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H.R. 3606, THE REOPENING AMERICAN 

CAPITAL MARKETS TO EMERGING GROWTH 

COMPANIES ACT OF 2011 

HEARING 

BEFORE THE

SUBCOMMITTEE ON CAPITAL MARKETS AND 

GOVERNMENT SPONSORED ENTERPRISES 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

DECEMBER 15, 2011 

Printed for the use of the Committee on Financial Services 

Serial No. 112–92 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

SPENCER BACHUS, Alabama, Chairman 

JEB HENSARLING, Texas, Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

NAN A. S. HAYWORTH, New York 

JAMES B. RENACCI, Ohio 

ROBERT HURT, Virginia 

ROBERT J. DOLD, Illinois 

DAVID SCHWEIKERT, Arizona 

MICHAEL G. GRIMM, New York 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

BARNEY FRANK, Massachusetts, Ranking 

Member 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

ANDRE ́ CARSON, Indiana 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

LARRY C. LAVENDER, Chief of Staff 

(III) 

SUBCOMMITTEE ON CAPITAL MARKETS AND GOVERNMENT SPONSORED ENTERPRISES

SCOTT GARRETT, New Jersey, Chairman 

DAVID SCHWEIKERT, Arizona, Vice 

Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

DONALD A. MANZULLO, Illinois 

JUDY BIGGERT, Illinois 

JEB HENSARLING, Texas 

RANDY NEUGEBAUER, Texas 

JOHN CAMPBELL, California 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

NAN A. S. HAYWORTH, New York 

ROBERT HURT, Virginia 

MICHAEL G. GRIMM, New York 

STEVE STIVERS, Ohio 

ROBERT J. DOLD, Illinois 

MAXINE WATERS, California, Ranking 

Member 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

RUBE ́ N HINOJOSA, Texas 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

CAROLYN B. MALONEY, New York 

GWEN MOORE, Wisconsin 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

ANDRE ́ CARSON, Indiana 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

AL GREEN, Texas 

KEITH ELLISON, Minnesota 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

December 15, 2011 ........................................................................................... 1 

Appendix: 

December 15, 2011 ........................................................................................... 37 

WITNESSES 

THURSDAY, DECEMBER 15, 2011 

Brantuk, Joseph, Vice President, NASDAQ OMX ................................................ 7 

LeBlanc, Steven R., Senior Managing Director of Private Markets, Teacher 

Retirement System of Texas ............................................................................... 9 

Mitchell, Kate, Managing Director and Co-Founder, Scale Venture Partners, 

and former Chairman and current member, National Venture Capital Association .................................................................................................................... 10 

Selfridge, Mike, Head of Regional Banking, Silicon Valley Bank ....................... 12 

APPENDIX 

Prepared statements: 

Bachus, Hon. Spencer ...................................................................................... 38 

Brantuk, Joseph ............................................................................................... 39 

LeBlanc, Steven R. ........................................................................................... 50 

Mitchell, Kate ................................................................................................... 59 

Selfridge, Mike .................................................................................................. 119 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Written statement of the Biotechnology Industry Organization .................. 129 

Written statement of Norwest Venture Partners .......................................... 131 

Written statement of NYSE Euronext ............................................................ 133 

(1) 

H.R. 3606, THE REOPENING AMERICAN 

CAPITAL MARKETS TO EMERGING 

GROWTH COMPANIES ACT OF 2011 

Thursday, December 15, 2011 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON CAPITAL MARKETS AND

GOVERNMENT SPONSORED ENTERPRISES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 9:39 a.m., in room 

HVC–210, Capitol Visitor Center, Hon. Nan Hayworth presiding. 

Members present: Representatives Schweikert, Royce, Hensarling, Posey, Hayworth, Hurt, Stivers, Dold; Sherman, Hinojosa, 

Maloney, Perlmutter, Donnelly, Himes, Green, and Ellison. 

Also present: Representatives Fincher and Carney. 

Dr. HAYWORTH [presiding]. This hearing will come to order, and 

I ask unanimous consent that Mr. Fincher and Mr. Carney be allowed to participate in this morning’s hearing. 

Without objection, it is so ordered. And as previously agreed with 

the ranking minority member, opening statements will be limited 

to 10 minutes on each side. 

I recognize myself for 1 minute. 

This hearing of our Capital Markets Subcommittee could not be 

held at a more critical time or a more propitious time, really, because yesterday the World Economic Forum reported that for the 

first time ever, Hong Kong was the number one center for financial 

market development. 

Hong Kong topped both New York and London, based in large 

part on its rapidly growing IPO market. K. C. Chan is Hong Kong’s 

Secretary for Financial Services and the Treasury, and he said, 

‘‘We are working very hard to maintain Hong Kong’s competitive 

advantages and increase Hong Kong’s capital markets.’’ Our task 

today, of course, is the same for the United States. 

I now yield 2 minutes to Mr. Himes for an opening statement. 

Mr. HIMES. Thank you, Madam Chairwoman, and I want to start 

by thanking the witnesses for appearing before us today on this 

very, very important topic. I am an original cosponsor of the legislation that we are here to talk about, so I am very excited about 

it. It is a good effort toward maintaining what are the deepest and 

most vibrant capital markets in the world. Our venture capital 

community, the way in which young companies can get financing 

and grow from being a figment in somebody’s imagination to a 

multibillion dollar market cap company in the blink of an eye, is 

2 

one of the true treasures that the United States has. The names 

that none of us had ever heard of 20 years ago, Google, Facebook, 

and the list goes on, exist today and are world-beating companies 

because of the vibrancy of our capital markets and particularly 

those markets that fund our early-stage companies. 

I am a real believer in the legislation that we are here to talk 

about today. What we are doing, of course, is trying to grease the 

skids for young companies. And that is the right thing to do to be 

internationally competitive, but let us also not lose sight of the fact 

that in lifting some of the regulations, many of which are there for 

very good reasons, we are also running the risk of creating the kind 

of froth that we all saw in 1999 and 2000, where moms and pops 

and cab drivers and local small business owners were acting like 

tech VCs in the IPO market. 

So I would really appreciate it if—and I think we are all on the 

same page with the same goals here—as we grease the skids for 

this wonderful capital formation exercise, we don’t lose sight of the 

need to protect retail investors. And I would love to hear from the 

panel specifically about areas in this proposed legislation where 

you think we need to be particularly conscious of protecting the retail investors who allow you to do what you do. 

Thank you. I yield back the balance of my time. 

Dr. HAYWORTH. Thank you, Mr. Himes. 

And now, the Chair yields 1 minute to the vice chair of the subcommittee, Representative Schweikert. 

Mr. SCHWEIKERT. Thank you, Madam Chairwoman. 

As a matter of fact, the center seat fits you well, doesn’t it? 

I am actually very happy this is moving forward. Mr. Fincher deserves some real credit here for being actually fairly dogged about 

this, and I want to also thank a bipartisan group for stepping up 

and embracing this, and moving this forward. 

We have had a series of conversations, what does this do in Sarbanes-Oxley, how about the 404(b), are we going to run away from 

the good things it provides—which is always a fun debate of the 

good things it provides. But hopefully, this will truly help those upstart companies be able to organize and avoid some of the excessive 

costs, but this doesn’t walk them away from the internal control requirements. Those are still there. 

And ultimately, for many of us, when we are going to invest in 

a young, growing company, it is those internal controls we are most 

interested in. 

Madam Chairwoman, I know I am out of time, but I am really 

hoping our witnesses today will focus on what this really does 

mean to a growing company and the benefits that we will provide 

for that growth. 

Thank you, Madam Chairwoman. 

Dr. HAYWORTH. Thank you, sir, and the Chair yields 2 minutes 

to Mr. Royce of California. 

Mr. ROYCE. Thank you, Madam Chairwoman. 

Over the last 15 years, we have seen our capital markets deteriorate. And if we take a hard look at what is discouraging capital 

from coming to our markets, Exhibit A continues to be SarbanesOxley. 

3 

We have a recent SEC study that says that Sarbanes-Oxley compliance is the most often-cited reason why companies are delisting, 

why they are choosing to delist—to list elsewhere. And we have 

this phenomenal drop off in IPOs. As all of us will remember, in 

the 1990s, we played host to most of the IPOs around the globe. 

Here in the United States, this was the home of the majority of 

those IPOs. Today, it is 11 percent, and it is trending downward 

at a pretty fast clip. And if you want to do any research as to the 

answer why, Exhibit A, again, Sarbanes-Oxley. 

So, Mr. Fincher’s new legislation, I think, goes some distance to 

helping reverse this trend by making those listings slightly less onerous. But given the urgency of this problem, I think we need a solution to it, and that is why I introduced the Small Business Access 

to Capital Act, which would exempt companies with a market cap 

of up to $1 billion from Section 404(b) of Sarbanes-Oxley. 

That was recommended by the President’s Council on Jobs and 

Competitiveness. They are on board for this, and this approach 

would address a key component of the SEC study, which shows the 

long-term burden on small businesses is 7 times that imposed on 

large firms relative to their assets. We have overweighted this 

against small business. 

I very much support Mr. Fincher’s legislation here today. I think 

it is needed. We need to move it, but we should follow up with consideration of the legislation that I have introduced. 

I would ask the committee to do that, and I would ask at the 

same time that the Members take a look at some of the studies and 

the SEC studies that show that the cost of this legislation far outweighs its benefits to the investing public. We need to remedy this 

situation before the capital markets walk off from the United 

States overseas. 

I yield back the balance of my time. 

Dr. HAYWORTH. Thank you, sir. 

The Chair recognizes the vice chairman of the full Financial 

Services Committee, Mr. Hensarling. 

Mr. HENSARLING. Thank you, Madam Chairwoman, and thanks 

for holding the hearing. I want to thank the gentleman from Tennessee for his leadership and his dogged pursuit of this legislation. 

We know that since the President has come into office, unfortunately, our unemployment rate has remained at, near, or above 9 

percent. We have seen the fewest small business startups in 17 

years, and clearly, our constituents expect jobs to be job number 

one for this Congress. 

One of the key ingredients to job creation is capital formation. 

You can’t have capitalism without capital. And as some of my colleagues who preceded me in their opening statements have well 

noted, we continue to lose market share in the IPO market. 

Some studies have indicated that this has, frankly, cost our economy not thousands of jobs but potentially millions of jobs. Nearly 

one in 10 American companies that went public this year did so 

outside the United States, and that compares, I believe, Madam 

Chairwoman, with only two U.S. companies that show foreign exchanges in the entire decade of the 1990s. 

4 

And as my colleague, the gentleman from California pointed out, 

certainly one of the most often-cited factors for going to list on foreign exchanges, frankly, is Sarbanes-Oxley. 

And so I want to, again, congratulate the gentleman from Tennessee. His legislation would take a huge step forward. Again, as 

the gentleman from California indicated, the President’s own Council on Jobs and Competitiveness indicated that Sarbanes-Oxley continues to be an impediment. They have recommended the legislation, I believe, that the gentleman from California has authored. 

I am happy to be a cosponsor of that legislation. I hope this committee will take it up, and I will yield back the balance of my time. 

Dr. HAYWORTH. Thank you, sir. 

The Chair recognizes the gentleman from Illinois, Mr. Dold. 

Mr. DOLD. Thank you, Madam Chairwoman, and I certainly 

want to thank our witnesses for coming to join us today. I think 

that in the piece of legislation we have before us that we are discussing—and I want to certainly thank my colleague from Tennessee and my colleague from Delaware on the other side of the 

aisle for your leadership in this legislation—what we are talking 

about is jobs and the economy. We need to jump start these very 

important aspects, and it is capital formation. 

If we look at what has just happened, studying history, we have 

seen a huge drop off in IPOs that has happened here in the United 

States, a precipitous drop off, and we can only assume that in talking to them, what was one of the big factors in doing that? It is 

excessive regulation. And as my colleague from California noted, 

Sarbanes-Oxley is often cited as number one in terms of excessive 

regulations, as what is preventing people from going public here or 

actually delisting here and going elsewhere. 

