streamlined form to raise up to five million dollars. If
you want to go over five million dollars, this is sort of the
next step of the evolution, we have what we call Regulation SB,
the initials for obvious reasons.
And that system is available for any U.S. or Canadian
companies that have less than $25 million in revenues and less
than $25 million dollars in public float, sort of the market
capitalization that's held by the public out there. That's what
we consider at the SEC a small business to be eligible to use
this sort of streamlined disclosure regime.
And they can continue to use it repeatedly as long as they
stay under the $25 million dollar thresholds. If they exceed
the $25 million thresholds, then they have to go and file like
other public companies, the more complete form.
In the past fiscal year, just in the past fiscal year,
almost five billion dollars has been raised on Form SB2, which
allows raising up to an unlimited amount of dollars under
Regulation SB. It has some streamlining, but it's very close to
typical prospectus that you would see in a public offering.
So this is just an indication of how popular the program
has been for small businesses to actually raise money.
That's kind of the--sort of the graduation from a small
business into a regular public company. Let me just take the
last few moments to tell you about some of our special programs
that we do for small business because we do reach out to the
small business community to better tailor our regulatory
system.
We host the only annual Federal Government sort of national
small business gathering. We do once a year and we've had it
since 1982 where small businesses can come and tell federal and
state regulators how they need to change the rules and
regulations and how they impact them.
So we have been doing this now for 17 years. And many of
these recommendations that we have gotten from these annual
forums have led to SEC action in changing rules and making them
easier, things like Rule 701, to sell to your employees, and
other sorts of rules.
Since 1996, when I became director, we have significantly
expanded our Office of Small Business. And they review all the
small business filings, so we now have a special unit that does
nothing but review small business filings.
I have some of the staff behind me that work in that
office. They do nothing but spend that time. And it is really a
group that takes the extra time because small businesses
sometimes have more questions about how the regulatory
structure works than General Electric, for example.
So we have that. They also direct all the small business
rule making, interpretations, and answer all the phone call
questions. We also host town hall meetings across the country.
This has been a recent development. We have had 13 town hall--
small business town hall meetings in the last three years where
we go around to Kansas City, Austin, St. Louis and basically
just do what we are doing here today: tell people how the
regulatory system works.
We usually invite the state regulator, the state securities
commissioner, and we invite the SBA representative to come to
talk about their loan program. And small businesses have to
know about state registration because they do have to register
with the states if they are really small.
And so we have found that to be really useful. And last I
will mention that we have a web site with special small
business information and we put out a pamphlet that we put out
here on the table that is called ``Q&A: Small Business in the
SEC,'' which we wrote in plain English, which is something that
we're pushing for in prospectuses.
Everything you need to know about what regulations--I just
talked about today, Regulation SB, what is Regulation A, what
are my requirements if I go public, what do I have to do, what
are the considerations. And then phone numbers. You want to
find out, talk to the state regulators and such, then this is a
very helpful guide.
The small business program, ACENet and what have you--and I
noticed the NASD has a guide here, too, that was on the table
that looked good about what you need to know.
So I'm happy to be here today to tell you about these kinds
of programs and I look forward to your questions.
[Mr. Lane's statement may be found in the appendix.]
Chairman Bartlett. Thank you very much.
Mr. Wall.
STATEMENT OF JOHN T. WALL, PRESIDENT AND CHIEF OPERATING
OFFICER, NASDAQ-AMEX INTERNATIONAL, NATIONAL ASSOCIATION OF
SECURITIES DEALERS, INC.
Mr. Wall. Thank you, Mr. Chairman.
We are delighted to have the opportunity to be here and
talk to your Committee on Small Business about the very
important thing of being able to bring companies public and
seeking public funding for the continued growth of these
companies.
Often our citizens don't get a chance to focus on the
importance of the fact that this country is blessed with strong
financial markets, actually financial markets that are the envy
of world financial markets, because our markets have been able
to produce more what we call IPOs, new companies into the
public market, than any other market in the world.
The U.S. dominates this. In Nasdaq alone, since 1989, we
have brought over 4,200 new companies into the public markets.
That equals raising over $154 billion dollars in new capital to
support new businesses.
This would not be possible, however, without a strong
infrastructure of the financial services industry, coupled with
a very strong regulatory structure. The partnership that we
have in this country between our industry, in terms of self
regulation, and the Government, in terms of SEC regulation, is
a very important function because it gives confidence to the
investors whose money we're seeking to bring into these small
businesses.
The customer protection, we believe, is a very, very
important factor and one that cannot be overlooked when we talk
about public monies because it is the investor's money that we
are reaching out to use. We owe the investor information, we
owe him strong financial information as well as disclosure in
terms of how companies are doing.
There are many benefits of going public. Obviously for the
company, the growth aspects are the most important, the ability
to go from stage to stage in terms of its own growth, the
providing of ownership to their own employees and also the
ability to then use that stock as an asset to acquire other
companies and to merge with other companies.
However, if you really look at the true macro benefits,
there are two that come immediately to our minds and two that
we have supported since we began Nasdaq. The first is obviously
job creation. Job creation in the United States, as we heard
earlier, is something that small businesses do regularly and is
overlooked.
There was a study done between 1990 and 1995 that showed
one out of every six new jobs in the United States was created
by a Nasdaq company. Nasdaq companies only account for less
than one percent of all companies in the United States, but
that job growth and that job creation came from these new
companies coming into the public markets. If you look at the
Fortune 500 companies, you will find that they lost over
200,000 jobs during that same period. So this supports what you
were saying in your introductory remarks, Mr. Chairman, as a
very important factor.
When we created and started Nasdaq, our primary mission was
capital formation. And coupled with the SEC disclosure rules,
we opened our market to companies that didn't have profits,
companies that were just starting.
But as long as they disclosed to the investing public
exactly where they stood and how they were functioning, we felt
that they should have an opportunity to come into the public
markets.
I can state that there are full industries that would not
have been built if it weren't for this willingness to open the
public markets to companies that did not have profits,
industries such as the biotech industry, industries such as the
internet industry.
And much of our technology industry that has been created
in the last ten years would not have been founded if we did not
open our public markets this way. So Nasdaq has been at the
forefront of this in terms of the IPOs since 1989.
Over 82% of them came out of the Nasdaq marketplace, and if
you look at those 4,000 companies, it might be interesting to
look to see how they were segmented in size. Over 25% of those
4,000 companies raised only between four and ten million
dollars. The next 50% raised between $10 and $40 million
dollars. And then the balance of the remaining 25% raised
anywhere between $40 million and $4 billion dollars. But the
preponderance is really in the small area and, as a result, we
found it was an opportunity to tier our market into two groups.
We have a small cap marketplace and we have a national
marketplace. And we do that to bring in small companies to let
them grow from one tier to the next and also to alert the
investor that they're dealing either with a small cap company
or a national market company. The investor should know that
because obviously there has been, and will be, greater risk in
some of the smaller companies and they should know that at the
time they are investing.
The criteria, or rather the model, of these IPOs is
interesting. If you look at 1997, we found most of the IPOs
coming in with an average of about ten dollars in terms of
public offering price. They raised about $40 million dollars on
average. They had assets of about $125 million dollars,
revenues of about $50 million dollars, and overall market cap
after the offering of about $166 million dollars. So that gives
you a profile of what we see coming in as IPOs into the
Nasdaqmarketplace. When you look at this, however, you cannot just look
at the benefits. You also have to look at the quid pro quos, and it is
not a one way street. Because when companies reach the public markets,
they have a responsibility. They are reaching out to individual
citizens' pockets and they have to give something back. We look at that
as information.
They must be willing to not only share the benefits of
their company, share with the investors that they have brought
in, but they also have to share immediate information so I, as
the investor, know exactly what's happening in that company
that I have put my money in. And obviously that is a change of
mind set for many managers when they go from a private company
into a public company.
