Why High Tech is So Sick
"McNealy suggested that Congress reform the tax code and the accounting industry streamline its maze of rules and regulations."
Looking at the insider stock sales for the recent dot coms is quite revealing. Many of the insiders exercise large stock option and sell immediately.
(Ironically, Sun lost several of its execs to these high fliers. Some of them did well, by selling out their huge options to suckers, some of them did not do well. I won't name names, for obvious legal reasons.)
Frankly, much of the insider activity in the famous dot com, networking, and optical startups looked like "take the money and run." Many of the founders and early directors were long gone by the time the inflated outlooks and puffed up technologies were revealed. One acquaintance of mine got out with nearly $100 million in excercise-sell gains...the stock, a "B2B" one-time high-flier, is now trading for about 50 cents and faces delisting and oblivion.
It's clear that a lot of these founders, directors, officers, and VCs really had no reason to build a solid company that would survive and thrive for decades. All they had to do was to convince the day traders that the stock would "go to the moon." And then they could sell out, put the money into ranches and t-bills, and laugh.
(I'm not saying I would have done better had I been getting stock options of 250,000 shares of DigiCon every year, with a grant price of $.06 and a 1999-2000 price of $73. I'd probably have exercised and sold to some suckers who saw Henry Blodget on CNBC saying "This stock will go to $400!!")
This is the real issue, I think. Silicon Valley used to be about building value over a period of many years. In recent years it has been about a shell game: issuing vast amounts of stock to founders and friends, doing an IPO, and then selling out as fast as possible before the house of cards comes tumbling down.
VCs are expert at this.
This is a change from the earlier days of founders creating value and VCs being long-term partners.
No wonder the suckers are tuning out CNBC and not listening to guys in berets saying their company will be bigger than Intel and Microsoft put together.
There are many things Congress could and should do:
* decrease the capital gains tax depending on how long an asset is held--this will at least partly incentivize long-term investment
* expense stock options properly
(I used to not think this was a good idea. But having seen so many flaky dot coms essentially give away the company in hopes that some suckers would be too slow to realize the company was being hollowed out, I now think changes are needed.)
It will be up to investors (or speculators, day traders, as the case may be) to crack down on companies not actually building value. Nothing the government can do about this.
--Tim May |