We want to create jobs here in the United States. We want to 

be the land of innovation, and what has been, I believe, a competitive advantage for the United States is that we do have this vehicle, this mechanism, whether it be through venture capital, where 

people can take nothing more than an idea, bring it to fruition, get 

funding, and be able to take it and create additional jobs. 

Those companies that go public, obviously, 90 percent of the jobs 

that they create happen after they go public. This is something 

that we want to foster. We want to make sure that we are the land 

of opportunity here in the United States. It is alarming to me that 

we have lost that in terms of the number one spot to Hong Kong. 

And I think that the legislation that we are talking about today 

certainly is a step in the right direction in terms of trying to address Sarbanes-Oxley and the excessive regulations that are put 

upon these businesses. 

For a business that is just starting out, we want to create every 

opportunity to give them, in essence, an on-ramp to give them the 

opportunity to say, yes, we still expect you to do this, but we are 

going to lessen the regulations on these businesses for the first several years to give them an opportunity to get their feet underneath 

them, to be able to build up the capital and the mechanisms in 

order to be able to provide some of the reporting that we have 

asked of other public companies. 

This is absolutely, I think, a piece of common-sense legislation. 

I am delighted to be a cosponsor, and I again want to thank the 

5 

gentleman from Delaware, and the gentleman from Tennessee for 

your leadership. 

I yield back. 

Dr. HAYWORTH. The Chair recognizes the gentleman from Delaware, Mr. Carney, for 2 minutes. 

Mr. CARNEY. Thank you, Madam Chairwoman. 

Thank you very much, Madam Chairwoman, and thank you to 

the witnesses for being here. I am pleased to be one of the cosponsors and to work on my side of the aisle to line up other cosponsors, 

and we have been pretty effective doing that. 

I want to congratulate and thank my friend from Tennessee, Mr. 

Fincher, for his leadership in this legislation, and everybody else 

who has gotten behind it. 

As many of you know, I represent the State of Delaware, and corporate formation is a very important issue for our State. I spoke 

with my good friend Jeff Bullock just a couple of weeks ago when 

this legislation was proposed, and his colleague, Rick Geisenberger, 

who runs the Division of Corporations, and they confirmed for me 

what we all know, that corporate formation has dipped off over the 

last several years. 

We have State officials who travel around the world, frankly, encouraging entrepreneurs and businesses to incorporate in the 

United States and, in particular, in the State of Delaware. They 

also inform me what we all know, which is that IPOs have been 

down quite a bit over the last 10 years. 

I have provided them a copy of the legislation, and they told me 

that they believe this is a very good approach to addressing that 

problem. It is not going to fix everything, but it is a really good 

common-sense approach to allowing the regulations of SarbanesOxley to kind of phase in, if you will, as Mr. Dold said a minute 

ago. 

So I am pleased to be part of the team that is working on this 

legislation, and I look forward to your comments and to our discussion that will follow. Thanks very much. 

Dr. HAYWORTH. The gentleman yields back. The Chair recognizes 

the gentleman from Tennessee, Mr. Fincher, for 2 minutes. 

Mr. FINCHER. Thank you. 

Thank you, Madam Chairwoman, for the hearing today. 

I want to thank my colleague, Mr. Carney, for his help in moving 

what I think and what we think is a good piece of legislation. 

How many times have we heard this year that we need to create 

more jobs, and I think what the consensus that we need to focus 

on as Washington politicians is that we are not in the business of 

creating jobs. The private sector creates jobs, and we need to make 

sure that well-meant reforms that have unintended consequences, 

like our legislation is hopefully going to undo, with bipartisan support, will help the private sector create more jobs. 

An August 2011 survey of corporate CEOs conducted by the IPO 

task force, whose chair, Kate Mitchell, is testifying today before us, 

found that 90 percent of job growth occurs after a company goes 

public. However, during the last 15 years, fewer and fewer startup companies have pursued initial public offerings because of burdensome costs created by a series of one-size-fits-all laws and regulations. 

6 

My bill would create a new category of issuers called emerging- growth companies that have less than $1 billion in annual revenues when they register with the SEC and less than $700 million 

in public float after the IPO. This is a unique category that appreciates the fact that young companies face expensive hurdles in accessing public capital and complying with a variety of laws and 

regulations. 

This on-ramp status will allow small and mid-sized companies 

the opportunity to save on expensive compliance costs and create 

cash needed to successfully grow their businesses and create new 

jobs. 

This is very, very important. We think this is a step in the right 

direction, and hopefully, it is. Again, my colleague from Delaware 

is showing that bipartisanship can take us where we need to go. 

So, thank you, and I yield back. 

Dr. HAYWORTH. The gentleman yields back. The Chair recognizes 

Mr. Himes for 2 minutes. 

Mr. HIMES. Thank you, Madam Chairwoman. 

I asked for another 2 minutes because I feel compelled to make 

an observation on the bipartisanship that Mr. Fincher just called 

for. Look, we get things done in this committee, and we do get 

things done in this committee because we are factual and we leave 

ideology behind. 

And already in this hearing, we have heard that left behind. We 

have heard statements from the gentleman from Texas that unemployment is at, near or above 9 percent, not below 8.6 percent, 

which is factual. We have heard Sarbanes-Oxley raised as the reason why IPO volume has gone down. 

You know what, I can twist facts, too. I could tell you that Sarbanes-Oxley passed in 2002, when there were fewer than 100 IPOs, 

and that 3 years later, in 2007, there were 300 IPOs. And if I were 

not concerned with factuality, I might say that Sarbanes-Oxley actually tripled the number of IPOs. 

Regulation is important, and if we are going to get a bipartisan 

deal done here, I think we need to be factual and we need to understand that some regulation is very important. The volume that you 

look at when you look at the IPO chart shows dramatic decreases 

in IPOs in 2001, 2002, and, guess what, in 2008 and 2009. And 

2008, 2009 were many, many years after Sarbanes-Oxley, and just 

happened to coincide to a period of time when the capital markets 

suffered their biggest dislocation since 1929, and $17 trillion in 

U.S. assets evaporated. 

So, let’s at least start this because we agree that it is important 

to be bipartisan and to be factual. Let’s get this done, but let’s 

leave ideology on the side of the road. 

Thank you, I yield back the balance of my time. 

Mr. ROYCE. Would the gentleman like to yield? 

Mr. HIMES. Yes, I will yield. 

Mr. ROYCE. I think if we are going to look at facts as represented 

by the other side of the aisle, let’s look at the compliance costs, 

which are now 30 times what I was told they would be on this committee when that bill passed. 

If you want to look at facts, let’s look at the fact that we now 

have 11 percent of the world markets in terms of IPOs, when we 

7 

once dominated and had over 50 percent. And it was not that long 

ago. That was in the 1990s. 

So, if you look at the facts, and you interview anyone in business 

as to the main reason why IPO’s— 

Mr. HIMES. I will take back the time that I don’t have. 

Dr. HAYWORTH. All the time for opening statements has now expired. 

Without objection, all Members’ opening statements will be made 

a part of the record. 

I now have the pleasure of introducing our panel: Joseph 

Brantuk, the vice president of NASDAQ OMX; Steven LeBlanc, 

senior managing director of private markets for the Teacher Retirement System of Texas; Kate Mitchell, the chair of the Initial Public 

Offering Task Force, former president of the National Venture Capital Association, and managing director and co-founder of Scale 

Venture Partners; and Mr. Mike Selfridge, the head of regional 

banking for Silicon Valley Bank. 

Thank you for being here. 

Without objection, your written statements will be made a part 

of the record. You will be each recognized for a 5-minute summary 

of your testimony. 

We will start with you, Mr. Brantuck. 

STATEMENT OF JOSEPH BRANTUK, VICE PRESIDENT, NASDAQ 

OMX 

Mr. BRANTUK. Thank you, Chairwoman Hayworth, Ranking 

Member Waters, and all of the members of the subcommittee. 

On behalf of the NASDAQ OMX Group, I am pleased to testify 

in support of H.R. 3606, the Reopening American Capital Markets 

to Emerging Growth Companies Act of 2011. 

Capital formation and job creation are in NASDAQ OMX’s DNA. 

Forty years ago, NASDAQ introduced the world to electronic markets, which is now the standard for markets worldwide. 

The creation of NASDAQ introduced a sound regulation to the 

over-the-counter trading. Around NASDAQ grew an ecosystem of 

analysts, brokers, investors, and entrepreneurs, allowing growth 

companies to raise capital that was not previously available to 

them. 

NASDAQ is pleased that both Houses of Congress and the White 

House are taking a serious look at reducing regulatory burdens 

that are obstacles to companies becoming and remaining public. 

I am here today to inform you that NASDAQ OMX supports the 

legislative efforts of Mr. Fincher and Mr. Carney and the sponsors 

of similar bills in the Senate to create an on-ramp for newly public 

companies that would give them the opportunity for growth before 

being subject to additional, extensive regulations. 

We believe this is a significant step toward making our public 

markets more attractive to companies, both domestic and foreign. 

The United States used to be the market of choice for global 

IPOs. From 1995 to 2010, the listings on U.S. exchanges shrank 

from 8,000 to 5,000, while listings in non-U.S. exchanges grew from 

23,000 to 40,000. Prior to the Internet bubble, the United States 

averaged 398 IPOs per year in the early 1990s, and there were 

never fewer than 114 IPOs per year, even during a recession. 

8 

Following the regulatory changes of the last decade, there have 

been an average of only 117 U.S. IPOs per year. In 5 of the last 

10 years, including 2011, there have been fewer IPOs than in the 

worst years of the 1990s. 

In addition to the overall decline in the number of IPO companies, the average IPO has increased in size as the cost of complying 

with increased regulation has deterred many small and young companies from going public. 

Longstanding rivals to the U.S. market such as the United Kingdom, and newcomers such as Hong Kong and Brazil, have taken 

steps to improve the efficiency and competitiveness of their market, 

and this is good for the global economy. 

However, the United States is no longer the jurisdiction for capital raised via IPOs, ranking second in 2011. Only 3 of the top 10 

IPOs so far this year have been from U.S. firms. In 2010, IPO 

issuance from the Asia-Pacific region accounted for almost twothirds of the global capital raised. 

There are three critical reasons why, in our view, we need to recommit to the public markets. One, efficient pricing and funding for 

entrepreneurial activity. Two, job creation; a healthy public equity 

market enables companies to raise more efficient capital more efficiently, funding more rapid growth and creating more jobs. Companies create 90 percent of new jobs after they go public. And three, 

wide availability of investment opportunity. 

As the committee is aware, on October 20, 2011, the IPO Task 

Force, whose members are some of the best experts on capital formation and represent a diverse interest, submitted a report to the 

U.S. Treasury Department entitled, ‘‘Rebuilding the IPO On-Ramp: 

Putting Emerging Companies and the Job Market Back on the 

Road to Growth.’’ 

This report sets forth a detailed proposal to create a regulatory 

on-ramp for early stage growth companies, during which disclosure 

rules and compliance burdens would be phased in while maintaining investor protection. The task force also made detailed recommendations about how to improve research coverage for smaller 

companies. Many of these recommendations are contained in the 

House incentives bills, and we applaud the Members of Congress 

for doing so. 

The IPO Task Force report and its recommendations have quickly made an impact on this debate and seem to have solidified a bipartisan core of support in both the House and Senate for quick 

and decisive action. 

The recommendations include: One, provide an on-ramp for 

emerging companies and use existing principles in scaled regulation; two, improve the availability and flow of information for investors before and after an IPO; three, lower the capital gains tax 

for investors who purchase shares in an IPO and hold those shares 

for a minimum of 2 years; and four, educate issuers about how to 

succeed in the new capital market environment. 