Looking at this and looking at the beginning of IPOs in the
beginning stage of public companies, we also have to take a
look at the fact that we have a very strong venture capital
market in this country. Venture capital provides more than just
money to young companies. It provides mentoring. It provides
managers who are experienced, who then go on the boards of
these companies, and who help direct them to the next stage of
growth, that being an IPO in the public markets.
Last year, 52% of Nasdaq IPOs came with venture capital
backing. At that same time, 98% of all of the venture backed
companies came into the NASDAQ stock market. We find this is a
very important factor in the growth of the United States in its
ability to raise capital for young companies.
As a matter of fact, again, if you look worldwide, that is
one of the major assets that we have and that is why we see so
many companies, foreign companies, coming into the United
States and doing distributions of shares here because in the
United States our markets are open to this and we are open to
providing capital.
Other forms of capital would be angel financing where you
have individual investors. But one of the biggest changes, and
growth areas, happens to be corporate ventures where you find
major corporations now investing in individual companies
normally along the same segment lines that that company is in,
whether it be technology, biotechnology, computer peripherals
or whatever the product is.
So we are finding new pockets and new avenues for companies
to raise capital. And again, what we call the beginning stage
of capital we feel is very important not only because it
provides the company money, but it also provides them
tremendous guidance that they need at that stage of their
growth.
So we think that the market here in the United States is
strong, will continue to be strong, and the focus that you're
putting on this is very beneficial. And it will not only be
beneficial to new companies, but it will also be beneficial to
the investors here in the United States.
Thank you.
[Mr. Wall's statement may be found in the appendix.]
Chairman Bartlett. Thank you very much.
Mr. Moe.
STATEMENT OF MICHAEL T. MOE, CFA, DIRECTOR OF GLOBAL GROWTH
STOCK RESEARCH, MERRILL LYNCH
Mr. Moe. Thank you, Mr. Chairman.
I'm delighted to be here this morning to talk about what we
think is a critical area, and that's a company's ability to,
and the issues surrounding going public.
During the 1990s, the U.S. economy in general, and the U.S.
capital markets in particular, have experienced dramatic
growth. U.S. equity capital markets have gone from $3.1
trillion dollars in 1990 to nearly $13 trillion dollars today.
Technology has been the driver of the new economy, but IPOs
have really been its fuel. If you look since 1990, there have
been over 5,000 IPOs in the United States for companies,
raising $327 billion dollars.
Since 1990, 15 million jobs have been created, many of
which were from companies that didn't even exist in the decade
prior. If you look at the fundamental demand imbalance that's
been created in the equity markets from the cash in Flows to
equity mutual funds as well as corporate stock buy backs and
cash M&A transactions, this has created a significant fuel, if
you will, to support raising capital for new companies in the
IPO market.
With the aging baby boomers saving for retirement, we see a
net demand imbalance for equities for the foreseeable future.
The new economy really is a knowledge economy, and
knowledge economy is all about human capital. A fundamental
tenet of the new economy is that stock ownership throughout an
organization is absolutely fundamental and essential.
Where I live in San Francisco, it is expected that
everybody from the CEO to an entry level person owns stock in
the company. And there is an expectation that the stock of
one's own company will ultimately be a publicly traded company
and that an IPO is absolutely critical not only for the
modernization of the success of an enterprise, but as a way to
attract and retain key talent, which again is absolutely
fundamental to what's going on in the knowledge economy that we
are now in.
Statistically, companies are going public earlier--earlier
in terms of profitability than we have seen from our records.
In fact, since 1998, 57% of the companies that went public were
not making a profit at the time.
While some of this has to do with the internet, we believe
some of this has to do just with the realities of how important
it is to be a public company in the new economy. We also think
with being a public company there comes a level of expectation
from public investors which requires two things.
One is both constant and accurate information to investors,
but also a performance against expectations that is consistent
with how investors would expect a public company to perform.
Just some examples of two key drivers for performance in
the public markets and what investors look for. One is earnings
growth, but then the second is earnings growth against
expectations. Three examples I would like to point out, three
companies that have been very, very successful in this under
promising, but over delivering high earnings growth.
One is a company called Starbucks Coffee, which is now the
largest coffee provider in the world. They went public in 1992,
and the expectations for Starbucks were that they were going to
grow their earnings at 27% per year. Point of fact, they grew
their earnings at 37% per year and Starbucks stock appreciated
45% per year since 1992, or a dollar invested in Starbucks is
worth $16 today.
Equally impressive, Starbucks' stock ownership goes all the
way down to even part time employees, through what they call
their Bean Stock Program, truly a new economy type of company.
Second example, Apollo Group, which is now the largest
private university in the country focused on working adults,
with over 6,000 students on line. Expectations for Apollo Group were
that they were going to grow their earnings at 25%. They performed at
50% earnings growth and the stock was actually up 89% per year, or a
dollar invested in Apollo Group's IPO was worth $22 today.
The last example, which is an internet example, is with
Amazon.com, which doesn't make money, so they perform against
earnings growth isn't relevant. But expectations were that
Amazon was going to grow their revenues at 69%.
Point of fact, they delivered 350% revenue growth, and a
dollar invested in Amazon at its IPO are worth $60 today.
How do you identify what are key, crucial issues and
characteristics that investors are looking for in companies
that are going public and what really makes a great public
company? One is high earnings growth and the other is
performance against expectations.
This idea boils down to four characteristics which we think
are absolutely crucial that investors are looking for; what I
call the four Ps for a public company.
The first P stands for people. There is no shortage of
interesting business plans or ideas out there, but execution is
the key. Many of these companies that are going public do not
have long corporate histories, but the people at these
companies all do.
Investors are looking for a management team, first and
foremost, that they feel can execute and perform to a level of
the opportunity.
The second P stands for product. And here what we are
really talking about is a company that leads an industry, has a
dominant position within a marketplace, a one of a kind type of
company, some type of claim to fame. ``Me too'' companies are
of very little interest to public investors.
The third P stands for potential. Here, investors are
looking for smaller companies that can be big companies, open
ended growth stories, something that is going on that creates a
tail wind at the back of these companies.
In this, and through the written testimony, we show a chart
how investors think about these megatrends that are going on in
the new economy: globalization, outsourcing, demographics,
branding, consolidation. And the megatrend of all megatrends,
the internet.
And how those cut across the growth sectors of the economy
we think are very important for how investors look at the
companies they invest in and really create this tail wind that
I alluded to.
And the last P stands for predictability. This is the
performance against expectations. This is having a business
model that will allow a company, as a public company, to
perform as public investors would expect.
So just in summary, an IPO and being a public company can
have tremendous benefits for the issuing business. Moreover, in
the new economy, broad employee ownership and stock options are
a competitive necessity. We think that the U.S. capital markets
have provided and will likely continue to provide funding
liquidity for promising enterprises.
But critical to that is to be able to have markets that are
open and equitable. And companies need to have appreciation and
understanding of what the responsibilities of being a public
company are.
Thank you.
[Mr. Moe's statement may be found in the appendix.]
Chairman Bartlett. Thank you very much.
Mr. Ellison.
STATEMENT OF KEITH D. ELLISON, INTERIM DIRECTOR, WHARTON SMALL
BUSINESS DEVELOPMENT CENTER
Mr. Ellison. Good morning, Chairman Bartlett, Congressman
Davis, and other members of the subcommittee.
My name is Keith Ellison and I am the Interim Director of
the Wharton SBDC, a unit of the Sol C. Snider Entrepreneur
Research Center at the Wharton School.
I also represent today the Association of Small Business
Development Centers, which comprises over 1,000 SBDCs across
the country, each of which are parts of higher educational
institutions.
