Vinod breaks from the pack on options

I heard Vinod give this same view at an investor dinner about a month ago. I also thought it was odd that this viewpoint, especially since it was coming from him, had been not picked up for so long.

And while I understand some of the philosophical reasons for this fight over the policy in terms of over-regulation, in a practical business sense the expense issue is rather dwarfed by the growth issue. If you are growing quickly, you will have no problem attracting the attention of analysts and investors who will look at your GAAP numbers and make countless adjustments to them for their own valuation models. Case-by-case adjustments to Goodwill are one example. Adjustments to OpEx are another. Not having spent a lot of time on this issue, I casually observe that Option Expense would be no different, so if people are looking at your company closely, you don't actually care that you have to report options on a separate line. The analysts will just back it out of their own private models anyway.

However, if you are not growing, and not "hot", then you have a different issue. In this case, you have trouble attracting investor attention. No one is building any models on you. No one cares. Your numbers just get lumped together with everyone else's, and subject to endless permutations of investment screen criteria like P/E, GM, etc. for fund managers to decide on whether they even want to track you, let alone cover you. The lazier, non-labor-intensive models (many of them) just upload the straight GAAP numbers, and if you have to report earnings loaded down with option expense, this hits your "ranking" in the internal "search engines" of many investors, institutional and otherwise. But IMHO if you aren't growing attractively, lifting the GAAP burden of options expense isn't going to help much anyway -- its just an accounting change, and the regard of smart money will be unaffected. And if companies / lobbyists are expending all this effort to pretty themselves up for the dumb money, then don't talk to me about how its all about furthering innovation. The argument that a non-cash, GAAP-only change materially impacts your ability to innovate is difficult for me to grasp. It does make clear that there may indeed an innovation problem, but one unrelated to the question of options... The best way to attract investor attention is to just grow. And if you can't, then that really is kind of your top issue, you know? Not GAAP.

As for Vinod's point about making public companies easier targets for poaching talent, its fine. But its not a big difference either. As he also said during dinner, "the real entrepeneurs will always find a way". So its fine.

Again, as an entrepreneur I've spent zero time on this issue so if I'm way off-base here, I'm very open to getting my head straightened out on this issue, if someone would bother to educate me.

Of course, the reason I've spent no time on this is because, for a small private company, the point is obviously moot. Its a non-cash item, baby. End of conversation. :-)