In our markets, the number one source of job creation is entrepreneurship. Just as business incubators nurture small companies 

until they are ready to leave the security of that environment and 

operate independently, there should be a space for incubating small 

9 

public companies until they are ready to graduate to a national 

listing. 

Canada, the United Kingdom, and Sweden all have successful 

venture markets with significant numbers of listed companies and 

substantial capital-raising successes. These markets list hundreds 

of small companies that create jobs at a fast rate. The NASDAQ 

OMX Group has received approval to create a new listing venue on 

the former Boston Stock Exchange. The availability of the BX venture market will facilitate growth companies to raise capital to continue to expand their business, create jobs, and support our economy. 

In closing, I would like to make the following recommendations 

for reforms that would restore the ecosystem that once existed and 

is necessary to nurture, sustain, and grow public companies and reinvigorate the U.S. engine for job growth. 

Solution one, pass the on-ramp bill and further reform SarbanesOxley. 

Solution two— 

Dr. HAYWORTH. The witness’ time has expired. 

Mr. BRANTUK. Okay. Thank you, again, for inviting me and allowing me to testify. 

[The prepared statement of Mr. Brantuk can be found on page 

39 of the appendix.] 

Dr. HAYWORTH. Thank you, sir. 

And the Chair recognizes Mr. LeBlanc for 5 minutes. 

STATEMENT OF STEVEN R. LEBLANC, SENIOR MANAGING DIRECTOR OF PRIVATE MARKETS, TEACHER RETIREMENT 

SYSTEM OF TEXAS 

Mr. LEBLANC. Thank you, Madam Chairwoman, and members of 

the subcommittee. 

Good morning, my name is Steve LeBlanc. I am the senior managing director of the Teacher Retirement System of Texas (TRS). 

I am pleased to appear before you today to share with you my 

views on H.R. 3606. 

TRS is the largest public pension plan in the State of Texas. We 

are the 7th largest in the country and the 17th largest in the 

world. We serve 1.3 million beneficiaries, 1 in 20 Texans. Approximately 1 million are working members. It is teachers, bus drivers, 

cafeteria workers; it is everyone who serves our students in Texas. 

Approximately 300,000 are retirees, and most people may not realize the vast majority do not get Social Security. Our retirement is 

their only retirement. 

Our net assets are at $107 billion, and I personally am a fiduciary for these teachers and workers for approximately $38 billion 

globally. 

At TRS, we have a very diversified portfolio. We invest in private 

equity, public equities, Treasuries, bonds, real estate, oil and gas, 

and small emerging companies are a key component to the kind of 

capital that we can generate for our teachers. 

Again, as I mentioned, I personally am a fiduciary, and I oversee 

the real estate, private equity, and principal investments of the 

fund. We include several billion dollars in private equity in small 

and emerging managers. 

10 

I applaud Representatives Fincher, Carney and all the others 

who are cosponsors of H.R. 3606 and I thank you, Madam Chairwoman, and the ranking member, for holding today’s hearing. 

In my view, the proposed legislation’s level of regulations for new 

public companies is a progressive approach to enable small and 

emerging companies access to capital and should be given positive 

consideration by this subcommittee, the SEC, and the other interested parties. 

I am particularly supportive of the parts that would address the 

disclosure and corporate governance regulation on emerging growth 

companies. This will improve the availability and fair information, 

dramatically improve it and get it to the same level that large companies have. Potential investors would have more access, not less, 

to good information. 

I do have some thoughts on the definition of emerging growth 

companies. As you have said, it is for a billion dollars in annual 

revenue. It might be that $700 million is a more appropriate level. 

A billion is quite big, and that I think that at $700 million, you 

would have enough scale to comply with the regulations. 

Now, let me tell you where my experience came from. I was the 

CEO of a public company, Summit Properties; we were a small 

emerging company. We had a market float of about, when I joined, 

$500 million, and we implemented Sarbanes-Oxley, 404(b). I hired 

an internal auditor, and I will tell you I had better internal controls before Sarbanes-Oxley than after, because I had to take and 

hire an internal person when I could outsource to a large global 

scale, and I didn’t have the resources to put internal capabilities 

in because it wasn’t as a fiduciary to my shareholders’ economics. 

So I ended up having to sell the company due to Sarbanes-Oxley. 

We were mostly invested by retail investors, and I can tell from 

you 1998 to 2004, through 9/11, our investors made nearly 20 percent a year, doubled their money, and got between a 6 to 8 percent 

dividend. And that company was taken off the market in a large 

part because of Sarbanes-Oxley and our inability to scale the business to pay for the cost of Sarbanes-Oxley. 

So I firmly believe that this legislation will allow the corporate 

growth of the small companies, the retail investors, access to that 

wealth creation opportunity that right now, because it is not public, 

is only available to high-net-worth individuals, who are primarily 

the beneficiaries of the regulation of Sarbanes-Oxley. Thank you. 

[The prepared statement of Mr. LeBlanc can be found on page 50 

of the appendix.] 

Dr. HAYWORTH. The Chair thanks the witness, and the Chair recognizes Ms. Mitchell for 5 minutes. 

STATEMENT OF KATE MITCHELL, MANAGING DIRECTOR AND 

CO-FOUNDER, SCALE VENTURE PARTNERS, AND FORMER 

CHAIRMAN AND CURRENT MEMBER, NATIONAL VENTURE 

CAPITAL ASSOCIATION 

Ms. MITCHELL. Madam Chairwoman, and members of the subcommittee, thank you for the opportunity to be here today. With research showing that 92 percent of a company’s job growth occurs 

after its IPO, restoring access to the public markets for emerging 

growth companies is of national importance. 

11 

In that spirit, I would like to begin by publicly supporting H.R. 

3606, the Reopening American Capital Markets to Emerging 

Growth Companies Act of 2011. 

I believe that this bipartisan legislation will help spur U.S. job 

creation and economic growth at a time when we desperately need 

both, and it will do so without increasing the risk for our country’s 

investors. My support of H.R. 3606 is an outgrowth of my services 

as chairman of the IPO Task Force, a private and independent 

group of professionals representing experienced CEOs, public investors, venture capitalists, securities lawyers, and acquisitions and 

investment bankers. 

We came together initially at the Treasury Department’s Access 

to Capital Conference in March, where the dearth of IPOs was discussed at length. In response to this concern, our focus was to develop practical yet meaningful recommendations for restoring effective access to the public markets for emerging growth companies. 

Because public investors were an integral part of our team, we believe that the scale of regulations that we recommended, which 

H.R. 3606 reflects, strikes the right balance between targeted reform and maintaining appropriate regulatory safeguards. 

Why do we believe reform is necessary? For the last half century, 

America’s most promising young companies have pursued IPOs to 

access the additional capital they need to hire new employees, develop their products, and expand their businesses. 

However, over the last 15 years, the number of IPOs has plummeted. From 1990 to 1996, over 1,200 U.S. venture-backed companies went public on U.S. exchanges. Yet from 2004 to 2010, there 

were just 324 of those offerings. A number of analyses suggests 

that there is no single event behind this decline. Rather, the cumulative effect of recent regulations, along with changing market 

practices and economic conditions, has driven up costs and uncertainty for emerging growth companies and has constrained the 

amount of information available to investors, making them more 

difficult to understand and to invest in. 

This piece of legislation addresses these issues in two crucial 

ways. First, H.R. 3606 provides emerging growth companies with 

a limited, temporary, and scaled regulatory compliance pathway, or 

on-ramp, that will reduce their cost for accessing public capital 

without compromising investor protection. This on-ramp period will 

enable emerging growth companies to allocate more of the capital 

they raise from the IPO process toward growth instead of meeting 

compliance requirements designed for much larger companies. 

So what are the practical aspects of this on-ramp? Most importantly, it is temporary. It would last only for a limited period of 1 

to 5 years, depending on the company’s size. In addition, the bill’s 

transitional relief is limited to those areas that are significant cost 

drivers, and it would require full compliance as the company matures. 

The scaled regulations under the bill include relief from Section 

404(b) of Sarbanes-Oxley relating to outside auditors, as well as 

permitting emerging growth companies to provide scaled management discussion and compensation disclosure. While these requirements might make sense for larger companies, allowing emerging 

growth companies to phase in these costs simply follows the scaled 

12 

regulations that the SEC has already developed and approved for 

smaller reporting companies. 

Second, H.R. 3606 addresses the flow of information to investors 

about emerging growth companies. When our task force surveyed 

emerging growth CEOs, many of them expressed concern that the 

lack of available information about their companies would lead to 

a lack of liquidity for their shares post-IPO. 

Institutional investors like Mr. LeBlanc expressed a similar concern about the dearth of information and exposure they had to IPO 

companies, making it difficult for investors to make informed investing decisions about these new issues. This bill improves the 

flow of information about emerging growth companies’ IPOs by allowing investors to have access to research reports about the companies concurrently with their IPOs, while leaving unchanged the 

robust and extensive investor protections that exist today. 

H.R. 3606 also permits emerging growth companies to test the 

waters prior to filing a registration statement. By expanding the 

range of permissible, pre-filing communications to institutional, 

qualified investors, the bill would provide a critically important 

mechanism for merging growth companies to determine the likelihood of a successful IPO. This also benefits issuers and the public 

markets by allowing otherwise promising companies to get investor 

feedback and to avoid a premature offering. 

In all these ways, H.R. 3606 provides measured limited relief to 

a small population, strategically important companies, with 

disproportionally positive effects on job growth and innovation. 

That is why I urge the members of this committee to support the 

passage of this measure. By doing so, we can reenergize U.S. job 

creation and economic growth by helping reconnect emerging companies with public capital. 

Thank you for your time. 

[The prepared statement of Ms. Mitchell can be found on page 

59 of the appendix.] 

Dr. HAYWORTH. Thank you, Ms. Mitchell. 

The Chair recognizes Mr. Selfridge for 5 minutes. 

STATEMENT OF MIKE SELFRIDGE, HEAD OF REGIONAL 

BANKING, SILICON VALLEY BANK 

Mr. SELFRIDGE. Thank you, Madam Chairwoman, and members 

of the subcommittee, for the opportunity to testify before you today. 

Silicon Valley Bank is a unique institution in terms of where we 

serve the economy. We help entrepreneurs, and we focus exclusively on technology, life science, and venture capital. We serve 

nearly half of the venture-backed technology and life science companies in the United States, and we finance them at the very early 

stages, as well as very late stages. 

Having spent 18 years at Silicon Valley Bank, I have worked 

with thousands of entrepreneurs and venture capitalists. And from 

my vantage point, I see how critical capital is to emerging growth 

companies. 

I also see firsthand the optimism and energy with which entrepreneurs change the world. Every day, I see a company that is 

working to cure cancer, that is looking to protect cyber space, that 

is helping to solve the world’s energy challenges. 

13 

And while I am justifiably optimistic about the innovation sector’s capacity and capability to generate new ideas, this subcommittee today addresses a very real problem, which is that companies need capital to grow. 

Today, many entrepreneurs need to spend a better part of a decade building their companies before they can realistically pursue 

an IPO, and in most instances, those emerging companies opt to 

sell to larger corporations. I believe this has negative implications 

for our economy. The decision to go public or not go public is a 

great debate amongst American entrepreneurs and investors. 

For example, I have worked with a company that does cuttingedge work on regenerative medicine—medicine that repairs damaged tissue and helps the body heal itself. This was a company that 

needed large amounts of capital to develop the treatment safely. 

This company debated greatly about whether to go public or not, 

and they did not. Instead, they sold to a foreign corporation. 

I am glad they had a successful exit, but I am also sad that they 

did not pursue an IPO. I fear that job creation for this company 

may occur overseas. 

Let me tell you about three other companies where I think this 

legislation would help. The first is a company called Broadsoft. 

They are right here in Gaithersburg, Maryland. They were founded 

12 years ago, and they actually went public in 2010. They are a 

leading provider of business Voice over Internet Protocol (VoIP) applications for residential and corporate businesses. They are in 65 

countries. They have 400 employees. 