I would like to thank you for inviting me here today to
discuss the process of going public and selling securities on
the stock exchange. The focus I would like to cover today are
the barriers. But before we go into the barriers, I would like
to step back and discuss the successes that we have had
throughout the SBDCs.
We work with companies like ViaSat in getting them to the
point where they are ready to go public. In Philadelphia, one
of our most--one of our high profile clients has been CDNOW. I
am sure a lot of you are familiar with it.
CDNOW is the leading player in e-commerce in the music
industry. Another player is a company that took advantage of an
exemption through the SEC under Regulation D504. It is called
Next Step Magazine, which talks about cultural diversity.
Before we can really go into the barriers of success or the
barriers of an IPO, and before we can talk about solutions,
let's talk about what the common definition is of success.
Let's establish what a definition of a successful IPO is.
Because a successful IPO means different things to
different people. To an investment banker or to the
underwriter, it means buying a block of stock and selling all
of them to the public for a premium. To a day trader, it means
taking advantage of the IPO and taking advantage of the hype
surrounding the IPO and buying it at its low point and selling
it at its peak.
To all the other players in the IPO process, the
accountants, the attorneys, the underwriters, the transfer
agents, success means different things to different people. My
point here is that there is divergent interest among all the
players, among all the parties when you are involved in an IPO,
which leads to the barriers.
Barrier one is assembling the IPO team. It is very
difficult for a small business to find people with the right
context who can navigate themselves through Wall Street, who
can speak the language of the SEC to make the process extremely
efficient.
And just to add a bit of humor here, finding the right IPO
team is analogous to a story. It is a story of a fifth grade
class where the teacher--it was a history class and the teacher
was talking about how the country was founded and who were the
players and what were some of the significant dates.
And so finally, she came to little Johnny. And she says,
``Johnny, tell me, who signed the Declaration of
Independence?''
And Johnny looks at her and he says, ``I don't know and I
don't give a heck.''
And he says, ``Look, young man, you go home right now and
do not come back to schoolwithout your father.''
So Johnny goes home. He's trying to explain to his dad why
he is home so soon. So his dad says, ``Johnny, slow down. Tell
me what really happened.''
And he says, ``Well, Dad, she asked me who signed the
Declaration of Independence. I said I don't know. And she says,
`Well, do not come back to school without your father.' ''
So his father looks at him and he says, ``Well, look. I am
going to go down here and straighten this out. But if I find
out that you signed that darn thing, you are going to be in
serious trouble.'' [Laughter.]
That is analogous to what an entrepreneur faces when they
are trying to find the right accountant, the right attorney,
the right printer, the right board members, the right advisors
who can guide them down the path to meeting the right
investors.
And therein lies the problem or part of the problem. But it
is not just the players. It is also the experience of the
entrepreneur. Because to go public, as my distinguished
panelist said, you look at the people, the people who are going
to take the company to the next level.
And that is where the role of the SBDCs across the country
play. We educate and we train entrepreneurs to get to that
point where they can matriculate through the early stages where
someone is using their own money or the money of a rich uncle,
to the point where they can get an SBA backed loan or an angel
investor, to the point from there to a venture capitalist, and
then to go public.
It is that point--that process where SBDCs have the
greatest impact. To underscore my point about having context,
one of the greatest examples was Joe Segel, founder of QVC and
also founder of Franklin Mint. Joe Segel, in 1986, took the
company public, took QVC public based on a business plan and,
of course, his reputation in the context that he has--or he
had.
There are few Joe Segels of the world. And so again, that
is just one example of the importance of where the emphasis of
the person and how much credence that person brings to taking a
company public.
Barrier number two, which is most likely the biggest
deterrent, is the cost. It is very common, during the IPO
process, for a business to spend half a million dollars from
the time that they are planning--from the point that they say
let's go public until it is wrapped up.
And that is an extreme deterrent. Not everyone can raise
that kind of capital.
Barrier number three is continuous distractions. An
entrepreneur should be doing what an entrepreneur should be
doing. That is running a business. And unfortunately, because
of all the right reasons, sticking to the strict rules of the
SEC--and when I say all the right reasons, I mean proper
disclosure, public protection.
Because of those reasons, it is an emotional drain, it is
an energy drain, and it distracts an entrepreneur from running
his or her business when they are coordinating with all the
other IPO team members and when they are communicating with the
SEC.
So, in summary, barrier one is assembling the IPO team.
Barrier two are the cost barriers. And barrier three, again,
are the continual distractions. And I must repeat those are the
areas that the SBDCs of the world play the biggest--have the
biggest benefit for entrepreneurs.
Again, I would like to thank you for allowing me to present
today, and I look forward to being a part of the process moving
forward.
Thank you.
[Mr. Ellison's statement may be found in the appendix.]
Chairman Bartlett. Thank you very much.
Mr. Dankberg.
STATEMENT OF MARK DANKBERG, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, VIASAT, INC.
Mr. Dankberg. Good morning. Thank you very much, Mr.
Chairman, ladies and gentlemen. And thank you very much for the
opportunity to tell ViaSat's story. It is really an honor for
us to be here at all.
I have submitted a written statement for the record and
would like to summarize some key points here.
We think we are a prototype of the American success story.
Steve Hart, Mark Miller and I started the company in 1986
working out of a spare room in my house. We have grown in sales
every year and we have been profitable every year after the
very first year.
ViaSat's now headquartered in Carlsbad, California, near
San Diego, and employs about 400 people with sales over $70
million dollars for the fiscal year that ended March 31st of
this year. We are a high tech company specializing in advanced
digital communications products and systems.
Generally we compete with and work with companies like
Motorola. Most of our products involve satellite communications
networks, and ViaSat serves customers around the world
including the U.S., Europe, Asia, Australia and Africa.
And we even have satellite communications equipment on Air
Force One. Most of our business is in defense, but our fastest
growing segment is commercial satellite networking. We started
as a self funded start up with about $25,000 from the three of
us.
We later raised about $300,000 in venture seed funding, and
then, a few years later, got a commercial bank line of credit.
We ended up doing about a $20 million dollar public offering in
December of '96 and are listed on NASDAQ.
We believe the American entrepreneurial environment is the
best in the world. We think we are a good example that our
system works; that public and private resources available to
entrepreneurs, combined with hard work, dedication and at least
a little bit of luck, offers real opportunities to live the
American dream, starting a company and taking it public.
The Government Small Business Innovation Research Program,
known as SBIR, was a big enabler for growing our company to the
point it could go public. We think we have been one of the most
successful companies at converting SBIR seed R&D funds into
commercially viable phase three business.
We think the SBIR program is probably the single most
effective Government program for fostering both the growth of
small business and for innovation. Our first direct Government
program was actually a $50,000 SBIR phase one contract for a
communications environment simulator for the Naval Air Warfare
Center at Patuxent River Naval Air Station in Maryland back in
1987.
That $50,000 phase one earned us an additional $500,000
phase two contract. But since then, we have received over $40
million dollars in phase three contracts from the Navy, Air
Force and prime contractors like Lockheed Martin for products
we developed directly from that initial award and we still do
work for the same customers.
Plus, we estimate that the DOD saved about $40 million
dollars because of the technology thatwe developed under that
SBIR program. And we have been able to repeat that success in a couple
other business areas generating over $100 million in contracts with
similar savings to taxpayers.
Building on that foundation, ViaSat reached about $20
million per year in sales and close to about $2 million in
pretax profits in our fiscal '96, the year we went public. We
had also earned a small foothold in commercial satellite
networks.
We found the process of going public to be straightforward,
but very time consuming. Probably the single biggest factors
though in dealing with that are the volatility of the stock
markets and the global high tech product markets, which greatly
influenced the timing and reception for an IPO.
