Congress Clueless About Venture Capital... Still Wants To Regulate It

from the this-makes-no-sense dept

Following the financial crisis there's obviously a lot of interest in more carefully regulating aspects of the private equity markets, given that behind-the-scenes financial efforts have been seen (rightly or wrongly) as part of the cause of the mess. But, of course, Congress can barely understand what caused the problem, let alone other aspects of the the financial system, so they end up regulating by shooting in the dark. The latest is that the various attempts to put regulations on hedge funds and private equity firms that invest in public companies (which in many cases really were sneaky ways to get around regulations) may be applied to venture capitalists as well, despite the fact that venture capital is a totally different beast. It doesn't invest in public companies. It doesn't aim for sneaky quick flips. It's true long term investment capital, directly investing in private startup companies to help them grow. It's real investment -- not gambling. But Congress doesn't seem to realize that.

In a recent Congressional hearing where venture capitalist Trevor Loy explained this to our elected officials, Senator Jim Bunning of Kentucky apparently told Loy that he didn't believe him that VCs invest in private companies rather than companies likely to be rated by the various ratings agencies (I'd link to the story where this was noted, but the publication that wrote it, put it behind a paywall and apparently doesn't want traffic -- there's a Google cache for now). And, yet, these are the folks writing the regulations. This is why some of us get nervous about gov't regulations. Yes, in an ideal world, perfectly knowledgeable regulators might possibly be able to divinely create regulations that work. But that's not what we have.

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  • identicon
    Michael Kohne, 1 Sep 2009 @ 3:37am

    It's dangerous

    It's dangerous for congress critters to not believe industry experts. Of course, it's also dangerous for industry experts to be writing policy.

    Frankly, if a congressman called me up before congress and called me a liar, I'd feel the need to push back (that's why I'm not getting the big bucks, I suppose).

    reply to this | link to this | view in chronology ]

  • identicon
    Richard, 1 Sep 2009 @ 4:05am

    Aa always the problem is how to make the distinction between venture capitalists and other types of private equity.

    Draw the distinction too tight and the true enture capitalist is hamstrung, make it too loose and it becomes a loophole for everyone else.

    reply to this | link to this | view in chronology ]

  • identicon
    Rob, 1 Sep 2009 @ 4:56am

    Government Dangers

    This should not be a surprise. When has the government every listen to industrial or business experts. This even applies to government underlings. The government and all of their civil employees have been school by various government educational programs to only understand government. Where I work many of the civil servants fail to get jobs outside the public sector due to their lack of true real world knowledge. This regulation of VC could be the death of many start-ups and could have the potential for even more layoffs in the future.

    reply to this | link to this | view in chronology ]

  • identicon
    PRMan, 1 Sep 2009 @ 6:08am

    I guess they want to eliminate the middle class...

    First, Sarbanes-Oxley has dried up all IPOs. So, from now on, no new players can be created. All thriving small businesses must be bought up by larger, established businesses.

    Next, bail out only the large banks, causing all the small banks to be swallowed up by the large guys.

    Then, put such massive regulations on VCs that nobody will even bother to try to invest in the small guys anyway.

    Time to welcome our corporate, fascist government...

    reply to this | link to this | view in chronology ]

  • icon
    Derek Kerton (profile), 1 Sep 2009 @ 10:40am

    If VCs were such a risk to the economy, why is Silicon Valley such a massive economic engine for the nation?

    VCs play a role in taking nothing, and creating something. New companies, new ideas, new products, new shareholder wealth. I'm not saying it's all their doing, and plenty of founders are unhappy about sharing their equity. But there is a system for launching businesses here in Silicon Valley that just doesn't exist at this scale anywhere else in the world, and VCs are a big part of it.

    There are plenty of things that are "broke" and need fixing. If the gov't made a prioritized list of things to fix, VCs would not be on the first few pages.

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 1 Sep 2009 @ 9:35pm

    well, if you are upset about the statement by the congress critter, you should look him up,

    And consider the source. It's pretty scary just how many important committees this obvious underachiever is on.

    reply to this | link to this | view in chronology ]

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