The money they raised in their IPO helped them grow significantly. But as a company—an executive at Broadsoft said to me, 

knowing that the company was out of pocket $2 million every year 

for lawyers and accountants before going public gave them real 

pause about whether to access the public markets. 

For a large company, $2 million might not be a lot, but for 

Broadsoft, that is money that could have been used to hire over a 

dozen engineers, and from what I have seen, one engineer can 

make the difference in terms of global competition. 

The second company is SAY Media, based in San Francisco, California. They were founded in 2005 by Matt Sanchez, who was just 

out of college. He started the company with 3 employees, and today 

there are over 400 employees. 

SAY enables advertisers to reach consumers through an online 

audience of over 150 million. For SAY, the period of time in which 

they can access the public markets will be a longer path, as compared to their pre-Sarbanes counterpart. And accessing the public 

markets for capital could make a significant difference in the 

growth trajectory and future success for SAY Media. Worse, that 

added time may be too long too wait and SAY Media might find 

itself sold to a larger corporation. 

The third company, which I highlight in my written testimony, 

was cofounded by Paige Craig, who attended to West Point, served 

in the Marine Corps, and worked in our defense, intelligence, and 

counterterrorism communities. He started a company called 

BetterWorks, Inc., in Santa Monica, California. They help companies engage, retain, and reward employees. 

14 

I know from speaking with Paige that he will face a difficult 

challenge. He knows that selling his company will be far easier and 

attractive given the cost and distraction of going public. I know 

Paige wants to build a sustainable global corporation, but that 

choice may not be available. 

I have seen how aggressively other companies are working to displace the United States as the dominant player in the innovation 

ecosystem. To keep leading, we need to adapt to the changing 

times, build on our strengths, and eliminate unnecessary impediments that hinder our success. 

This legislation will help address one part of the economy by removing legal and regulatory impediments that are a barrier to a 

growing company’s ability to access capital markets. I see enormous potential for entrepreneurs and growth companies in America. 

I watch these companies go from two people to thousands of employees and create global corporations. I congratulate this committee for working to strengthen the vitality on an essential part 

of our economy, and I thank you for your time. 

[The prepared statement of Mr. Selfridge can be found on page 

119 of the appendix.] 

Dr. HAYWORTH. Thank you, Mr. Selfridge. 

Without objection, for our witnesses, your written statements 

will be made a part of the record, as mentioned before. 

And now, we will go to questions. The Chair recognizes herself 

for 5 minutes. I am a physician by profession, I am a surgeon ophthalmologist, and just reflecting on some of the commentary that 

we had about Sarbanes-Oxley, one thing that a medical crisis can 

do—and I think we would say the same about a fiscal crisis—is 

that it can bring into stark relief where there may be lesions or 

problems in a system. And I think that the testimony of our witnesses has amply demonstrated that as one might identify a highly 

constricting necktie that didn’t cause problems earlier, but in the 

midst of a heart attack needs to be loosened, certain aspects of Sarbanes-Oxley unfortunately create more problems than they may 

solve for what we want to be a vigorous marketplace for players 

of all sizes and not lead to a too-big-to-fail scenario, which is unfortunately where a lot of regulation that is excessive does lead us. 

Specifically, Mr. Brantuck, with regard to your comments about 

opening up a new venture market in the United States, there is the 

AIM in London, there is the Alternext in Paris. I have spoken with 

the SEC, actually, about opening up a better marketplace for our 

IPOs, so I am wondering if you can comment on how that kind of 

a venture market might work, how it could help our small companies access capital, and what kind of legislative structure would we 

need to use to help with that? 

Mr. BRANTUK. Right. So, we already had approval from the SEC 

to launch the BX Venture Market, which a few years back, the 

NASDAQ acquired the Boston Stock Exchange. We had that exchange license, so that is already set up. And what we have 

learned from other competitors like the Toronto stock exchange, 

which is probably, we would point to probably the most venture 

market where they list 2,100 companies on their market with a 

market capitalization of $37 billion. 

15 

And the thing that I want to point out is that 451 of these companies that started out in their venture market have now migrated 

or upgraded, if you will, to list on the Toronto stock exchange. So 

we feel there is a strong need for an incubator exchange for these 

smaller companies that have the ability and access to liquidity, as 

well as visibility in the marketplace and a mechanism to do what 

is regulated. 

NASDAQ, the Boston, the BX Venture Market would be a regulated national exchange and would comply with NASDAQ’s—excuse me, the BX Venture Market’s listing qualifications, so there 

would be a preliminary examination of these companies based on 

qualitative and quantitative metrics for initial listing as well as 

continued listings. 

So we feel that unlike the OTC, or the pink sheets, this is an environment that creates a stepping stone for these companies to 

have access, to get recognition in the investment community, while 

being regulated in the overall market. 

Dr. HAYWORTH. So, in other words, you provide an additional 

level of assurance to the investor. That is what you are seeking to 

do through establishing things. 

Mr. BRANTUK. Correct. 

Dr. HAYWORTH. And how far along are you in this process? 

Mr. BRANTUK. We do have approval from the SEC to launch it. 

The next step is to outline the market structure, and this is something that we are taking great pause in to make sure that the market structure is there that will help these companies get notoriety 

among the market makers and provide liquidity. 

One would argue that the AIM market has many listings, but 

things that I hear on a real-time basis from CEOs and CFOs that 

have either delisted or deregistered from the United States and 

have switched to the AIM market is that on paper, it was a great 

idea. They left the United States to avoid Sarbanes-Oxley. 

But what they found was that by listing on AIM’s, there was zero 

liquidity. The stock simply never traded. And I could follow up with 

some statistics of how many U.S. firms left the United States to list 

on AIM and have come back. And the companies that have come 

back have indicated that exact thing; there was no liquidity. 

NASDAQ has taken the time to work with the regulators as well 

as the market maker community to get a better understanding and 

to really think through the structure of the market maker community to ensure that there’s liquidity. 

Dr. HAYWORTH. So companies want to be in the United States for 

our much more reliable and trustworthy fundamental regulatory 

structure; we just we need to adapt. 

Mr. BRANTUK. Absolutely. And just, by way of my role, obviously, 

I am out on the road on a daily basis meeting with CEOs and 

CFOs, sometimes large companies, sometimes very small companies. And I would tell you the amount of conversations and the 

number of conversations that I have had around the excitement 

around a market like this has just grown exponentially within the 

last year. 

Dr. HAYWORTH. That is exciting, and I thank you, sir. 

And the Chair yields to Mr. Hinojosa for 5 minutes. 

Mr. HINOJOSA. Thank you, Chairwoman Hayworth. 

16 

I want to thank you for calling this hearing on Reopening American Capital Markets to Emerging Growth Companies Act of 2011, 

and I thank all the panelists because I think this has been an interesting first part of this hearing, listening to what you would do 

to create more IPOs here in the United States, and it seems that 

in the last few years, IPOs are being opened abroad. 

But just listening to the news last night and this morning on 

what is happening on the Euro and the European crisis where they 

have much less regulation, it seems to me that I would question 

that we stop being so hard on regulations here in these last 2 years 

because our economy seems to be trying to improve and our unemployment seems to be improving, yet Europe, with less regulations, 

seems to be very questionable. 

So I would ask, Ms. Mitchell, can you discuss with the committee 

the totality of factors that have resulted in more companies declining to go public, and to what extent is regulation a driving factor 

in the declining number of IPOs versus other macroeconomic factors? 

Ms. MITCHELL. Thank you, I am happy to answer that question, 

and I think that is a good question. 

You are absolutely right that IPOs are impacted by economic and 

market cycles. We can’t deny that. We did a CEO survey this summer. In fact, NASDAQ helped us administer that, of pre- and postIPOs, CEOs about their points of view about the market. And a 

couple of interesting facts came out. Over 85 percent of both preand post-IPOs’ CEOs felt that it was much worse today to go public 

than in 1995. 

And the important thing for me, when I look at that, is looking 

at their perception of should I, as Mr. Selfridge remarked, should 

I be attempting to go public? The markets will open and close, and 

the issue is, are you going to be ready? It takes 2 years to prepare 

all the accounting issues you need to have pulled together and legal 

issues to be ready to go public. 

But if I don’t think it is possible, and I think it has become such 

a challenge, I am not going to do it. And the CEOs again, both preand post-IPO—because post-IPO, they know the answer—cited over 

$2.5 million conservatively calculated costs to go public and over 

$1.5 million to stay public each year. As Mr. Selfridge noted, for 

a small company that is trying to figure out how to succeed, and 

compete against much larger companies, it really is an important 

issue. 

And it is interesting, when you think about the tie between this 

and what is happening in the economic markets. IPOs started declining in the 1996–1997 timeframe. That was the beginning of 

electronic trading, decimalization. It has been a panoply of things 

that have impacted IPO markets at a time when the market was 

actually taking off broadly the economy. 

So there is a tie between regulation, but certainly, that needs to 

go hand-in-hand with what is happening in the economy, and we 

want CEOs to be ready and willing to be able to spend the time 

and the capital to go public to create the jobs that we referred to 

earlier. 

Mr. HINOJOSA. Thank you, Ms. Mitchell. 

17 

I want to ask my fellow Texan here a question. Mr. LeBlanc, 

given the inherently high costs of going public, it seems as though 

private placement is a better alternative for some of the smaller 

firms. If these provisions were in place today, can you provide an 

estimate of how many companies could potentially benefit from the 

expanded exemption under this bill? 

Mr. LEBLANC. Thank you, Representative Hinojosa. I welcome 

my fellow Texan, and I appreciate the question. 

I can give you my own example of having been a CEO of a small company. We estimated it cost us approximately $2 million to comply with Sarbanes-Oxley and, therefore, I had to lay off nearly 10 

percent of my workforce to cover those costs. So there were quite 

a number of people within the company I ran that lost their jobs 

due to the regulations that were imposed. 

I would yield the answer to your question on the number of companies to my colleague here, who cited the average number of IPOs 

during the 1990s at approximately 300 to 400, a year and now 

down to approximately 100 a year, so I think you are looking at 

200 to 300 companies a year that the retail investor does not have 

access to. The retail investor does not have access to private placements because private placements are limited to high-net-worth individuals, and I think this is a shame in our country that we don’t 

allow the small mom-and-pop retail investors to have access to 

these growth companies that would generate quite a bit of wealth 

opportunity for our small retail investors. 

Mr. HINOJOSA. Mr. LeBlanc, in the 1990s, we had the longest period of prosperity in our country, wartime or peace time, and you 

all are talking about how many IPOs started up during that 10- 

year period. 

As you know, this bill states that a company would qualify as an 

emerging growth company with special status for up to 5 years so 

long as it has less than $1 billion. So I will ask you, Mr. LeBlanc, 

can you elaborate on your concerns with this threshold and what 

threshold you think might be more appropriate? 

Mr. LEBLANC. Thank you, sir. 

Yes, a billion dollars does seem like, for annual revenues, quite 

a large sum. My recommendation, respectfully, is that the committee might consider lowering that amount. 

Mr. HINOJOSA. How much? 

Mr. LEBLANC. $500 million. 

Mr. HINOJOSA. $500 million. Do you have an estimate of what 

percentage of public issuers this bill would exempt under the new 

emerging growth company exemption? That will be my last question. 

Mr. LEBLANC. Yes, sir. We had requested that research. We will 

have to get back to you with that answer. We are looking into that, 

the number of public companies in the market that have less than 

$500 million. I did it as an entrepreneur who has run a business, 

and I started looking at the revenue, what my profit margin might 

be, at what stage could I afford $1 million to $2 million that would 

be diminishing my return for my shareholders, and I thought $500 

million would probably get me to that place. A billion might be too 

large. And I do want to have— 

Mr. HINOJOSA. Thank you. 