We found the SEC, in particular, to be positive and
constructive to work with in assembling our offering documents,
with the big issue really being to present a fair and balanced
view of both the opportunities and risks of investing in our
company.
We have been public for about three years. We felt like we
had a good understanding of the changes that would be involved
in being a public company. But I would say that the reality has
probably been a little ``more''--with ``more'' of almost
everything in terms of time consuming than we anticipated.
Not that that is due to anything necessarily bad or
bureaucratic. It is just something that every company ought to
be aware of.
Overall, I would say that the company and its investors
have had a positive experience. Well, the company has, and I
hope our investors have. And I believe access to the public
markets is a big advantage to American entrepreneurs.
Thank you once again for providing an opportunity to tell
our story here.
[Mr. Dankberg's statement may be found in the appendix.]
Chairman Bartlett. Thank you very much.
Washington is full of acronyms and you all have used some
acronyms in your presentations. I would just like to get on the
record what some of these acronyms stand for.
IPO? Just about every one of you used IPO and I do not
think any one of you defined it for the readers. IPO is what?
Mr. Wall. Initial public offering.
Chairman Bartlett. Okay, initial public offering. That is
when you go public, okay?
SBDC? I am really pleased that two of our witnesses
referenced the good help that the Small Business Administration
had been to them. SBDC is what?
Mr. Ellison. Small Business Development Center.
Chairman Bartlett. Okay, and they are located where?
Mr. Ellison. There are a little over a thousand across the
country. Most of them are parts of universities. In fact, I
believe close to 99% of them are parts of universities. The
Association of Small Business Development Centers is sponsored
by the SBA, and they are headquartered in Virginia.
Chairman Bartlett. And their function is what?
Mr. Ellison. The function is to assist emerging businesses
with management consulting, which means assisting with business
plans, overall operational issues, helping them grow the
business, helping them reach their milestones, as well as
training.
Chairman Bartlett. One of the resources that you have
available are the SCORE people?
Mr. Ellison. Yes, we do.
Chairman Bartlett. And can you tell us what----
Mr. Ellison. We are in partnership----
Chairman Bartlett. Can you tell us what SCORE stands for?
Mr. Ellison. That is a very good question. Forgive me, I
always do not remember that acronym, but it is--I know the last
two is retired executives.
Chairman Bartlett. Okay, it is Service Corps of Retired
Executives.
Mr. Ellison. Yes.
Chairman Bartlett. And I am particularly fond of this part
of the Small Business Administration because I think we get the
most bang for the buck there. They do not get paid anything. We
pay their travel expenses and these are retired executives who
just have fun helping other people do what they did.
And then the last one is SBIR?
Mr. Dankberg. SBIR is Small Business Innovation Research
Program, and that is administered by various defense or non-
defense research agencies and the Small Business
Administration. And it is a way to provide relatively small
amounts of seed funding for R&D to small businesses with under
500 people, and we think it is a great program.
Chairman Bartlett. Well, thank you. We are very pleased
with the reception that the Small Business Administration
programs have across the country. Not all of taxpayers' dollars
are spent as well as these dollars are spent. They plant the
seed that yields big rewards for our American economy.
Let me turn now to my colleague, Mr. Davis, for his
questions and comments.
Mr. Davis. Thank you very much, Mr. Chairman.
As a matter of fact, as I was listening to the testimony, I
was tempted to run out and give Aida Alvarez a call and say run
over here quick. I mean, there is some people saying some good
things about the Small Business Administration and so you
better hurry up.
And I also was wishing that some of the appropriators would
have been here also and some of those who have put together our
budget who think that some of the resources we have been asking
for the Small Business Administration is not quite needed.
We are afraid that we may not end up with what we need to
carry on all of these interesting and exciting programs. But
that is simply a way of saying----
Chairman Bartlett. If the gentleman would yield for a
moment.
There is a joke that always gets a laugh from an audience.
The fellah comes up and says, ``I am from the Government and I
am here to help you.'' You know, that does not get a laugh when
they are from the Small Business Administration because these
are Government people that are there to help and it is
generally recognized and I thank you all for your input.
Mr. Davis. Absolutely.
I have one question, Mr. Lane. I was trying to determine,
are there any type businesses that we are seeing making more of
a move towards going public than perhaps others are? Are there
any businesses that are prime possibilities or in better
position in terms of public perception at the moment than
others perhaps to pursue public movement?
Mr. Lane. The short answer is yes. And there are several
people at this table and you heard from some of the panelists
that obviously the technology sector has been the number one. A
lot of this is really driven by what investors want.
And as you heard from my colleague on the panel here,
investors are very interested in internet companies. That is
why you are seeing them have such an easy time. You are really
seeingcompanies that have a life--a corporate life of less than
a year starting the public offering process, which is unheard of.
And there is a great appetite by investors for anything
with a .com, as you have read in the paper. I think some of
that enthusiasm is quietening a little bit, but we are seeing
it in telecom. It is very hot right now.
Biotech fluctuates. It sort of goes out for a while, comes
back in. But it is really driven by market taste more and maybe
other panelists would have something to say. And you will find
that, for now, if you want to put together a real estate
investment trust, the market is not as excited today, and so
people are going for the technology as a result.
But it is really driven, I think, in short by investor
appetite. That is what we are seeing at the SEC.
Mr. Davis. Anyone else want to----
Mr. Moe. Just to kind of elaborate or reiterate, I mean
clearly when you look at companies that have gone public over
the last two years in particular, the lion's share have a
technology orientation, many of which are internet or .com type
of names.
And, you know, there are different seasons where investors
have different appetites, but clearly the wave of technology is
such that it almost seems to be an insatiable appetite for
investors to find innovative, growing technology companies.
Mr. Wall. And I think this is being driven by the new
economy that you talked about. It used to take years to create
a product. What we are seeing now is compounded innovation. You
start a company and it branches out into three or four new
products.
Those products create companies themselves. If you look at
Microsoft, for instance, the number of companies Microsoft has
spun off in new products is tremendous. And so what you are
seeing is the compounded innovation of ideas in the information
technology area. And you are seeing them come to market much,
much earlier because they need capital to go through the
various stages.
Mr. Ellison. I would like to add a comment also. At the
Wharton SBDC, just our client base--the composition of it took
a transition from a year ago. About a year ago, about 40% of
the new cases that came our way were internet-based. Now it is
closer to 75%.
As a matter of fact, part of the Sol C. Snider Entrepreneur
Research Center, we host a business plan competition among
students throughout the university. And I do not remember the
figures, but there were at least 200 submittals and there were
six finalists.
All six were .com companies. My prediction, which will
hopefully lend to the discussions and lend to our solutions to
this, is that there is going to be a backlog for the SEC
because of this .com fever.
Mr. Davis. I think all of your comments actually not only
point out what is happening then in this arena, but it further
raises the issue and the question of the digital divide and how
important it is to make sure that our educational systems
contain the kind of technology opportunities for youngsters and
young people so that they will be in a position to take
advantage or to compete.
Mr. Lane, also I wanted to ask you what has been the
response to the town hall meetings that you have held?
Mr. Lane. Well, so far we have had great response. We
started out our first few getting like 75 people and such. We
now--in Kansas City, we had over 200. In Seattle, it was
standing room only when we went there.
And as I said, we typically have the Small Business
Administration representative there, as well as the state
securities commissioner. And to my knowledge, it is the only
place where we put together all three pieces.
Sometimes small businesses that come to these--these are
really small businesses sometimes--they are not ready to go
public, but they want to hear what they need to know, and they
would rather talk to the SBA people about their 8(a) program
or, you know, something like that.
But they still want to hear about what they need to be
thinking about going down the road. And for a lot of people,
the thing they forget most is that the states also register. If
you are a small business and you do not list on the NASDAQ
National Market System and the New York Stock Exchange, if you
do not list on one of the national markets, you have to be
reviewed in each state in which you want to sell.
