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sachinag 17y ago
As a former analyst at a venture capital firm, with all due respect, you have no idea what you're talking about. Regulation doesn't make VC any less attractive for LPs, who provide the funds. As long as there are people who want to commit to the asset class, there will be VC funds willing and available to take their cash. Furthermore, registration with the SEC increases paperwork, but not in a way that does anything other than provide additional transparency. It's a bit of a pain in the ass, and maybe it means the CFO has more work to do, but to say this is dumb or will kill innovation is misguided. It's the same damn paperwork that every mutual fund has to file. It won't make or break any decent-sized fund. Everything the NVCA says in their position paper is right (http://www.magnetmail.net/images/clients/NVCA/attach/VCandSystemicRiskFinal.pdf http://www.magnetmail.net/images/clients/NVCA/attach/VCandSy... [PDF]), but excluding VC funds from regulations when you want to look at PE and hedge funds - which can and do pose systemic risks, as we saw with LTCM - is impossible given that all three share the same basic legal structure: LPs and a GP, where the GP is the manager of the fund. The societal cost of overextending mere registration requirements to VC funds is far outweighed by the cost of not having greater transparency into their PE and hedge fund siblings.
- anigbrowl 17y ago
  As a sideline observer (but one with a lot of exposure to hedge and VCs) I think it may also be good for the beneficiaries of the capital - 'start as you mean to go on', and all that. As you say, it's not like you're going to have to get some bureaucrat to approve your investment decisions.
- lionhearted 17y ago
  Have family and friends in the SEC and OCC, and know some corporate cats who deal with Sarbanes-Oxley. The SEC doesn't want to be dealing with investments for accredited investors, since they already have too much on their plate. On the business side, nobody wants to fill out paperwork, which consumes time and money. IPO on one of the American exchanges used to be a total no-brainer for most companies except a couple industries and geographies. Now London is getting greater play, more companies are staying private, and there's less IPO's on American exchanges - I'm not sure about Japan, Dubai, Hong Kong, or China, but I'm going to guess they're picking up some of the slack too. Marginally more USA regulation on venture capital = marginally less VC in the States. Marginally more regulation on VC = marginally less SEC time spent on investments for unsophisticated investors, who probably need more protection. You could make a case for it, but I think it's probably an overall slightly to mediumly bad thing.
  - sachinag 17y ago
    In a vacuum, I'm not in favor of registration requirements for VC firms - but we're not in a vacuum. We're about mitigating systemic risk to the system. Given that the legal structures are the same, how do you propose to regulate the people who use leverage (PE and hedgies) and leave out the VCs? Furthermore, if you don't think the SEC is getting a massive influx of capital, I'll be happy to sell you a bridge. Over the East River, Chicago River, Mississippi River: take your pick.
    - lionhearted 17y ago
      Good comment/questions. I don't have a hardcore finance background, as my background is more business/project management/hint of technology. But two things that really jump out to me - > We're about mitigating systemic risk to the system. Given that the legal structures are the same, how do you propose to regulate the people who use leverage (PE and hedgies) and leave out the VCs? Leverage is inherently risky and if you let people leverage to the hilt, they'll find a way to break something. I'm not so much in favor of putting a leash on the leveragers as increasing the cost of money quite a bit. We've been handing out money basically for free for the last ten years. Raise interest rates, take the hit that comes with that, print less, and do a mix of cutting government spending and increasing taxes at least until the budget is balanced. Then do something about the crazy trade deficit. I don't think you can effectively regulate tons and tons of free money. Free money finds a way to cause problems. > Furthermore, if you don't think the SEC is getting a massive influx of capital, I'll be happy to sell you a bridge. Over the East River, Chicago River, Mississippi River: take your pick. At its core, the SEC works like a law enforcement agency. No matter how big it is, it'll won't nail every criminal. Any task assigned to the SEC means less time on other tasks. You could triple the SEC's budget and staff, and they'd still be nowhere near fully covering everything. Probably sensible to limit the scope of the agency to the most important parts of the finance sector - VC is accredited investor only, who are people who tend to be financially literate and can afford risk. As for systemic risk, stop handing out free money. Raise interest rates, reserve requirements, balance the budget. I guess that's kind of radical-crazy-go-nuts thinking these days.