18 

My time has run out, and I thank you for that response. I yield 

back. 

Mr. LEBLANC. Thank you, sir. 

Mr. DOLD [presiding]. The gentleman yields back, and I certainly 

appreciate that. The Chair will recognize himself for 5 minutes. 

Mr. Brantuck, if you could, just shed a little light and obviously, 

we talked about the IPO marketplace and how it earlier had—was 

much more robust and more lately it seemed to decline in terms 

of numbers. Regardless of the reason why, and I think there is a 

number that we can point to, but can you just give me your take 

on what the impact was for the United States economy to have the 

number of IPOs drop so sharply? 

Mr. BRANTUK. In terms of IPO drops, I would say I think there 

has been enough data to be shared with the House here to identify 

that there is an issue. 

The exact number in terms of jobs and jobs that were lost because IPOs—I could follow up with you; I do not have a list of 

those figures. 

Mr. DOLD. Not a problem. If you could talk to me for just a second on Asian markets. In your testimony, you talked about how 

Asian markets raised over two-thirds of the world’s capital in 2010. 

Can you shed a little light on terms of why they are going to Asia 

as opposed to why they are not doing it here in the United States? 

Mr. BRANTUK. Asia is seen as a viable alternative to U.S. capital 

markets. Regulation isn’t as burdensome. Many companies also see 

that Asia, many of their customers are located over there, so they 

are seeing an alignment over there. But, again, the number one 

reason that we hear companies going over to Asia is because of the 

high regulatory environment that we have here in the United 

States. 

Mr. DOLD. And we will follow up with you a little bit later in 

terms of some of the other things that we should be doing. If I can 

just switch for a moment to Ms. Mitchell. 

Your testimony states that approximately 85 percent of what 

would be classified as emerging growth companies under the bill do 

not find going public is as attractive today as they did in 1995. Can 

you give me some better perspective from what you are hearing as 

to why and how this has hurt the U.S. economy, in your opinion? 

Ms. MITCHELL. It is interesting and a contrast to entrepreneurs 

overseas who see going public on their exchanges as a great banner 

and, certainly, in the early 1990s and late 1980s, companies in the 

United States were aiming for that alternative as well. And I think 

the issue is—we have referred to it quite at length here. In the 

early 1990s, when you think about a normal time period, and I 

think Congressman Himes’ comments, which I think are good ones, 

we are not trying to recreate the bubble at all in what we are doing 

here. 

We are really trying to bring it back to a normalized level. 

But entrepreneurs were very specific about their concerns about 

going public, their ability to get information to investors and the 

costs of doing so. And, so, again when there is a lot of economic 

uncertainty in the market, coupled with what they know to be an 

expensive process, they will pull back, and as Mr. Selfridge referred to, invest in engineers. And when you haven’t invested then 

19 

in getting ready to go public, you are more likely to be sold. And 

when you are sold in the short run, you actually have job reductions because you eliminate redundant jobs. 

You asked Mr. Brantuck a question about the jobs that might 

have been created, and I think it is always hard to deal with a hypothetical. But there is a McKinsey study that is actually in the 

President’s Council on Jobs and Competitiveness report that refers 

to over 2 million jobs that would have been created in the last few 

years. So I refer to that element, and we can all look at that after 

this hearing, but McKinsey had taken a look at that, and I think 

it was post 2007 or 2008 that they referred to that piece of it. 

Mr. DOLD. Thank you. 

Mr. LeBlanc, you just testified a moment ago that in your company, when you were dealing with Sarbanes-Oxley and the like, it 

was costing you about $2 million in order to comply. 

Would you estimate, and you are dealing with other companies, 

that would be more the norm or would that be the exception? 

Mr. LEBLANC. Thank you, Representative. I believe the average is about $1.5 million, so we were estimating between $1.5 million 

and $2 million, and probably of the two, we would have spent a 

portion of that, so I think $1.52 million is a good number. 

I would like to respond to your question about Asia. As a fiduciary for the teachers of Texas, I would much rather see those companies which are going public in Asia, instead going public in the 

United States, because I, as a fiduciary, have much more confidence in our rule of law, and our enforcements of the regulations 

we have and the punishment of those that violate those regulations 

than I do, frankly, in the Asian markets. 

Mr. DOLD. So just following up on that, obviously we would all 

like to see those companies go public here in the United States, as 

opposed to over in Asia. What would you recommend in terms of— 

I think you believe, as I think most of us do, that this piece of legislation will move us closer to creating an environment that will 

help us attract more businesses to go public here in the United 

States. Do you have any indication as to how this legislation may 

be able to help them? 

Mr. LEBLANC. Yes, sir. I believe that the reduced requirements 

for the Sarbanes-Oxley requirements, the additional information 

provided to potential investors about companies, just ease and reduction of cost over that 5-year ramp-up period, will encourage 

many more small companies. 

My son is a good example. He is 24 years old. He is working at 

a start-up in Silicon Valley called WePay. They are a competitor to 

PayPal. PayPal, as you know, was bought by eBay, and is now a 

large company. And there are 30 kids trying build a business that 

they hope can create jobs, do something, and create a competitive 

environment to give people an alternative. They look at the public 

exit as not viable today, and so they ultimately possibly would not 

want to sell or go public but have to sell to a larger company, and 

the wealth creation would be lost to the retail investors. 

Mr. DOLD. Thank you so much. My time has expired. The gentleman from Colorado is recognized for 5 minutes. 

Mr. PERLMUTTER. Thank you, Mr. Chairman. And I am generally 

supportive of this legislation, but I have to say, and I am sorry I 

20 

missed the first panelists’ remarks, but I haven’t heard anything 

about investor protection. And there was a reason for SarbanesOxley, there was a reason for the 1933 Act, and there was a reason 

for the 1934 Act, and that is about investor protection. If the investors don’t feel protected, that they are getting fair information in 

a timely manner, they are not going to invest. 

So now that I got that off my chest, do you believe that the appropriate investor protections still remain? And I will start with 

you, Ms. Mitchell. 

Ms. MITCHELL. You are asking a very pertinent question, and 

something that the IPO Task Force really started out with as a 

premise, and why the composition of our committee included not 

just CEOs, but institutional investors, because we felt if we didn’t 

address that issue, we would have failed. Our objective was to have 

practical but meaningful recommendations. And what we ended up 

with, the structure that we decided early on was to build and extend on existing regulations, because we do think they are valuable. That is why our recommendations on the cost side are temporary. And that is why on the research side, they still are within 

the confines of SEC and FINRA regulations and governance. And 

we felt that was a really important piece. There are certain people 

who don’t think we went far enough. But I think that is why we 

were looking to strike that balance. 

On the cost side, we have addressed the cost issues, but it is a 

short number of issues for a limited period of time. And on the investor information side, we are modernizing it, but we are doing it 

within the context of the existing regulations. And we thought that 

was actually a very important part of this to make it successful 

going forward. 

Mr. PERLMUTTER. Okay. Mr. Selfridge? 

Mr. SELFRIDGE. Yes? 

Mr. PERLMUTTER. I have represented people who got caught up 

in WorldCom and in Enron, so I have seen people harmed. I have 

seen capital absolutely evaporate in front of people’s eyes. So, you 

are talking about, hey, I have these three companies and this 

would really help them. 

I want to just make sure that we have a system in place, sort 

of as Ms. Mitchell and I were just talking about, that protects 

them. So as a banker, you also have the investor side of this. What 

do your investors think about this? 

Mr. SELFRIDGE. I guess as a banker, I look for the same protections in terms of how I analyze risk and manage risk. So as Ms. 

Mitchell so eloquently said, I think the protections are still there. 

Yet what I am dealing with in terms of the segment of the economy 

is far different than global corporations with perhaps a few bad 

eggs. I see companies that are growing at 20 to 100 percent a year. 

And in terms of their impact as three companies on the total economy, I think it is de minimis. However, I see the potential for them 

to grow to be enormous companies and support job growth. What 

I also see is that every dollar that they can spend to help compete 

against fierce competition in countries that have limited respect for 

intellectual property rights, or that they can use to hire engineers, 

or perhaps boost up sales and marketing is a dollar that I think 

has a— 

21 

Mr. PERLMUTTER. Whoa, whoa, whoa. Do you think every dollar 

goes into employing somebody, or does it go into a dividend to the 

investor? 

Mr. SELFRIDGE. The companies I deal with do not dividend to investors. They go into operating expenses to grow companies 

Mr. PERLMUTTER. Have you heard of an outfit called 

SecondMarket? 

Mr. SELFRIDGE. I have. 

Mr. PERLMUTTER. Okay? Do you use their services at all? 

Mr. SELFRIDGE. No. 

Mr. PERLMUTTER. Why not? 

Mr. SELFRIDGE. Personally, I don’t want to invest in those companies. And that is my personal choice. 

Mr. PERLMUTTER. Okay. No, no, that is fine. That is fine. I didn’t 

know if it was something—because that is one where you can take 

what is locked-up wealth or value in a private company, and then 

hopefully find some other people so that you can liquidate or provide some cash— 

Mr. SELFRIDGE. Sure. 

Mr. PERLMUTTER. —for that locked-up wealth. And that is part 

of what happens in these private companies. 

Mr. SELFRIDGE. Right. 

Mr. PERLMUTTER. So, Mr. LeBlanc, in your situation was it really—sometimes just going public is a tough row to hoe, whether it 

is Sarbanes-Oxley or anything else. You come under a lot of new 

restraints. Did that play into your decision at all, just going public 

and knowing you are going to be under this whole new regimen 

and you have investors that you don’t know? 

Mr. LEBLANC. Yes, sir, that did play into my decision. And the 

decision was that the benefits of the access to the public markets, 

the ability to have growth capital to employ more people, to get access to retail investors, outweighed the Bataan Death March you 

have to go through to become a public company. 

I will specifically speak, though, to your internal controls. And 

let me use 404(b) as an example. I had to hire an internal auditor, 

and I hired the best person I could at the salary I could afford. And 

I could tell you that that person was qualified, but I had better resources when I was using Deloitte and outsourcing that, because 

I got global experience, global knowledge, and it was much better 

for me to outsource it. So I ended up having to hire that person 

and supplement their work with outside resources. 

So that is where I would tell you that sans Sarbanes-Oxley, I had 

better internal controls before Sarbanes-Oxley than I did after. And 

then my costs went up, with no added benefit. 

Mr. PERLMUTTER. All right. Thank you for your testimony. 

Mr. DOLD. The gentleman’s time has expired. The gentleman 

from Virginia is recognized for 5 minutes. 

Mr. HURT. Thank you, Mr. Chairman. I want to thank each of 

the witnesses for joining us today. And thank you for your testimony. 

Obviously, I think we all here on both sides of the aisle want to 

see an increased, vibrant marketplace for new and emerging companies. So, I appreciate your insights into that. And I thank the 

gentleman for putting forth this bill. 

22 

One of the questions that I wanted to ask was about the PCAOB 

and the concept that they have put out there about mandatory rotation of auditing firms. And I guess the costs of that concern me, 

as well as I think that the diminished quality of work that might 

result from having that sort of disruption. 

And I was just wondering if, and maybe I will start with you, Mr. 

Brantuk, if you could maybe address your views on that, and then 

maybe have the other witnesses talk about that. Thank you. 

Mr. BRANTUK. Working closely with auditors and auditor firms, 

one big concern that they have is ramp-up time, getting to understand the company and understand the books. And a natural concern to this rotation would be, how much time does it take to ramp 

up to allow these audit firms to do the proper due diligence to properly audit these firms? So the quality of the rotation could be hampered in our opinion. 

Mr. HURT. Mr. LeBlanc? 

Mr. LEBLANC. Yes. We were subject to—when I ran a public company—the rotation. I would recommend two things. One, that you 

do have rotations of the auditor within the audit company. I think 

that is good. I am not sure you have to rotate the company. And 

then, I would encourage this committee to enforce existing regulations so when there is lying, cheating, or stealing, there is punishment for that, and that will have a better impact than causing a 

rotation, in my view. 