And small businesses need to be aware. That is why we make
sure to work closely with our state regulators and the SEC does
that. So I think it has been very successful because many
states also have some pro small business programs. They want to
get out there and say here is what we are doing as well to try
and facilitate.
So, so far I have been very pleased.
Mr. Davis. Well, you have got me thinking that I probably
want to look at putting one of those together in Chicago.
Mr. Lane. We had one in Chicago actually----
Mr. Davis. Really?
Mr. Lane [continuing]. In '97 I think.
Mr. Davis. Oh, okay.
Mr. Lane. I'm looking back at Richard and Barbara here who
help coordinate these programs. But Chicago is, I think, the
second one. We started in Los Angeles, then Chicago. And we
have been looking now for some of the smaller communities that
never see an SEC person.
You know, in New York we do not have a Small Business town
meeting in New York even though they have Silicon Alley that is
growing there. They see a lot of SEC people. There are
conferences and whatever.
And I am thinking places like Kansas City and, you know,
Birmingham or, you know, Pittsburgh, places that have a lot of
companies, San Diego, that do not normally get Government
people all together to talk to them and answer their questions
is sort of where we have been focusing lately.
We actually have one--we are going to do one in Anchorage
because there was a great deal of interest in a Chamber of
Commerce up in Anchorage, and others have been very supportive
of putting this program together. And it looks like we are
going to get a big turn out, so that is the next program.
Mr. Davis. I think my last question here is have any of you
heard any reservations from people who are afraid that as most
small businesses look at going public, or as we move to the
point of small businesses seeking to grow and develop, that
somehow or another that will take away the small business aura
and that everything is just moving towards becoming, you know,
a Microsoft or whatever?
Mr. Ellison. Well, I will take a swing at that one first,
and this is just my opinion. I think, based on the number of
small businesses that are actually public and the number that
are going public compared to those that are not, I personally
have not heard a fear.
And the rate that companies are going public is so small
that I do not see it instilling a fear. But I want to get back
to your previous question about town hall meetings. There is a
veryimportant element with doing business in general that
everyone should look at, and that is the diversity element of doing
business.
And I say that to say that the IPO process and thinking
about IPOs can be intimidating to individuals depending on
their educational level, depending on their geographic area,
depending on their cultural make up.
And as we look at ways of tweaking the process, of rolling
out more forums, more town hall meetings or whatever is
appropriate, I think that is something that should be looked at
closely because someone in Boise, Idaho--let's just say a white
male in Boise, Idaho versus a Latino in Houston, Texas, there
are various ways that you should communicate, and those are the
things that you should look at.
Because everyone in those communities--each person in those
communities can bring something to the table and bring
something to the economy. And again, like I said, I am more
than willing to assist the subcommittee in those efforts as
well.
Mr. Davis. Thank you.
Thank you very much, Mr. Chairman.
Chairman Bartlett. Thank you very much.
Mr. Lane, you mentioned testing the waters. Did I
understand correctly that while you are doing that, you could
sell up to $5,000 worth of stock?
Mr. Lane. No, you cannot. What testing the waters does is
not permit you to sell, you just inquire.
Chairman Bartlett. If I wanted to sell, will you be
interested in buying?
Mr. Lane. That is right.
Chairman Bartlett. Okay.
Mr. Lane. Then you have to grow quiet for a while. After
you have tested the waters and people said yes--you know, you
run a bakery or something, people come in and they say we love
your pastries. Boy, if you sold stock, count us in, you know,
sort of thing or whatever it might be.
Then you would say fine, I am going to the expense, I am
going to hire a lawyer, I am going to get my financials in
order and all this sort of thing. And there is a period of time
that elapses. Then you can file this Regulation A. It is a Form
1A that you can do in Q&A format. It is a very easy form.
Then you can sell. Once you go through the SEC, up to five
million dollars in one year.
Chairman Bartlett. And it is only recently that they have
been permitted to test the waters?
Mr. Lane. Yes.
Chairman Bartlett. Well, how did they ever make a decision
to go public if they couldn't ask somebody if I was selling
stock, would you be interested in buying it? It would seem to
me that that is a necessary step in making the decision to go
public.
Mr. Lane. I think the commission recognized that, what was
it, in the early '90s--in '92 when we adopted that provision. I
think what happens is that the SEC just kind of knew that
people were talking and you tried to chill it as much as
possible, but they would actually talk about precise aspects of
what the offering would be.
The idea is because when you are regulating offers, the
investors need to know at the time I show up at your doorstep
and say I have got this great idea and I would like to know if
you would be interested in it, that you say who are you, you
know, what is your background, you know, these kinds of
questions that you need to ask.
And you need to know that before you write your check
rather than after you write your check. So that is why. And you
are right, small business people in particular were saying hey,
you know, this is coming out of some of the forums we had
earlier last decade about we would like to be able to talk to
people.
We would like to be able to ask people if they would want
to invest. And before you would have to kind of go to an
investment banker. How they used to do it is they would go to
the--if you are a real small company, you go--maybe you would
go to an SBDC.
You would go to a little regional investment bank, a
regional--you know, not Merrill Lynch right off the bat if you
are a little company, and you say here is my idea, do you think
anybody would be interested in it. And the SBDC would say yeah,
this is an interesting idea or that is not going anywhere.
And the same with the regional investment bankers. You
would use them as your agents to try and find out. When we
allowed testing the waters, you could do it direct,
disintermediate. You can go direct. And that is going to be
actually even more interesting in the age of the internet.
Mr. Dankberg. We found we use medium size investment banks.
And one of the things that was important to us is even though
the company itself has to invest a lot of money in the IPO
process, so do the investment bankers. I mean, they also spend
a lot of money in the anticipation of the IPO.
And one of the things we rely on is the investment bankers'
opinion about the viability of being able to sell stock. If the
investment bankers think there is a market for it and they are
willing to risk their money, that makes it--generally it is a
good sign for the company.
Chairman Bartlett. Thank you.
You mentioned town hall meetings. I was wondering if you
ever held those in conjunction with the representative in that
district?
Mr. Lane. We have. Now, Chairman Levitt does investor town
hall meetings, too. We have investor town hall meetings and we
have small business town meetings. And the chairman has done
some of each. The investor town hall meetings oftentimes are
done with members of Congress that are invited too to just kind
of hear what investors and their districts have said. Small
business--we had one in Las Vegas that had a senator present.
We usually invite members, especially if we know there is
someone that is on the Small Business Committee or something
like that that might be interested. Like at Kansas City we
invited Congressman Bond because he is on the Small Business
Committee.
And you know, sometimes they show. A lot of times they do
not. It is really the Chamber of Commerce that tells us who is
interesting in the local community that is pro small business
that might like to attend.
And so we work with the Chamber of Commerce to do that. But
we are happy to, you know, work with members of Congress. And
anybody who is interested in small business that would like to
be a part of that we reach out to.
Chairman Bartlett. I would think members of Congress would
be very interested. Our district, for instance, we have only
one company in our whole district that is not small business.
So small business is certainly the engine that drives the
economy in our district.
We have been joined by Ms. Millender-McDonald, and I
wondered if she had any observations or comments?
Ms. Millender-McDonald. Now, Mr. Chairman, thank you so
much, and indeed I have as the ranking member of empowerment.
And certainly I agree with you. And let me first thankyou and
the ranking member, Mr. Davis, for holding this hearing.
I was in the aviation subcommittee and talking about delays
and bad weather and all of that, so I had to really get my two
cents in there before coming here. So I am sorry for this
delay.
But you are absolutely right, Mr. Chairman. The small
businesses will be the engine that drives, especially in the
21st Century. And we also recognize that women-owned businesses
are really the largest business growth now in that whole
spectrum.
