from the bad-thinking dept
While I don't think this change will be as devastating as some have made it out to be, it could chill some aspects of investment. And, while I also don't believe that venture capital is the only way to build an innovative business these days, I do think it has an important place in the ecosystem, and is quite helpful for many companies. Taking away some of the incentives for venture investments, right at a time when we need greater innovation seems like a fundamentally short-sighted move. I understand the argument on the other side, that the partners are investing other people's money, and thus it's not "their" investment from which to earn capital gains, but to some extent that's misleading. The setup of most venture funds with carried interest (i.e., the profit share for venture partners) is to effectively trade their time and effort in the investment for a part of the investment. So it might not be their cash, but they do invest in other ways, and for that they get a share of the profits.
There are certainly lots of problems with our financial system today, and many questions about the private equity space. But lumping in venture capitalists who do long-term, high risk investments in private companies to help them grow, with hedge funds that do short-term, highly speculative gambling-type investments without much focus on the underlying business or prospects, is a dangerous move. There are problems with the venture capital model, but for the most part it works quite well in funding all sorts of innovative companies. Putting this kind of speed bump into the market won't stop venture capital investments, but it could have some pretty serious consequences, especially in terms of the type of companies VCs are willing to invest in. The Senate still needs to vote on this issue, and hopefully they recognize that this is not the time to punish venture capitalists.