Mr. HURT. Excellent. 

Ms. Mitchell? 

Ms. MITCHELL. I am happy to answer the question. The pending 

recommendation that the PCAOB has had out there as we were 

working as a task force over the course of the summer, to be honest 

with you, the members of the task force across-the-board almost reacted in horror when they heard that. The expenses of it for a 

small company are huge. Again, they are using their capital at that 

stage not to liquidate investors, but to really invest in their growth. 

Every few hundred, or few thousand dollars really is a huge difference in perhaps even being profitable and not. 

The expense of bringing in a brand new firm—and by the way, 

small companies buy their services on a retail basis. Their hourly 

rates are among the highest, as one of the former accountants on 

our task force noted to us. And none of us could really believe that 

could be a possibility. 

I agree with Mr. LeBlanc. I think it is very important that we 

continue to have audit partner rotation. That is healthy. Frankly, 

I think that the company benefits. You get the objectivity of a new 

partner coming in. That is a very good thing. To have a new firm 

come in because they have to go back and reaudit prior years, and 

start all over at the beginning, is punitive without providing investors with a lot of benefit. So that cost-benefit balance is just really 

not there. 

Mr. HURT. Thank you. Mr. Selfridge? 

Mr. SELFRIDGE. I would echo Ms. Mitchell’s comments, and I 

would also add that I think from what I see, different accounting 

firms have different philosophies and approaches to new and 

emerging growth companies. Some treat them with more resources 

23 

than others. So I would be suspect in terms of the rotation of an 

accounting firm. 

Mr. HURT. Great. I thank you for answering the questions, and 

I yield back the balance of my time. 

Mr. DOLD. The gentleman yields back. The Chair recognizes the 

gentleman from Connecticut, Mr. Himes, for 5 minutes. 

Mr. HIMES. Thank you, Mr. Chairman. Let me thank the panel 

again for their very good testimony. I am really hopeful we are 

going to get something done here in good bipartisan fashion, which 

is why I felt obligated in the opening statements to try to urge the 

discussion to stay out of the realm of ideology. 

I do want to just run through just a couple of concerns that I 

have. And Mr. LeBlanc, one of the concerns, maybe the prime concern I have had with the legislation is how we pick the number, 

$1 billion. I looked at some data, 3 years, $1 billion in revenues 

would basically be about 80 percent of all IPOs. I heard you say 

both $500 million and $700 million as a counter-recommendation. 

Did I mishear? 

Mr. LEBLANC. Thank you, Representative Himes. I believe the 

proposed legislation was $1 billion in annual revenue. 

Mr. HIMES. Right. 

Mr. LEBLANC. And my suggestion is to reduce that number down to $500 million. 

Mr. HIMES. Can you give us a feel for why—at some level, these things are arbitrary—$500 million may be better than $1 billion in 

revenues? 

Mr. LEBLANC. As you wanted to stay fact-oriented, it is less factual about the number of companies but about me looking at running an operating statement, a balance sheet, and saying, if I have 

$500 million in annual revenue and I have a 10 percent, 20 percent, 30 percent profit margin, then I have $50 million, $100 million, $150 million in net revenue. And then if I had $1.5 million, 

well gosh, that seems like at $50 million, it is still going to be burdensome. At $50 million, I am actually concerned that maybe the 

$500 million needs to be higher. But at $150 million, 1 percent of 

my net revenue, if I had to implement a full $1.5 million, that 

seems like an appropriate level where I could ramp up to SarbanesOxley. 

Mr. HIMES. Thank you. I appreciate that. My second question is 

not so much a question as a request. I get a lot more comfortable 

on this stuff, on these ideas, if the investors who are purchasing 

these securities understand that they are purchasing a slightly different category of securities than everything else, than blue chip 

stocks. I remember back when, if you were on the New York Stock 

Exchange, you had a one- or two- or three-letter symbol, and if you 

were NASDAQ, you had four-letter symbols. I would make a request to the panel if you couldn’t help us think through and maybe 

submit some ideas on how we make it plain to investors that when 

they purchase this, they are purchasing unmatured, emerging companies. That, I think, would help a lot of us get some comfort. So, 

that is just an offline request. 

My last question, and this is directed at Ms. Mitchell and also 

Mr. LeBlanc, it is a sort of ‘‘dog that didn’t bark’’ question. I have 

now heard the $2.5 million figure a number of times. We have 

24 

made no mention of the fees to underwriters. Back when I was 

doing this when I was a tech banker, there was notable consistency 

in gross spreads fees to underwriters of about 7.5 percent. Is that 

still more or less where we are? 

Ms. MITCHELL. Yes. 

Mr. HIMES. Okay. Is it true—so that I do can do a little math 

here, I looked at some data—that the average IPO is somewhere 

between $350 million and $400 million? Is that more or less true? 

Let me use $350 million. A little quick math in my head here 

would suggest that 7.5 percent times $350 million is about $25 million in fees to underwriters. That is 10 times the $2.5 million that 

we are talking about as burdensome here. What do I make of that? 

Am I not hearing about that because issuers and the investing 

community feel like they are getting really good value for that $25 

million, or just what am I to make of that? 

Mr. LEBLANC. That is a great question. Do keep in mind your 

$25 million is a one-time event. The $1.5 million to $2 million ongoing expense is ongoing every year. And ultimately, companies are 

valued based upon the net present value of their income stream 

over a long period of time. 

I would love to see a more robust Dutch auction similar to what 

Google did—you see Facebook is talking about this—and to 

disintermediate that 7.5 percent, and I would love to work with you 

and others to find a way to make that market more efficient and 

make that cost of going public less costly. 

I am a capitalist; I believe in market valuations. The market 

seems to be settled in on that. Hopefully, you will see some companies, some providers of those services maybe start to reduce those 

costs. 

Mr. HIMES. Thank you. Ms. Mitchell? 

Ms. MITCHELL. I am happy to answer that. And interesting 

enough, one of the objectives, and we did have investment bankers, 

as I noted, on our IPO Task Force, and our hope is that we have 

more IPOs, that we have smaller IPOs. A number of the IPOs that 

we all know about this year really are not small cap IPOs, they are 

multibillion-dollar companies raising huge amounts of capital that 

are driving really large fees. And if the recommendations in H.R. 

3606 that you sponsored come to bear, we are hoping that smaller 

companies come to market, the average raise will be smaller, and 

frankly, the fees from an investment banking point of view would 

come down because the average raise would be smaller. 

In the early 1990s, the average raise, as you pointed out, was a 

fraction of what it is today. And we are looking to actually allow 

for the opportunity for smaller companies to go public. 

A quick response to the question that you asked Mr. LeBlanc 

about the size, I think it is a good, healthy discussion for us to 

have. We were thoughtful about where you draw that line. And the 

reason we picked the two pieces, one $700 million in public float, 

the amount of shares that are available on the market, is that is 

consistent with the common SEC definitions for a large accelerated 

filer. So we were trying to build on existing regulations out there. 

The revenue test, we picked that, partly feedback from the institutional investors on our committee, the way they look at small cap 

companies versus large. Also as I mentioned, it takes 2 years to 

25 

plan for an IPO from a cost and infrastructure point of view. As 

you noted, these are companies that are growing 30 to 50 percent 

a year. So you are having to begin, let’s say, if you are 5 years on 

the on-ramp, in year 3 to begin to be ready by year 5. 

And then last, that this really is a lot of these companies—and 

because of these high-growth, frankly, job-creating companies that 

we are referring to that really can, again, revitalize the economy 

as we talked about, grow so quickly, they often are investing in the 

future; they are investing in future growth. A lot of them are on 

the cusp of cash flow breakeven, and aren’t generating the kind of 

steady-state net income or cash flow that Mr. LeBlanc refers to, so 

that is why we left it at that level. 

I would say, by the way, companies like Zynga and Groupon, who 

obviously had well-publicized and successful IPOs of late, within 

the first year would be off the on-ramp, if not available even at the 

beginning. 

We weren’t looking to solve the problem for GM or HCA or companies like that. We were really trying to get the smaller companies, again, revitalizing those small IPOs and for the poor bankers. 

Mr. HIMES. Thank you. I note I am way out of time, but if you 

can get back to us with a response to this question: How can we 

make sure that retail investors know they are investing in something a little more risky than perhaps the average stock out there? 

I think that would be helpful. 

Ms. MITCHELL. That is important. 

Mr. HIMES. Thank you. Thank you, Mr. Chairman. 

Mr. DOLD. I thank the witnesses. And the Chair recognizes the 

gentlewoman from New York, Ms. Maloney, for 5 minutes. 

Mrs. MALONEY. Thank you. Thank you for your testimony. I 

would like to ask Ms. Mitchell, recently we had a hearing on Mr. 

Fincher’s proposal to permanently exempt companies with a larger 

market capitalization from section 404(b) of Sarbanes-Oxley. And it 

was noted at that time by exempting companies of $75 million or 

less, which was in Dodd-Frank, we were really capturing 60 percent of the public companies that are out there. 

So can you explain to me why you believe a 5-year exemption 

from compliance, for companies with almost 10 times that in market cap as the ones we exempted in Dodd-Frank, is a good idea? 

Ms. MITCHELL. Thank you for asking that. That was something 

we pondered carefully when we began thinking through this group 

from the broader ecosystem, because it is—from an investor protection point of view, can be concerning if it is a large percentage of 

any population. And the reason we chose that 5 years is the opportunity to use the capital to grow and, in the process, prepare for 

full compliance. And the result is that— 

Mrs. MALONEY. Ms. Mitchell, my time is limited. Aren’t we really 

talking about very small companies that want to go public but 

don’t have the resources to create full compliance regimes or cover 

the cost of registering? Why is the threshold so high? I can understand wanting to help smaller companies comply, but this is a huge 

exemption. 

Ms. MITCHELL. And the benefit that we put forth, the 5-year time 

horizon, actually means that less than 2 percent of the market cap 

on the total exchanges would be impacted by the recommendations 

26 

that we are making. And it is less than 15 percent of the companies that are on the exchanges because we have set a limited time 

for compliance. 

Mrs. MALONEY. But it is a huge cap; it is 10 times what we had 

in Dodd-Frank. 

Let me ask you, what are the investor protections that are there 

during that 5-year period? What is there to protect investors? 

Ms. MITCHELL. Number one, it is important that they are on the 

public exchanges, because all the SEC and FINRA regulations exist 

for small through large companies, and the governance at a large 

level. When we looked at very small reporting companies, the list 

of exemptions that they have, we actually took a lot of them off 

that on-ramp list because we felt that we should leave everything 

in place that we possibly can. So if it didn’t generate cost, we left 

it on. If it also was not valuable for investors, even if it was expensive, we also took it off that on ramp. 

As an example, projections of future commitments of cash flow 

are really important for investors to understand the cash position 

of a small company. So even though that is costly, we felt it was 

important that companies still comply with that from day one. So, 

again, we looked at building and extending existing regulations, 

not throwing them all out and making these companies exempt 

from everything. And they are exempt only for a limited period of 

time. So again, we tried to do it within the spirit of investor protection, and consistent and clear communication with investors. 

Mrs. MALONEY. Okay. I would like to ask Mr. Joseph Brantuk 

from NASDAQ, I regret I had another hearing I had to vote in and 

so I am getting here late, but in your statement, you were talking 

about opening up some new exchange called the BX Venture Market, which is going to be helpful for small companies. Can you explain why it is helpful? Why do we need this? What do you see as 

the benefits of this? What is the difference in the way a small company’s stocks trade? And also, your comments on what protections 

are there for investors during this 5-year period? 

Mr. BRANTUK. Right. I will take the protections for investors in 

this 5-year period; I would point to the exchanges themselves. 