But given that, a couple of weeks ago I had a hearing on
going public and we found that, in talking with those who were
at this hearing, that most of the businesses would like to go
public because they want to either grow their business or want
to expand the business, but they had a difficult time with
access to capital, especially African-American businesses.
So I would like to ask each of you what are you doing to
ensure, if at all you are, that type of--those types of
barriers--to eliminate those barriers; and, if at all, the
percentages of small and minority businesses, specifically
women and African-American businesses, that you are reaching
out to and helping them for that access to capital?
Mr. Lane. Well, maybe I will start as representing the SEC.
We do have a special small business program that reaches out to
all small businesses in the sense of not only the exemptions
that are available for raising up to one million dollars.
We do not have a targeted program for--as the Small
Business Administration has for like 8(a) programs for women
and minority-owned businesses. What we do is we just help
anyone who calls. You know, we have the brochures and we go out
and do our town hall meetings around the country and not
necessarily in the biggest of cities and invite everybody and
work with the Chamber of Commerce and people that know the
areas to hope to get any kind of small businesses that normally
never get to see a Federal Government----
Ms. Millender-McDonald. Mr. Lane, given the fact that those
have been barriers, would there be some interest in your
extending beyond the stretch of what you are doing now to
extend to those areas that have been most, you know, impeded by
the growth with the inability to have access to capital?
Mr. Lane. Yes, absolutely. And if there was a district or
some area or some kind of program----
Ms. Millender-McDonald. Thirty-seventh congressional
district in California will be the first step.
Mr. Lane. Okay, just let me know and we will work with you
to--if we can get--all we ask is that we get a sufficient turn
out. You know, if we can get the----
Ms. Millender-McDonald. Oh, absolutely.
Mr. Lane. If we can get the interest, then we will come.
Ms. Millender-McDonald. Okay, fine.
Mr. Lane. That is all we care about.
Ms. Millender-McDonald. Very well.
Mr. Wall.
Mr. Wall. We do not have specific programs either. What we
have is criteria for listing, and that is how we judge a
company whether it can come into our market as being a public
company. Those rules obviously are filed with the SEC and
approved.
But we do segment our market between national market
companies and small companies, small cap market companies. And
the net tangible asset requirement for a small cap company is
only four million dollars. So we have tried to provide an
opening for small businesses to come in to Nasdaq through the
public markets.
We do not distinguish, however, in terms of minority
ownership. And quite frankly, that is in the prospectuses, that
is open and on our web site so you can go in and look to see
who the management is and that information is available.
Ms. Millender-McDonald. Sir, again, given the fact that the
majority of business growth, especially small business, is that
of women, and women tend to have the least amount of capital to
try and expand, is there a program within your four million
dollar range that you can help them in finding those connects
to, you know, help in this access to capital?
And is that something that I can interest you in?
Mr. Wall. You certainly can. At this stage, we do not have
that. And yet, maybe there is a step before the public process
whereby you could find a way to do that in the venture capital
area, in the angel capital area, in the area that we were
talking about before in terms of small business. I think that
may be the first step. Because a problem that we find for new
companies coming into the market if you look at Nasdaq last
year, is that we had to delist over 10% of the companies on
Nasdaq for not meeting continued requirements.
Part of the reason for that is the fact that managers
coming into the marketplace do not have the experience, do not
have the education, do not have the background, and that has to
start before the IPO process. That really has to start on the
educational basis, it has to start in with the venture
capitalist where you have mentoring to those smaller companies,
and in other ways of finding capital.
Ms. Millender-McDonald. And I certainly do agree with you
on that a lot of times this technical experience and skills
that are missing. But you know, there is a need also for some
of you to help in that area as well because, again, we are
looking at the majority of the work force in the year 2000 and
beyond will be women, minorities, and there has to be some kind
of program that you put in place to help your future workers
and future persons that will be involved in what you do.
And I think it is important that we look at helping you to
help us to grow this country through its small businesses
through the technical assistance, as well as the education, and
the other outreach programs that I am here to call upon each of
you to look at and work with me on, as I am hell bent to
empower small businesses during my course as ranking member.
Mr. Moe, is it? Okay.
Mr. Moe. First of all, I am in research at Merrill Lynch. I
am not an investment banker or involved with policy. In any
event, the key responsibility that we have in research is to be
looking at identifying attractive companies for our clients
that will do well for them from investing capital in those
enterprises.
From that, just an observation. What matters for how well
these organizations do, going back to my original testimony, it
is the earnings growth and success of a company which leads to
the performance of the stock.
And so first and foremost, it is completely indifferent. It
is the success of the company which matters. An observation I
would have would be that, from a female standpoint, female CEO,
female run business, back when I started in this business, that
was sort of a noteworthy, unique situation.
Today it is so common for many of the companies that we see
that we think are extremely attractive companies. You just do
not think twice about it, or at least we do not because we see
it so often.
So anyway, just the punch line----
Ms. Millender-McDonald. Well, let me ask you, what is your
definition of ``attractive business'' or ``attractive
company?''
Mr. Moe. Attractive company is one that can grow their
revenue and earnings at a very high rate for a very long time,
has a sustainable and competitive advantage, has a claim to
fame to their business, and something that ultimately will
continue to be successful for the foreseeable future.
Ms. Millender-McDonald. And do you see a lot of female
businesses in this attractive business mode?
Mr. Moe. Yes, we have significant involvement with a
number--as I just think about it off the top of my head, a
number of companies are led by female CEO executives.
Ms. Millender-McDonald. I would like to have you do a
report back to me, if you will, on those companies that are
female and minorities who fit your mode of attractive
businesses.
Mr. Moe. Okay.
Ms. Millender-McDonald. Thank you.
Mr. Ellison.
Mr. Ellison. Yes, good morning, Congresswoman McDonald.
I think that your question is a very good question. At the
same time, I think the right--first question would be what has
your--or what is your entity doing to look at itself internally
in order to roll out any successful programs.
Because before we can begin to talk about programs, before
we can begin to do town hall meetings, we have to do self
examinations. And in those examinations, that is where we begin
to come up with the right solutions. Again, I think that that
is a very good question.
You were not here when I talked about the importance of
rolling out diversity as far as town hall meetings and as far
as outreach. Before I get into what we do at the Wharton SBDC,
I had mentioned that one of our clients, Next Step Magazine,
talks specifically about diversity.
In my opinion, I think that every Merrill Lynch office,
every SEC office, every NASDAQ office, every SBA office should
have a copy of this magazine. And I will leave this here for
you.
Ms. Millender-McDonald. Give them each one.
Mr. Ellison. Okay, sure.
Ms. Millender-McDonald. And give me one.
Mr. Ellison. I will leave that for you.
Now, back to answering your question specifically. The
Wharton Small Business Development Center is located in west
Philadelphia. And west Philadelphia's population is primarily--
it is about 90%, 95% African-American. Temple, which is also in
Philadelphia, is located in north Philadelphia, and the
population there is--well, that is close to almost 100%
African-American.
Also there is a large Hispanic community in north
Philadelphia. Both Temple and Wharton's SBDCs, we have
outreaches specifically to those groups. There is an incubator
in west Philadelphia. It is titled ``The Enterprise Center.''
It is named after the late Secretary of Commerce, Ronald H.
Brown. That was a birth of the Wharton SBDC back in 1990 and it
grows minority businesses. And in fact, it has several
successes. It is also located at the same building that the
American Bandstand Theater was back in the 1950s, and I am sure
no one here remembers that because of----
[Laughter.]
Ms. Millender-McDonald. I take the fifth on that one.
I would be interested in that model that you have just
mentioned to try to make it a prototype or even go to the SBA
to look at that, becoming a prototype for those companies that
are trying to get up from the foot range to get to expansion
and growth.