As a former analyst at a venture capital firm, with all due respect, you have no idea what you're talking about. Regulation doesn't make VC any less attractive for LPs, who provide the funds. As long as there are people who want to commit to the asset class, there will be VC funds willing and available to take their cash. Furthermore, registration with the SEC increases paperwork, but not in a way that does anything other than provide additional transparency. It's a bit of a pain in the ass, and maybe it means the CFO has more work to do, but to say this is dumb or will kill innovation is misguided. It's the same damn paperwork that every mutual fund has to file. It won't make or break any decent-sized fund. Everything the NVCA says in their position paper is right (http://www.magnetmail.net/images/clients/NVCA/attach/VCandSystemicRiskFinal.pdf http://www.magnetmail.net/images/clients/NVCA/attach/VCandSy... [PDF]), but excluding VC funds from regulations when you want to look at PE and hedge funds - which can and do pose systemic risks, as we saw with LTCM - is impossible given that all three share the same basic legal structure: LPs and a GP, where the GP is the manager of the fund. The societal cost of overextending mere registration requirements to VC funds is far outweighed by the cost of not having greater transparency into their PE and hedge fund siblings.

anigbrowl 17y ago
As a sideline observer (but one with a lot of exposure to hedge and VCs) I think it may also be good for the beneficiaries of the capital - 'start as you mean to go on', and all that. As you say, it's not like you're going to have to get some bureaucrat to approve your investment decisions.
lionhearted 17y ago
Have family and friends in the SEC and OCC, and know some corporate cats who deal with Sarbanes-Oxley. The SEC doesn't want to be dealing with investments for accredited investors, since they already have too much on their plate. On the business side, nobody wants to fill out paperwork, which consumes time and money. IPO on one of the American exchanges used to be a total no-brainer for most companies except a couple industries and geographies. Now London is getting greater play, more companies are staying private, and there's less IPO's on American exchanges - I'm not sure about Japan, Dubai, Hong Kong, or China, but I'm going to guess they're picking up some of the slack too. Marginally more USA regulation on venture capital = marginally less VC in the States. Marginally more regulation on VC = marginally less SEC time spent on investments for unsophisticated investors, who probably need more protection. You could make a case for it, but I think it's probably an overall slightly to mediumly bad thing.
- sachinag 17y ago
  In a vacuum, I'm not in favor of registration requirements for VC firms - but we're not in a vacuum. We're about mitigating systemic risk to the system. Given that the legal structures are the same, how do you propose to regulate the people who use leverage (PE and hedgies) and leave out the VCs? Furthermore, if you don't think the SEC is getting a massive influx of capital, I'll be happy to sell you a bridge. Over the East River, Chicago River, Mississippi River: take your pick.
  - lionhearted 17y ago
    Good comment/questions. I don't have a hardcore finance background, as my background is more business/project management/hint of technology. But two things that really jump out to me - > We're about mitigating systemic risk to the system. Given that the legal structures are the same, how do you propose to regulate the people who use leverage (PE and hedgies) and leave out the VCs? Leverage is inherently risky and if you let people leverage to the hilt, they'll find a way to break something. I'm not so much in favor of putting a leash on the leveragers as increasing the cost of money quite a bit. We've been handing out money basically for free for the last ten years. Raise interest rates, take the hit that comes with that, print less, and do a mix of cutting government spending and increasing taxes at least until the budget is balanced. Then do something about the crazy trade deficit. I don't think you can effectively regulate tons and tons of free money. Free money finds a way to cause problems. > Furthermore, if you don't think the SEC is getting a massive influx of capital, I'll be happy to sell you a bridge. Over the East River, Chicago River, Mississippi River: take your pick. At its core, the SEC works like a law enforcement agency. No matter how big it is, it'll won't nail every criminal. Any task assigned to the SEC means less time on other tasks. You could triple the SEC's budget and staff, and they'd still be nowhere near fully covering everything. Probably sensible to limit the scope of the agency to the most important parts of the finance sector - VC is accredited investor only, who are people who tend to be financially literate and can afford risk. As for systemic risk, stop handing out free money. Raise interest rates, reserve requirements, balance the budget. I guess that's kind of radical-crazy-go-nuts thinking these days.