These companies that are listed on NASDAQ, NASDAQ Global Select, our highest listing here, has the highest listing standards in 

the world. So not only is it very difficult, both qualitative and 

quantitative metrics, for these companies to list on NASDAQ, but 

there is also ongoing regulations and continued listing qualifications that monitor. 

So we have a team here in Rockville, Maryland, that is constantly monitoring these companies to make sure that both on a 

qualitative and quantitative basis, they are following the rules of 

NASDAQ. 

To the BX Venture Market, we believe this is an absolutely critical and important market for small companies looking to access 

capital. It is an efficient way where there is no middle ground between companies that are trading on the OTC in an unregulated 

market, and companies that cannot qualify to list on NASDAQ. 

Right now it is sort of a no man’s land. And we believe by creating 

a BX Venture Market, that it is highly regulated, and that these 

companies will have access to mature, grow, incubate, and hopeVerDate Nov 24 2008 17:01 Jun 06, 2012 Jkt 072633 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 K:\DOCS\72633.TXT TERRIE
27 

fully one day list on the main exchange, on the NASDAQ Stock 

Market. 

There are fundamental issues that we are concentrating on right 

now, which is market fragmentation and the lack of liquidity, and 

pricing discovery on these smaller companies and smaller cap companies. And we believe that the committee should also take a look 

at innovative market structure rules to ensure that these companies are provided and supported by the market-maker community. 

Mrs. MALONEY. Very briefly, Ms. Mitchell, you mentioned that 

small companies pay retail rates for auditors—and you can get 

back to me in writing since my time has expired—but what are 

those rates, and how do they compare to the rates for larger companies, since we are doing sort of a contrast between large and 

small? Or if you can answer quickly, I think that is an important 

point for my colleagues. 

Ms. MITCHELL. I will submit that. In the interests of being accurate, I will go back to my committee members and supply that to 

you in response. 

Mrs. MALONEY. Great. Thank you so much. Thank you. I yield 

back. 

Mr. DOLD. The gentlelady yields back. The Chair recognizes the 

gentleman from California, Mr. Royce, for 5 minutes. 

Mr. ROYCE. Thank you, Mr. Chairman. Mr. Brantuk, you noted 

the President’s Council on Jobs and Competitiveness, and they had 

this report on Section 404(b), their recommendation. Can you expand on why you believe that providing a permanent exemption for 

404(b) is necessary? 

Mr. BRANTUK. The permanent extension of 404, quite honestly, 

we believe there is no additional value in 404, just additional cost. 

I believe one thing we did mention is for companies, a suggestion 

to have these internal controls done every other year. We just 

think that the additional costs of having these controls for 404 

every year are just not necessary. 

Mr. ROYCE. Now, you also cited testimony regarding the potential negative consequences of companies staying private. You mentioned some research on that. Why is that the case? Why would it 

matter on a macro level if a given firm decided to remain a privately held company? We had that statistic we talked about earlier 

here. We have the majority—or you have a smaller number of public companies today than you did 10 years ago here in the United 

States, despite the fact of so many going public overseas. Why 

would that matter? 

Mr. BRANTUK. It really comes down to job creation. These smaller 

companies need access to capital to grow and create jobs. And without that access to capital, they really are only left with one option, 

which is to sell themselves to recognize the true value of their company. 

One big concern is that there is $1.5 trillion of cash on the balance sheets of U.S. corporations. We believe that money is just sitting there and ripe to acquire a number of companies. And as we 

all know, M&A equals job reductions. IPOs equal job creations. 

And we believe that is the main focus and driver behind job creation is fostering and creating valid IPO capital markets. 

28 

Mr. ROYCE. So you think this phenomenon of delisting, and the 

mergers and acquisitions that go on in place of it as firms become 

more inward looking, and as they are not engaged in R&D, and 

don’t have access to the capital, and they sort of change their outlook, and as a result, it impacts employment here in the United 

States? 

Mr. BRANTUK. Absolutely. These companies are looking to where 

they can fit a niche product or service for a larger corporation in 

the goal to be acquired, whereas, looking at it holistically, looking 

at the innovative nature of the U.S. economy and the U.S. entrepreneurs in the United States and really grow and strive and 

thrive and, again, raise and create jobs. 

Mr. ROYCE. In your work with clients, do the disproportionate 

way in which these costs affect smaller firms relative to larger 

ones, given the way that larger ones can more easily absorb the 

costs, does that have an impact? We have compliance cost evidence 

from an SEC survey that suggests that the ratios are 7 to 1 or 8 

to 1, something in that neighborhood. What impact does that have? 

Mr. BRANTUK. Absolutely. We are not against regulation. In fact, 

NASDAQ is an SRL. We embrace regulation. We believe it supports capital formation and protects investors. But we also believe 

that we just need to strike a balance. It is not a one-size-fits-all in 

terms of regulation. The ability for a company making a billion dollars in revenue to absorb these additional compliance costs is much 

different than a company making $75 million to absorb these compliance costs. 

Mr. ROYCE. So for example, the piece I had from the Wall Street 

Journal about some of these rules, companies have had to undertake exhaustive investigations of such minor issues as how many 

people should be required to authorize small customer refunds at 

a retail location, you are saying that when this happens, the disparate impact on small firms is considerable? 

Mr. BRANTUK. Exactly. I have heard crazy stories of how, because of 404, companies needed processes in place to order staplers, 

order business supplies. 

Mr. ROYCE. So the economies of scale relative to large firms 

versus small, would argue that an exemption under a certain 

amount would be very beneficial in terms of the competitiveness of 

up-and-coming smaller firms, which are the larger hiring firms, 

right? 

Mr. BRANTUK. Absolutely. 

Mr. ROYCE. They the ones that are most likely to hire and grow. 

Mr. BRANTUK. Absolutely. I would point to the data that 90 percent of all new jobs are created after a company goes IPO. 

Mr. ROYCE. Thank you, Mr. Chairman. I will yield back. 

Mr. DOLD. The gentleman yields back. The Chair recognizes the 

gentleman from Minnesota, Mr. Ellison, for 5 minutes. 

Mr. ELLISON. Thank you, Mr. Chairman. 

My question is, looking at H.R. 3606, there are a number of 

things that would comprise this widened on-ramp you all are talking about. And they come in the form of exemptions. I haven’t gotten on the bill yet. I might. I am just thinking about it. And the 

thing that kind of drew my attention first is not some of the regulatory stuff that may make things better. Experts who know more 

29 

than me, I might want to listen to. But other things sort of got my 

attention, like how would exempting these companies from say-onpay votes—and there are a number of compensation-related 

things—how does this help a small company? 

Again, I have never run a company. I guess I ran my law firm. 

That is the only one. But how do these things play? The stuff about 

404(b) and the other stuff, it does make sense to me, but just letting—just dropping all accountability around compensation, I 

would just love to hear your thoughts on how that helps a company 

achieve public status. There is probably a good reason, but I just 

don’t know it. 

Ms. MITCHELL. Simply, and I should yield to a former CEO as 

well, at your direction. And again, it is really important that you 

bring this up. There is detailed compensation disclosure that will 

be included. So we are narrowing for a short period of time. Frankly, the truth is for these small companies, their compensation is 

very simple and not as complex, and frankly not as lucrative as 

some of the larger companies. 

Mr. ELLISON. Exactly. So that is why I don’t know why the exemption needs to exist. Usually, it is simpler. 

Ms. MITCHELL. What they have to do, though, is go through a 

much more detailed compensation disclosure when most of it 

doesn’t apply to them. But because it is a larger company, what is 

required for IBM is required for a smaller start-up, and they still 

have to fill out all the paperwork and have all the lawyers take a 

look at all that piece for compensation. 

What we are saying is they do disclose, using the small reporting 

company format. It is important for shareholders to understand 

compensation. But let’s for that initial on-ramp use the smaller 

company reporting that the SEC allows today, and then over that 

5-year period, they will either grow out of the on-ramp status 

themselves; or, at the end of the 5-year period, regardless of their 

size, they will need to comply with the same requirements that an 

extremely large company would have, the much longer, more lawyers’ fees kind of disclosure. But it would be disclosed. 

Mr. ELLISON. That is good to know. And also too, when I heard 

about the reduction in IPOs, I was disturbed by those statistics. 

And then, I heard the migration to the Asian markets is really 

where we see the growth. I thought to myself, if I had a lighter regulatory burden in some other part of the world, I might go there. 

But then, is Asia in for its own Enron and WorldCom because they 

don’t have the regulations that we have? The reality is if you look 

at this housing bomb that we just went through, it really took 

place in the more unregulated part of our market. Ultimately, Sarbanes-Oxley was passed, as my friend said, for a reason. Is the migration to Asia’s lower regulatory burden, is it necessarily—I guess 

it is a bad thing, but are they just not being prudent? Mr. LeBlanc? 

Mr. LEBLANC. It is hard for me to respond to say whether or not 

they are being prudent. Would I rather have those companies in 

the United States— 

Mr. ELLISON. Me too. 

Mr. LEBLANC. —under a rule of law that I have faith and confidence in? Yes. I don’t think Enron or WorldCom would be affected 

by this legislation. If we look back at what has been too- big-to-fail 

30 

as what has caused a lot of the financial burden, it has not been 

small companies. 

Mr. ELLISON. Right. I agree. And I hope you accept my questions 

as one who would love to see us increase our number of IPOs. I 

like the spirit of this legislation. I just want to make sure, like 

other questioners have, that we are basically not ripping off regulatory burdens that protect investors, and at the end of the day we 

get rid of all this stuff, and we are just back in a bad economic situation. 

Mr. LEBLANC. Representative Ellison, I applaud you for that. I 

think that is critical. Business in this country is based upon trust. 

And if we lose trust, there is no business. There is not a regulation 

in the world that will keep a dishonest person honest. But if you 

have a set of rules that are fair and equitable, and then enforcement of those rules—I sign Sarbanes-Oxley as a CEO in certification. To my knowledge, there has not been a prosecution of a 

CEO under Sarbanes-Oxley. I am stunned. 

Mr. ELLISON. I am out of time, but I will say that we do have 

to talk about nonregulatory ways to increase basic civic virtue and 

honesty. And I am curious to know in the future how the corporate 

community is doing that. Thank you. 

Mr. DOLD. The Chair recognizes the gentleman from Tennessee, 

Mr. Fincher, for 5 minutes. 

Mr. FINCHER. Thank you, Mr. Chairman. Let me be clear, too. I 

thank my colleagues on the other side of the aisle for some good 

questions. This is an attempt to move forward in a bipartisan manner. Mr. Carney and I have had the conversation, not putting the 

blame on any one person or party, but in order to move the country 

forward and in order to stay with the focus of job creation. I have 

said many times that I don’t know what was happening here before 

I got here, but I know what is happening now. So, we are just looking at moving forward. 

Mr. LeBlanc, a few minutes ago you made the statement of dial- ing back the $1 billion to $500 million. Do the other panelists agree 

with that? Mr. Brantuk? 

Mr. BRANTUK. I think it holds merit to do an analysis. And absent the data of exactly how many companies would fall into each 

of those categories, I think it would be difficult to comment on. 

Ms. MITCHELL. The IPO Task Force in its recommendations actually supported the $1 billion cut-off for the reasons that we talked 

about. Institutional investors that were participating in our committee looked at that because of the time it takes to prepare and 

the growth, you have to actually start—you have to aim for a couple of years. And because these companies are still investing in 

their growth, it is a large percentage of their bottom line. So we 

are supportive of the $1 billion revenue and the $700 million public 

float definition. 

Mr. FINCHER. Mr. Selfridge? 

Mr. SELFRIDGE. I would agree with Ms. Mitchell, I support the 

billion dollars. I think as I understood Mr. LeBlanc’s testimony, the 

litmus test of a net profit margin is far different than the company’s IC, where they are rapidly investing in operating expenses. 

So on a net margin basis, that is a far different metric than gross 

revenues. 