Because we do recognize that the majority of the workers
that are hired by business people are that of--are women and
minority-owned businesses. And I should say most of the
minority workers are hired by women-owned businesses and
minority-owned businesses.
And so we have got to grow those because that is your--
those are the future workers of tomorrow in this country. And
if you do not grow them and if you do not have technical
assistance programs, then you are going to lose out a lot, all
of you, if you do not have that in place.
Mr. Dankberg.
Mr. Ellison. I would like to add to your comment.
Traditionally, society and large corporations, as well as small
corporations, have ignored the various diverse markets. And not
just ethnic diversity, but also women----
Ms. Millender-McDonald. Gender, yes.
Mr. Ellison [continuing]. That dimension. Let's take the
African-American community. The spending power is between $400
and $500 billion dollars. Hispanic Americans spend between $200
and $300 and close to $400 billion dollars. People with
disabilities spend over $100 million dollars.
Another community that is, you know, not part of our--not
part of your question is the gay and lesbian community, and
they spend about $600 billion dollars a year. I say that to
underscore the point that there is a business reason for
corporations, small entities as well as the SEC, to develop
programs for those various groups.
Ms. Millender-McDonald. I think it is imperative that they
do that because the future dictates that those will be the
majority of persons in this nation and globally as well.
Mr. Dankberg, is it?
Mr. Dankberg. Dankberg, yes.
Well, we are a consumer of capital as opposed to a source
of capital, so I'm going to get off a little bit easy here.
Ms. Millender-McDonald. I looked down at your name and saw
what you represent. Yeah, that is right.
Mr. Dankberg. But I would like to give just one
perspective, just from the point of view of someone that
started with a very, very small company, three people, and grew
it up to one that became public.
And that is when you are a public company, you have two
different problems. They are related, but they are definitely
different. One is growing your business just from a perspective
of sales and revenue. The other one is making your stock price
go up to make it be a good investment.
And when you are a private company, it is pretty obvious
how those things are related. You negotiate with private
investors. And if your company is bigger and growing faster, it
is pretty clear why you are worth more.
As a public company, there is a lot of effort involved in
communication with potential investors about why your company
is worth more even if it is growing at a high rate because
public investors--and the whole objective is to have a very
liquid capital market which lets capital flow very quickly from
companies that may be doing well to companies that might be
doing better.
And so for us, being private for quite a while is kind of
like being in the minor leagues. And we got a chance to get
better at the part about growing the company and just focus on
how do we make this company work. And then, at the time we went
public, we had kind of a machine that knew how to do that.
And the entrepreneur in myself could spend a lot more time
on the fact of educating investors about--even though we had
done well in the past, why--you know, why will we do well in
the future and why we are a good investment.
And I would not minimize how much time is involved--and
effort is involved, in that. And I think that really the kinds
of SBDC programs that Mr. Ellison is talking about are a really
good incubation stage for any company, whether it is minority-
owned, women-owned or has all the advantages in the world just
to get to develop that type of infrastructure before going
public.
That is just kind of a--you know, kind of a battle tested
version of that.
Ms. Millender-McDonald. Well, we recognize incubation
concepts are really great concepts and programs and projects to
help small businesses.
Mr. Ellison, you remind me of my nephew who finished the
Wharton School of Business MBA, so we are proud to see you and
all of you here today.
Thank you, Mr. Chairman.
Mr. Ellison. Excuse me. I would just like to add one more
point to your question. Next month, November, the dates between
the 7th and the 13th, is National Diversity Week and I think it
is something that it is not too late for members of the
distinguished panel here, as well as the subcommittee, to get
involved in.
Ms. Millender-McDonald. I think that is a great idea and I
would like to have Mr. Lane, Mr. Wall, Mr. Moe and the Chairman
to talk with us about that.
Thank you so much, Mr. Chairman.
Chairman Bartlett. Thank you very much.
I would just like to reemphasize the increasing role of
women-owned small businesses. They are growing at twice the
rate of the general business community. Women-owned small
businesses have a lower bankruptcy failure rate than male-owned
small businesses. Bankers haven't figured that out yet because
access to capital is still a major problem for women-owned
businesses.
Women-owned small businesses are better employers. And I
would expect that. Women are different than men. We are having
trouble getting the military to understand that, but women are
different than men. And those differences, I think, make them
better employers.
And they are better corporate citizens for exactly the same
reasons. They are more compassionate, they are more caring, and
that makes them better employers and it makes them better
corporate citizens.
Mr. Wall has to leave us shortly and I just had one quick
question to ask him.
There are many of our companies now that--whose stocks are
growing most rapidly in value who are making no profits. At
what point does the investor--you know, this growth versus
profits thing, at some point an investor is going to have to
say some time there has to be a profit.
When does that happen? This is quite a new phenomenon, is
it not, in the marketplace that you can have a rapidly growing
business with the stocks increasing in value and you are not
making any money?
Mr. Wall. Right. Well, Chairman Bartlett, the purchasing
and demand of stocks based on future earnings is what we have
been seeing, and that is being driven by this new economy that
we heard about. And quite frankly, we build the markets. I am
going to yield to my distinguished panelist on my left here to
answer that question because this is what he does as a
researcher.
Chairman Bartlett. Okay.
Mr. Moe. Well, and what investors are paying for is the
expectation of future earnings. I mean, profitless prosperity
cannot go on forever. But what investors are doing is
extrapolating this growth against a market opportunity and
making interpretation analysis what a likely margin potential
would be out into the future and discount that back to today,
and that is where the stock prices come from.
Realistically, if you do that math, and it is always
difficult to be making analysis about futures, but typically
even with the stock prices doing what they have done without
companies that are making money today, if in fact you are right
about those future numbers, typically it would even support
higher prices.
Where that argument falls short is there are so many
variables in terms of making that future analysis that you are
going to be wrong a fair amount. And in those cases, there will
be significant corrections in the stocks in which they can
afford those benefits of being paid for futures.
Mr. Wall. And we are already seeing that in the internet
industry. There are many stocks that are well, well below what
their original pricing was because now it appears that those
anticipated earnings that we all paid for that stock price
aren't going to be there. And as a result, they are coming
back.
Chairman Bartlett. So we are already seeing investors
making that choice?
Mr. Wall. That is correct.
Chairman Bartlett. Okay.
Mr. Moe, you mentioned stock ownership in companies
attracting employees. Do you have any evidence that companies
that offer meaningful stock shares to their employees do better
in the market? I would think the employees would be better
motivated if they are part owners and that we might see these
companies performing better.
Mr. Moe. I mean, capitalism works. Point of fact, we do not
have that data. I think that would be a great study to conduct.
I think also, and this is more anecdotal, but in San Francisco
where I live, it is hard to imagine a new company that did not
offer stock ownership to virtually all of their employees
because otherwise you would never be able to get the best and
the most talented people which are truly the drivers of these
new businesses.
Chairman Bartlett. And keep them.
Mr. Moe. So it is all about attracting and retaining
people.
Chairman Bartlett. Mr. Ellison, you mentioned the role that
SBDC centers play in helping the business assemble the IPO
team, and you also mentioned the cost as one of the barriers. I
notice that cost runs somewhere eight, nine percent for
smaller, $25 to $50 million dollar offerings.
When you look at the elements of that cost, I do not see
any meaningful way to decrease that cost. And I wonder if you
have any thoughts. And it appears to me that that is a barrier
that is just going to be there.
Mr. Ellison. That is a very good question. In my opinion,
there is a solution to that. Part of that cost is in the
corporate clean up phase.
And what that means is most private companies just have to
admit there are certain thingsabout how they run their
operations that is embarrassing if they are trying to go public, or it
does not really maintain high confidence among the public investor
community.
