Treasury Secretary Timothy Geithner's testimony to regulate the financial industry was greeted with mixed reactions today, with VentureBeat noting that the plan could lead to more "stringent reporting requirements" for venture capital firms. Details are still being ironed out, but the National Venture Capital Association tells VentureBeat that they are concerned about
At a recent meeting at OVP Venture Partners in Kirkland, managing director Chad Waite criticized any government effort to lump the venture industry in with private equity and hedge funds.
"We don't play games with numbers. We take a gal, a guy and a dog in a garage and start a company around it," said Waite, dismissing some of the value that hedge funds and private equity professionals add to new business formation. Waite was hopeful that President Barack Obama would recognize the difference, referencing conversations that Obama had engaged in with Steve Lazarus of Arch Venture Partners.
The NVCA's Emily Mendell echoed some of Waite's concerns in an interview with VentureBeat.
“We do have a big concern that this is the type of thing where venture capital gets swept up into regulation meant for other asset classes. The venture industry is just not that large, and we don’t have any leverage, and we don’t participate for the most part in the public markets...The government wants VC firms investing in startups and innovation, so creating regulatory burden for those firm at this time doesn’t seem to make a lot of sense.”
Geithner's made only passing remarks to the venture business in his testimony.
Accordingly, we recommend that all advisers to hedge funds (and other private pools of capital, including private equity funds and venture capital funds) with assets under management over a certain threshold be required to register with the SEC. All such funds advised by an SEC-registered investment adviser should be subject to investor and counterparty disclosure requirements and regulatory reporting requirements. The regulatory reporting requirements for such funds should require reporting, on a confidential basis, information necessary to assess whether the fund or fund family is so large or highly leveraged that it poses a threat to financial stability.
It is hard to imagine any venture fund being so large that it could pose a threat to financial stability.
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