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Hi, I’m Brad Feld, a managing director at the Foundry Group who lives in Boulder, Colorado. I invest in software and Internet companies around the US, run marathons and read a lot.

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Sarbanes-Oxley, the Software Developer, and 404

Comments (3)

Nope – I’m not referring to an HTTP 404 error.  I’m talking about Sarbanes-Oxley (SOX) Section 404.  If you are a software developer and don’t know what SOX is, it’s the law enacted after all the corporate accounting scandals in the early 2000’s that was intended to increase the accuracy and reliability of corporate disclosure.  There are many opinions on SOX, including the widely held opinion among the VC community that SOX has been instrumental in discouraging companies from going public.  Love or hate it, we’ve all got to live with it.

Niel Robertson – the CTO of Newmerix – has written a good overview article on SOX 404 and what it means to the IT organization and the software developer.  Distilling the government regulations and accounting stuff into a short article that is relevant and useful is non-trivial – Niel did a nice job of it.  If you are involved in creating, managing, or deploying software that impacts financial systems, it’s worth a read.

  • http://marketvelocity.blogspot.com Dave

    This post highlighted for me a related point of how startups benefit when they are willing to shift their primary product focus based on market feedback. This happened in a SOX-related arena with a portfolio company of ours (Entomo). It was one of their prospects (and eventual customer) that actually suggested Entomo take their supply chain product and reorient it towards the challenge they were facing on getting clear visibility of what was going on in their channels. [Read below if you want details on what their product does]

    Interestingly, the phenomena of an outsider highlighting how their service is happening again. A leader in the online ad industry that deals with ad networks believe this technology can be used to address the situation of double/triple paying ad networks for conversions. As the old saying goes, “you have 2 ears and 1 mouth and use them in that proportion” applies where by being open to outsiders’ (customers, partners, etc.) ideas can be a great source of new market development.

    Background: Entomo has customers who have done the proverbial ‘make lemonade out of lemons’ with Sarbanes-Oxley. Rather than just look at SOX as an additional cost burden, they’ve used it as a catalyst to gain strategic advantage. Entomo has a service geared towards companies that distribute through channels which makes the revenue recognition process particularly challenging (most companies are doing it with a tangle of manual processes and spreadsheets). Their customers have to deal with this regardless of SOX in order to understand what’s going on in channels, how to properly pay commissions/spiffs, dealing with multi-term payments, etc. By automating this process, they not only can cut back on FTEs but have found they are often overpaying sales people and partners (they err on the side of keeping the revenue generators happy). In the process, they get a key portion of SOX-compliance for “free” while addressing the aforementioned issues.

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