Now what typically happens is they will work with their IPO
team that comprises the attorneys, the accountants, advisors,
and that is part of where the cost comes in.
The SBDC's role is to prevent those companies from really
getting to the point or to start early so that they can start
the thinking process of okay, let me establish my business and
let me set up my structure, let me establish my systems so that
if and when I want to go public, everything will be in place.
It is not going to eliminate it, but it can reduce it. And
it also can reduce the continual distractions.
Chairman Bartlett. I have the Nasdaq information booklet
here and they estimate the cost of going public for a $25
million and $50 million dollar offering, and about three-
fourths of all of those costs are in underwriting discounts and
commissions.
Is that soft? Can we reduce that any?
Mr. Wall. Well, actually--no, those are good numbers.
Chairman Bartlett. Those are good numbers?
Mr. Wall. Yes, they are.
Chairman Bartlett. That is about three-fourths of the total
cost.
Mr. Wall. That is correct. And yet there is a change. And
technology is bringing that change. As we have seen a change in
the commission structure and the execution costs for regular
transactions being decreased, we are starting to see the same
thing happen in the underwriting distribution.
There are underwritings now being distributed through the
World Wide Web where traditional cost to the underwriter has
come down almost by 50%. We suspect as this part of the market
also grows, that will come down even further.
So it will open, we hope, more opportunity for smaller
businesses to come in and participate in the IPO process.
Mr. Ellison. I would like to add something. That half
million dollar figure excludes the commissions. Yes,
commissions are expensive; but if you really look at it, it is
not up front costs or up front money that an entrepreneur has
to bear in the process.
Chairman Bartlett. So your half million dollars--as a
matter of fact, it is about $2.3 million for $25 million and
about $4.1 million total start up cost for $50 million?
Mr. Ellison. Correct.
Chairman Bartlett. So your half million was----
Mr. Ellison. Half million is something that you are going
to incur if you sell one share or if you sell all your shares.
Chairman Bartlett. Okay.
Mr. Dankberg. Or no shares.
Mr. Ellison. Or no shares.
Mr. Lane. And Mr. Chairman, if I could add to----
Chairman Bartlett. Yes.
Mr. Lane. The advent of the internet has also created a
real opportunity for what are called direct public offerings.
And this is something that small businesses are trying to do.
And they try and sell without an underwriter.
They sell their securities directly on the internet. There
have been some that have been in the newspaper. It is not a
hugely growing phenomena, but it is something that many
companies are exploring. They have their own newsletters and
such on how to do direct public offerings.
On the one hand, it cuts costs considerably. On the other
hand, you lose the benefit of having an underwriter who can go
find investors for you rather than just posting notices on the
internet. And underwriters also add to the process of doing due
diligence on a company and kicking the tires and looking under
the hood.
And so there is the question of will the cost of capital
really be lower? Yes, you cut out the underwriter discount. On
the other hand, are investors as willing to invest in your
company? And are they willing to pay the same price they would
have paid if you had an underwriter?
And so that is--the story has not been written yet. We have
to watch and see how this unfolds.
Chairman Bartlett. Thank you.
Mr. Dankberg, I think you mentioned that--if I remember the
numbers, you mentioned what your sales were and--you have a
roughly 10% profit?
Mr. Dankberg. Roughly, right, yes.
Chairman Bartlett. That is pretty good.
Mr. Dankberg. We are happy with it.
Chairman Bartlett. Your stock ought to be doing very well.
Congratulations.
Mr. Dankberg. Thank you.
Chairman Bartlett. Mr. Davis.
Mr. Davis. Well, the only thing I will say is that the
purpose of selling money, of course, is to make money. I mean,
most people who sell it, they sell it for the purpose of making
additional money. But it seems to me that what we are really
saying is that knowledge is a tremendous factor in terms of the
ability for companies to move to another level.
And that is why I really appreciate the efforts of the SEC,
the whole concept of town hall providing information, the work
that the Small Business Development Centers do. I mean all of
this, I think, really becomes very key in helping people reach
the point where they can make that critical determination.
And my last word really was is there a critical moment in
the life of a small business where one might begin to seriously
look at whether or not they ought to go public? Is there a
critical time in the position of a company when you make that
determination?
Mr. Moe. Well, I will make just a comment. I mean, with the
Dow over 10,000 and significant demand imbalance for equities
and continued investor interest in IPOs and new offerings, it
is often not the case that a company go public.
Many can, however the question is, should you go public?
The issue that I think we see and I think is fundamental; being
public is a long time. You know, the IPO's exciting but then
you have to live with the consequences of being a public
company and being able to respond accordingly.
The reality is, if a company does not have the proper
management team to be able to execute as a public company must,
it does not have the type of predictability to its business to
be able to execute as a public company, it does not have its
business opportunity crystallized, it really is a mistake to go
public.
Having said that, you could see a company that has those--
has clarity and should go public, you know, that is not making
money. It is not necessarily making money, it is not
necessarily the critical determining factor. And there could be
a company that is a billion dollars in revenue that should
never go public for a zillion different reasons.
To answer your question, there is a magic moment, I think
the moment is when you are ready to perform as a public
company, and being a public company is a smart, strategic thing
both to attract and retain key people in your marketplace and
how you continue to build your brand, etc.
Mr. Wall. It may be interesting to note that this year 20%
of the applications that we received to list on the national
market system were withdrawn or denied. And over 60% of those
for small cap were either withdrawn or denied.
I think the managers going through that process come to a
realization of what going public truly means and what they will
need to do to have a successful public company. Because
obviously, if they are not going to meet those expectations of
me, the investor who is giving my money, I am going to take
that money back. Sometimes that just does not happen until you
go through this type of process. I think the statistics are
quite devastating when you think of it, 60% withdrawing from
the public process in small cap.
Mr. Dankberg. I can tell you from a small businessman's
perspective even though going public is difficult, it is
actually easier to go public than to undo it afterwards. And so
you have to keep that in mind. I mean, and we are a company
that has tripled in three years since we have gone public, so
it is not as if we regret what we have done.
But you have to think about it carefully. And then the
phrasing of going public as being the end of the rainbow is a
little bit misleading. If you have a company and you want the
end of the rainbow, you are better off selling the company.
Because going public is really the start of a road that is
actually, in a lot of ways, much more difficult than being
private. And if you look at it that way, it is a new path with
a lot more opportunity, that is the right mind set. But it is a
long term commitment.
Ms. Millender-McDonald. And I think this is why a lot of
minority businesses are very reluctant to going public because
of the risk factors that you have just outlined. It is so
critical to them.
Mr. Davis. Seems to me you are saying it is kind of like
getting married.
[Laughter.]
Ms. Millender-McDonald. With that, Mr. Chairman, I guess I
will excuse myself.
[Laughter.]
I am glad he is cleaning this one up.
Mr. Ellison. That is a good analogy.
Mr. Davis. If not, then you have got a problem.
Ms. Millender-McDonald. Mr. Chairman, may I just make one
statement though. I would like to seriously get, if I may, to
have a hearing in my district on this very topic and would like
to invite Mr. Lane--in fact, all of those folks who are out
here now.
I think you had a great panel and they have really had very
provocative information to us. And thank you again so much. I
would like to have that hearing, and I am going public with
that request.
[Laughter.]
Chairman Bartlett. Well, our district too would like to
have that hearing, so you have got two offers. And I suspect
that Chicago is big enough to welcome you a second time.
I want to thank my colleagues for joining us for this
hearing.
And my very special thanks to the members of the panel. You
have done a great job. I believe that the small business
community will be better advised as a result of this hearing as
to what their opportunities are for going public.
Thank you all very much, and the meeting stands in
adjournment.
[Whereupon, the proceedings were adjourned at 11:49 a.m.]
A P P E N D I X
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