Dear SEC, WTF R U Doin? Venture Capital Gets B*tchslapped by Regulation... Again
One word for this: pfft
Why pfft? Because this is a joke. Venture capital? Please! Leave them alone! Before the SEC starts going after new projects, may I humbly suggest that they actually do the job they are already charged with? Just sayin.
Various pieces of legislation now making their way through Congress would require private pools of investment capital to be registered with the Securities and Exchange Commission. The goal is to curtail abuses and protect the public from questionable practices. The proposed laws would cover the range of funds that deal in derivatives, auction-rate and mortgage-backed securities, highly leveraged transactions and a slew of other instruments so complicated as to defy description.
In registering, these funds would need to open their books to the government so that they could be duly monitored, thus limiting further risks to the financial system.
Unfortunately, however, with good intentions, the Obama administration and some members of Congress are aiming this legislation at all pools of private capital. That includes venture-capital funds, which pose no systemic risks and which, especially now, should be kept free of any new reporting rules and allowed the freedom to flourish.
Venture-capital funds deal solely with privately purchased equity securities in start-up companies, which are not traded in public markets. They have as their limited partners only people who meet the S.E.C.’s definition of a “qualified client” (meaning they possess a substantial amount of money to invest). These investors, who typically allocate a small percentage of their portfolios to venture capital, are familiar with risk, but it is long-term risk, stretching out 7 to 10 years. They put their faith not in publicly traded securities but in entrepreneurs, emerging technologies and new markets.
Because their business is contained within the ecosystem of limited partners, venture-capital funds and the companies in which they invest absorb all the risk: there can be no domino effect in the world financial system.
So what the hell does the SEC care? Trying to cash in on venture capital darlings a la Twitter? Or just looking for something else to do besides regulate markets and protect investors (since, you know, they seem to be so incredibly ill-equipped to accomplish that particular objective)?
I'm confused. I probably shouldn't be and maybe I'm not confused at all and had it right the first time.
The law of unintended consequences no longer applies in Bizarro World. It's all one big unintended consequence.
The venture-capital industry has been the target of new regulations before and has experience with unintended consequences. The better part of this decade has been spent working through those created by the Sarbanes-Oxley Act of 2002, which was meant to curb accounting abuses at large corporations like Enron but ended up imposing burdensome accounting rules on small, often venture-backed companies. One section of that law, which was meant to get large corporations to lay bare their accounting practices, has cost these small companies millions of dollars a year in labor, extra audit fees and external consulting expenses.
A side effect of Sarbanes-Oxley has been to discourage initial public offerings, reducing the amount of expansion capital available for start-up companies. Indeed, the number of venture-backed public offerings, which reached 1,353 from 1991 to 1997, declined to 392 from 2001 to 2008.
It would be a shame to impose any new limits now, when venture capital is the asset class that can best help build and nurture the companies that bring about growth and job creation. The figures are compelling. In 2008, venture-backed companies that went public in previous years accounted for 12.1 million jobs and $2.9 trillion in revenues for the United States Treasury.
Way to cockblock market ingenuity, SEC. Glad to see you're waving the capitalist flag high over there, you asshats. Is this for real?
And leave Sarbanes-Oxley out of this. Can someone please restore my faith in humanity? Because this is pretty much the last straw. Where is the logic?!