Chris Onan, a principal at Denver’s Appian Ventures, invests in privately held businesses he thinks are poised to grow.
But he says venture-backed companies that want to be acquired or go public are making a mistake by not preparing to comply with federal regulations mandated for public companies.
Onan said public companies looking to buy a venture-backed firm can deduct millions of dollars from an offer if the venture-financed company is not compliant with the Sarbanes-Oxley Act of 2002, the corporate accounting overhaul passed by Congress in the wake of accounting meltdowns at Enron, WorldCom and others.
“There needs to be some groundwork laid out,” Onan said of Sarbanes-Oxley. If not, “A $50 million offer could turn into $45 million.”
Onan’s opinion was confirmed by a nationwide study due to be released today.
The study, conducted by Dow Jones VentureOne, asked 700 venture capitalists and chief executives at privately held, venture-backed companies about their top concerns.
The survey shows that 65 percent of venture capitalists who responded said Sarbanes-Oxley was a concern when hiring directors. Just 21 percent of chief executives agreed.
But the majority of both groups – 88 percent of CEOs and 73 percent of venture capitalists – said they do not have specific methods in place to measure the effectiveness of their boards.
Both groups also listed a company’s exit strategy as a top concern. But there was a split among other top concerns. Venture capitalists listed personality conflicts with chief executives and management changes; CEOs, meanwhile, cited the company’s valuation and financial burn rates.
“Are venture capitalists from Saturn and CEOs from Neptune?” asked Mark Heesen, president of the National Venture Capital Association, in a statement. “These individuals are thinking about the same issues but their perspectives and priorities are different.”
Onan, the venture capitalist, said his top concerns included financing, turnover among management and long-term profitability.
He was not part of the survey.
“CEOs are focused on driving revenues and growing the business,” while “venture capitalists have a little more time to look at long-term strategies,” he said of the difference in perspectives.
Appian’s investments include Denver-based software firms such as Collective Intellect and AdPay.
Staff writer Will Shanley can be reached at 303-820-1260 or wshanley@denverpost.com.