31 

Mr. FINCHER. Okay. Mr. Brantuk, just again a common-sense 

question here. How soon after a company files with the SEC to go 

public will it take for them to actually enter the marketplace and 

issue shares for the sale to the public? 

Mr. BRANTUK. In a good economy, a minimum of 3 months. But 

given the volatility just in this year alone, it is taking companies 

significantly longer than that. So 8, 10, or 12 months. And there 

are even some companies that are on file now that filed their S– 

1 a year-and-a-half ago. 

Mr. LEBLANC. One comment, question, that is from the date you 

file. There is a tremendous amount of time that occurs before the 

date you file to prepare for the filing, which could be 6 months to 

a year to put all the information you need together financially to 

prepare the application. 

Mr. BRANTUK. Absolutely. And to that point, I apologize if I 

didn’t understand the question. But we advocate that a company 

should begin acting like a public company 2 full years before they 

actually file their S–1. 

Mr. FINCHER. Okay. Ms. Mitchell, when a company is unable to 

go public, why are job losses so heavy when the company is sold 

or merges with another company? 

Ms. MITCHELL. It is an important fact, and you see it. We have 

talked about the longer-term studies showing that 92 percent of a 

company’s growth occurs post-IPO. The study that we did with 

NASDAQ this summer actually looked at newer companies. So we 

wanted fresh data around the cost of going public, including Sarbanes-Oxley as an example. 

It is interesting, one of the questions we asked in that was job 

growth. These are companies that had gone public since 2006. So 

let’s say the average age is somewhere in the 3-year range, roughly. Their statistics were that 86 percent job growth had occurred 

post-IPO, which tells you that most of that job growth occurs early 

in that company’s IPO cycle. 

So number one, that is why you want to go public. When a company sells itself—as one of my colleagues always said, what would 

Seattle look like without Microsoft? What would Silicon Valley look 

like without Intel? 

When you become a division of a company, first of all when you 

get acquired, all of the redundant positions, the CFO, the CEO, a 

lot of the management team gets laid off. And you may not have 

the opportunity to grow and become an independent company like 

you could have if you had been able to stand on your own and go 

public. And it is interesting to see with all these M&As, and it used 

to be 90 percent of venture-backed companies went public; now 90 

percent sell themselves. One of the impacts of that is the number 

of tech listings has gone down, the number of acquirers has gone 

down. So there is even less competition. 

If you decide to sell yourself, there are even fewer companies to 

sell to. We need to get more companies public that are big, that not 

only can themselves create jobs but even acquire some of the smaller companies. It is really a shrinking pie. And again, it is moving 

overseas. 

Mr. FINCHER. Thank you guys. 

32 

One last comment before I yield back. Making sure the investors 

are protected is critical. It is. But also making sure that the environment is friendly for the creation of these companies will also 

give the investors an opportunity to invest. And you can’t have one 

without the other. 

And so no one here is wanting to—the pendulum sometimes here 

swings way too far in either direction. But we are trying to take 

a common-sense approach. Again, I thank Mr. Carney and my 

other colleagues. But with that, I yield back. Thank you, Mr. 

Chairman. 

Mr. DOLD. The gentleman yields back. The Chair recognizes the 

gentleman from Delaware, Mr. Carney, for 5 minutes. 

Mr. CARNEY. Thank you, Mr. Chairman. And I want to once 

again thank Mr. Fincher for his leadership on this, the gentleman 

from Tennessee. As a Representative from Delaware, the first 

State, I am the last one, I am the lowest man on the totem pole 

on this committee. And when I have a chance to ask questions to 

a panel, it usually looks like this: the Chair and nobody else but 

staff. And everybody else has left. 

I have been carrying the ball on this side of the aisle, and I have 

heard a lot of the questions that you heard from our side and from 

our members. And by the way, Mr. Himes and Mr. Perlmutter are 

cosponsors of the legislation. But they have real concerns that you 

heard. And they fit in really three categories, why the $1 billion 

threshold, and we have had a very good conversation. By the way, 

this panel is excellent. Your responses to our questions have been 

very insightful, and we appreciate that. 

What about investor protection? And then, what you heard from 

Mr. Ellison on why on say-on-pay. And first, I would like to hear, 

Ms. Mitchell, just talk about the IPO Task Force itself for the 

record, kind of get it on the record who was involved in that. And 

if you could end that kind of description with Treasury’s kind of 

view of the legislation and the issues that were identified in that 

task force. 

Ms. MITCHELL. I would be happy to. I will quickly say on behalf 

of small companies who have incorporated in Delaware, maybe you 

are small on the map, but in the small company’s mind you actually loom quite large. 

Mr. CARNEY. All my friends in California who are lawyers can always tell me who the Secretary of State is in Delaware. 

Ms. MITCHELL. Exactly. 

Mr. CARNEY. At the risk of malpractice, they file their companies 

in Delaware. And we appreciate that. 

Ms. MITCHELL. Exactly. And we appreciate that it exists, actually. It is quite healthy. The IPO Task Force actually came together after the Treasury’s Access to Capital Conference, which 

was a very healthy discussion in and of itself. We were a private 

group, an independent group, and we literally came together in the 

halls. And the good discussion that has happened today, this balance between, as Congressman Fincher referred, of making it more 

palatable for small companies to access public markets, but to do 

so without compromising investor protection, led us to put a diverse group together. It, as I mentioned, included CEOs and institutional investors, probably the first-class citizens, I would say, of 

33 

that IPO Task Force—and they should have been—along with private investors, securities lawyers to help us fathom how all this 

works, academicians, and investment bankers. 

And it was interesting because when we started working together, we each came with our own list, like we all do. And when 

we came together, we all ended up shortening our list. We all had 

our dream statement. And we came together with something that 

was designed, again, to work with existing regulations, to find that 

balance that really wasn’t extreme in either point of view. We were 

really trying to come back with a very balanced perspective was 

really the objective overall. 

Mr. CARNEY. So could you just talk a little bit about the investor 

protection piece of it and how that discussion played out, and if 

there were other things that maybe weren’t—that didn’t make it 

into this legislation? I have heard all these questions before as I 

have tried to encourage my colleagues to become cosponsors. And 

we have a good list of cosponsors, by the way, from this side. 

Ms. MITCHELL. You do. It is important to note how much is still 

applicable to these companies. The current and the periodic reporting, risk factor disclosures, audited financial statements, disclosures of related party transactions, the mandatory requirement to 

disclose all material information. That gets to the SOX 404(b) 

issue. It is mandatory that they disclose material weaknesses. They 

actually still have to certify it. So that was new in 2012 with SOX. 

They still have to do that. And they still have to comply with all 

corporate governance. So we really tried to keep as many of the existing regulations as we could. 

Mr. CARNEY. I think that is really important to get on the record, 

and it is the points I have tried to make with my colleagues, that 

this doesn’t do away with regulations that are important in terms 

of those kinds of things. 

Mr. LeBlanc, could you comment on that? You said some things 

at the outset I thought that were very important to hear with respect to investor protection and access to information. 

Mr. LEBLANC. Yes, sir. Thank you, Representative Fincher. And 

thank you, also, for sponsoring this bill. 

Two points I would like to make. One is, I believe the disclosure 

of information will be increased through this bill, not decreased. 

And as Ms. Mitchell has said, the regulations will still be there. We 

are just trying to reduce the regulations that are burdensome to 

small companies that cannot afford it until they get to scale. 

One thing I do want to mention about capital and the access to 

capital that is very important: Most of these private companies 

have access to not permanent capital. It is provided by mostly 

closed-end funds or high-net-worth individuals who have a 

timeline, who say I will put my money in and you have a distinct 

timeline to get my money out. And therefore, you either will have 

to do an IPO or you will have to sell yourself. 

If we do not open up the IPO market, these small companies will 

be forced to sell to larger companies, who will then lay off a portion 

of the smaller companies due to redundancy. So I think a critical 

part to this is to get access to permanent capital on our public markets, which are the best public markets in the world. 

34 

Mr. CARNEY. I think that point has been well made by each of 

you today in terms of having IPOs as an outlet, as opposed to being 

bought by a larger company in terms of job creation, which is important to all of us. 

And I see my time has run out. So I just want to thank the panel 

once again. I want to thank Mr. Fincher again for putting together 

and working with this group on a piece of legislation that I think 

is common sense and a way to help with the IPO market and create jobs in our country. And I am pleased to be the cosponsor on 

this side. 

Mr. DOLD. The gentleman’s time has expired. The Chair recognizes the gentleman from California, Mr. Sherman, for 5 minutes. 

Mr. SHERMAN. Thank you, Mr. Chairman. I am one of the few 

members of the committee who has actually done auditing. I had 

hair before I started that process. And so, I see the importance of 

internal control. I know we have a panel of four distinguished witnesses here who have shown their brilliance perhaps in every respect except for their support for the language chopping back on 

404(b). So I won’t ask a question about that. I will just say that 

without internal control, you simply don’t have numbers that investors can rely on. 

I am also concerned about mandatory firm rotation, because I 

have been on audits when our firm was new to the audit, and it 

was twice as hard; but that was okay, we just charged them twice 

as much. 

So I want to focus my questions on this mandatory firm rotation. 

I will start with Mr. Brantuk. Is mandatory partner-in-charge rotation sufficient, or should we move to mandatory firm rotation? 

Mr. BRANTUK. Again, we testified before, and we are against 

mandatory firm rotation. We believe that it is inefficient and it 

brings additional costs to especially these smaller companies. 

Mr. SHERMAN. Mr. LeBlanc? 

Mr. LEBLANC. I agree. I think mandatory partner rotation is 

good unless you want the bill to be called the Auditor Full Employment Act. 

Mr. SHERMAN. I have friends. But they are all fully employed already. 

Ms. Mitchell? 

Ms. MITCHELL. I concur. And particularly for small companies, 

paying the freight for a brand new audit firm every year is too 

much. Having the audit partner, though, is very important, having 

that rotation. 

I would also say, by the way, H.R. 3606 does support internal 

controls. It just excludes for a short period of time the external 

audit of internal controls. They still exist. They have to be disclosed 

if there are weaknesses. The CEO and CFO have to certify them. 

And corporate governance rules still comply. 

Mr. SELFRIDGE. I do not agree with mandatory firm rotation. As 

I stated earlier in my testimony, I had mentioned, and I think as 

you just said, you charge them twice as much. I see different approaches from different accounting firms. Some do spend as much 

attention with emerging growth companies as others. And as such, 

I think those companies suffer. 

35 

Mr. SHERMAN. I would also point out that all four firms, the 

major firms, at least I believe all the major firms, not even the four 

largest, have done something that I think is even more important 

than mandatory partner rotation, and that is a rule within the 

firm, what we used to call the quality control and technical compliance partner has to sign off. 

Arthur Andersen had a policy with their technical review department. It was called, ‘‘Don’t Ask, Don’t Tell.’’ That is to say the partner in charge of golfing with the client could choose whether to consult with the technical review department or not. I think this policy 

gave Arthur Andersen its significant growth and its complete demise. 

And I look forward, as this bill goes forward, if we are going to 

focus, and it is germane to taking a look at the yes, you should 

have a rotation of the managing partner on the job, but you should 

also require the technical review department’s consent before the 

audit is signed. 

So I applaud the firms I am familiar with, whom I might add are 

still in existence, unlike Arthur Andersen, for following that policy. 

Perhaps, Congress will play a role there. And with that, I yield 

back. 

Mr. DOLD. The gentleman yields back. And I certainly want to 

thank the witnesses for their time today. Without objection, the 

NYSE Euronext testimony will be submitted for the record. 

The Chair notes that some Members may have additional questions for this panel which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 30 days 

for Members to submit written questions to these witnesses and to 

place their responses in the record. 

This hearing stands adjourned. And again, thank you for your 

time. 

[Whereupon, at 11:29 a.m., the hearing was adjourned.] 

(37) 

A P P E N D I X 

December 15, 2011 

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