VC Secrecy And Public Funds Back In The News

from the pick-your-poison dept

Venture capitalists often get a lot of money from public institutions — which has created all sorts of controversies over how much info should be made public. Situations in Texas and California made news a few years ago, and now it’s Ohio’s turn. Silicon Beat has a good summary of the details while also pointing to some additional commentary that’s worth reading. The issue certainly isn’t black and white. Institutions investing public money should have to reveal some details about what’s happening with that money. However, revealing the nitty gritty details about exactly how a VC firm valued a startup is both shortsighted and pointless. The commentary above from Dan Primack notes that this will basically kill off any chance the Ohio Bureau of Workers’ Compensation has to invest in private equity, but there are a couple of other points worth mentioning as well. While we generally believe getting more info out there is beneficial, and we’re often skeptical of VCs whining about just about anything, in this case there are a few points that are valid. The valuations that VCs put on private companies are mostly meaningless. It’s a made up number that has nothing to do with reality — and using it to determine the health of investments before any sort of liquidity event (IPO, selling out) is pretty much useless and most likely, misleading. At the same time, VCs should be investing for the long term (though, not all of them do) — meaning that early valuations may not be representative of what the company will eventually be worth. So getting that information out — especially when it could make early investments look bad is problematic. One of the good reasons to be a private company is that you’re not judged on quarterly performance. Quarterly public reports often make companies focus so much on making this quarter’s numbers that they miss out on long term strategic moves. Forcing VCs to publicly reveal the valuations of their portfolio companies on such a regular basis effectively does the same thing. It forces both the startups and the VCs to focus more on “the quarterly numbers” rather than building a real, sustainable company that has more value than what’s on a piece of paper.

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