We’re pleased to have helped bring awareness to a great program that’s going on at the San Diego Venture Group tomorrow.

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The return of the small/mid market IPO: Will 2011 be the year?

:Editor’s note: This article is written in advance of the San Diego Venture Group’s “State of the Capital Markets” program on Feb. 24 at the Hyatt Regency Aventine Hotel. For information, log onto sdvg.org.

While the IPO market showed some life in 2010, the ability for small and mid-sized U.S.-based companies to go public is still in question. The now infamous Sarbanes-Oxley Act dramatically increased the costs of going public and also being a publicly-traded company, raising the bar on what kind of net income is required in order to support a public valuation.

Analysts have also been hampered with limitations on their involvement in the IPO process, removing a revenue stream that supported smaller banks’ ability to staff such talent. Lastly, smaller investors, a significant buyer of small and mid-cap IPOs, have migrated away from managing their own stock portfolio as a result of the global recession in favor of putting their money in mutual funds.

But let’s not forget about the ones that have worked out rather well of late. San Diego’s own American Assets captured more than $560 million in their IPO shortly after the New Year while Carlsbad chip-maker MaxLinear raised $92 million in their 2010 public offering debut.

The fact is that opening the markets back up to small and mid-sized businesses means more opportunities for good organizations with great business models and valuable intellectual property to realize their potential and create more jobs in the process. All this begs the question — what will it take to finally open up the window for the small IPO?

There are several discussions currently under way on how to do this, but one thing is clear – the IPO model will need to change for small and mid-sized businesses to have an opportunity to access the public capital markets. Some options include:

• Go back to Nasdaq’s roots. In earlier years, Nasdaq provided smaller companies with a credible venue to offer stock for public purchase. That’s not as much of the case today as the market has lost much of its differentiation with other stock exchanges, preferring instead to capture the lion’s share of corporations and investors of all sizes to trade on their platform. Whether by design or default, the end result is squeezing out small and mid-sized businesses. Reversing this trend or setting up a separate exchange dedicated to the Nasdaq’s original purpose would open the markets up to deserving organizations not currently being served.

• Set up a reverse auction stock exchange platform. Google showed the merits of this strategy well six years ago when it became public, opting for this type of format in lieu of the more traditional IPO process. In essence, a company receives multiple bids for its shares on opening day, with the final price being equal to the lowest bidder of any of the shares it offers. Once its set, all bidders will pay the lowest price, even if they pledged more. This type of format might be scalable for other small and mid-sized businesses to leverage.

• Exempt smaller companies from all the Sarbanes-Oxley requirements. It’s unrealistic and unnecessary to burden small and mid-sized organizations with such costly administrative requirements. Utilizing the Rational Man’s behavior would spur new investment while still keeping the public markets operating efficiently and ethically.

• Get analysts back it the game. Let’s consider empowering analysts to market IPOs again, with reasonable restrictions to be sure, but not to the point of exclusion as it currently stands.

While the methods may be up for discussion, there is no debate on the need to help small and mid-sized businesses access the public markets again. The benefits and multiplier effect for job creation and economic growth are far too great.