A venture-capital trade group says government regulations and other market obstacles are hindering start-up companies from going public and driving others to consider listing shares overseas. But it is unclear what kind of relief, if any, venture capitalists will get from regulators.

Regulations such as the 2002 Sarbanes-Oxley law, which includes tougher requirements for internal auditing and executive certification of financial statements, are particularly burdensome to small companies and "threaten to make the U.S. less hospitable to company creation," said Robert Grady, the chairman of the National Venture Capital Association.

The Arlington, Va., trade group, holding its annual meeting in San Jose, Calif., Wednesday announced a lobbying effort to try to get changes in the Sarbanes-Oxley law and to address other issues related to U.S. competitiveness.

Promising young companies that can't go public could expand more slowly and create fewer jobs, said Mr. Grady, who is a managing director of the Carlyle Group investment firm. He said companies may simply sell out to large firms, or list on foreign stock exchanges such as the London Stock Exchange PLC's Alternative Investment Market, known as AIM.

If large U.S. companies such as Dell Inc. or Google Inc. hadn't pursued initial public offerings, they likely wouldn't have contributed so much to the U.S. economy, Mr. Grady and other venture capitalists said here Wednesday at a news briefing.

Venture capitalists invest in closely held companies, often hoping for a payoff through a stock offering. In the U.S., IPOs for venture-backed companies declined 40 percent last year to 56 from 93 in 2004, and 10 venture-funded companies went public in this year's first quarter, according to the trade association.

Not all venture capitalists and entrepreneurs blame new regulations for the IPO slowdown. Jim Breyer, a partner at Accel Partners in Palo Alto, Calif., says one networking company backed by his firm, Riverbed Technology Inc., this month filed for a Nasdaq IPO despite having to comply with the Sarbanes-Oxley law. Although concerned about the reduced number of venture-backed stock offerings, Mr. Breyer says he is "cautiously optimistic" the market will improve this year and isn't recommending any of his portfolio companies consider listing on London's AIM.

Other factors in the IPO dearth include moves on Wall Street to decouple stock research and investment banking, reducing analyst coverage for smaller stocks. Mr. Grady says he hopes U.S. stock exchanges and the Securities and Exchange Commission address that issue and promote more research coverage.

As for Sarbanes-Oxley, the SEC has signaled it is willing to consider changes to the portion of the law, known as Section 404, that requires executives to assess a company's internal controls and then have those controls tested by an independent auditor. Several SEC commissioners, including Chairman Christopher Cox, have implied that all small companies will have to comply with the internal-controls requirement in some way, and that the SEC likely isn't willing to grant blanket exemptions. Last week, a small-business advisory panel set up by the SEC recommended that the smallest publicly traded companies be exempted entirely from the internal-controls requirement.

"Our emphasis is on making sure 404 works and implementing it in a way that provides all the investors protections" at the lowest possible cost, Mr. Cox said in testimony Tuesday before the Senate Banking Committee.