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To: Warner Buffett who wrote (444)	3/16/1999 9:24:00 AM
From: Sophie Janne	Respond to of 1197

Bye-bye Buyout. (on Yahoo! board) Bye-bye Buyouts? by Eileen Buckley wired.com 3:00 a.m. 16.Mar.99.PST The ultimate business goal for hundreds of Silicon Valley startups isn't to become the next Microsoft. It's to get acquired by Microsoft. Entrepreneurs and venture capitalists are loath to admit it, but many of the Valley's startups don't plan to become profitable. They hope their technology generates enough buzz so that a Microsoft or a Cisco steps in to buy them out for hundreds of millions of dollars, dumping a windfall on management and investors. So, it's no wonder that venture capitalists and entrepreneurs are steamed about a proposed change to the way companies record the financial effects of acquisitions. The change, if adopted, could make acquisitions costlier for buyers, making life difficult for those who were planning to get bought out. Specifically, the Financial Accounting Standards Board, the highest accounting authority in the United States, is considering a rule that would force companies to record the cost of big acquisitions over several quarters, instead of writing off the cost as a giant extraordinary charge in one quarter. "I think it's a terrible mistake," said Mike Goguen, general partner at Sequoia Capital, one of the most influential venture capital firms in the Valley. Here's how things work today: When a company pays a huge sum to buy another company with little assets, it usually records the difference between the purchase price and the assets as goodwill. The buyer can subtract the amount of goodwill from its earnings over several quarters. But in the case of technology companies, the acquiring company can write off much of that financial luggage as in-process research and development -- a maneuver that hits the buyer's bottom line hard for one quarter, but frees the buyer from recording the cost of the acquisition for years. The proposed rule closes that accounting loophole. Acquiring companies would be forced to carry the cost of their purchases over several quarters, dampening their growth. If the rule does get adopted, big fish could pay less to acquire little fish, making the startup pond less attractive to would-be entrepreneurs. The venture capital industry, which made US$14.27 billion in 1998, also could be hurt by the ruling. With fewer startups available, VCs would have fewer chances to invest in the next Intel. In short, the entire Silicon Valley ecosystem could be in jeopardy, opponents of the rule say. 1 of 2 Next Page >>