The venture capital industry is up in arms about U.S. Treasury Secretary Timothy Geithner’s plans to include venture firms in his plan to increase regulatory oversight over private investment vehicles of all stripes. In a strongly worded op-ed today, the Wall Street Journal lays out the argument against lumping in venture capital with hedge funds and the whole Madoff crew on Wall Street that got us into this economic pickle in the first place.
The WSJ is correct to point out that venture firms pose little systemic risk to the global economy and financial markets because A) the $30 billion invested in venture capital every year is a minuscule amount representing less than 0.1% of all financial transactions in the U.S. and B) venture firms use very little to zero debt, eliminating the compounding effects that over-leveraged investments in other sectors bring. There is no systemic threat here, the Journal argues, so back off Geithner.
We pretty much agree. Except, what did Geithner actually say to bring about such vigorous defense? Well, if you go back to his testimony before Congress on March 26, he mentions venture capital only once as an aside:
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.
Does he really intend to go after the venture capital industry, or is he merely trying to close a loophole for hedge funds and other private equity funds to avoid disclosure by reclassifying assets as venture investments? He also makes clear that any such reporting will remain confidential and the purpose will be to “assess whether the fund or fund family is so large or highly leveraged that it poses a threat to financial stability.” If that is the case, I’d say 98 percent of venture funds really don’t have anything to worry about. And as long as that asset threshold is set high enough (firms with multiple billions of dollars under management), the reporting requirements won’t affect most firms and won’t be terribly onerous for the ones that are large enough to warrant scrutiny. But some clarity on what those thresholds will be would be nice.
Here is the full passage of Geithner’s perpared remarks that dealt with regulation of hedge funds and venture capital:
Hedge Funds and Other Private Pools of Capital
U.S. law generally does not require hedge funds or other private pools of capital to register with a federal financial regulator, although some funds that trade commodity derivatives must register with the CFTC and many funds register voluntarily with the SEC. As a result, there are no reliable, comprehensive data available to assess whether such funds individually or collectively pose a threat to financial stability. However, in the wake of the Madoff episode it is clear that, in order to protect investors, we must close gaps and weaknesses in regulation of investment advisors and the funds they manage.
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. The SEC should share the reports that it receives from the funds with the entity responsible for oversight of systemically important firms, which would then determine whether any hedge funds could pose a systemic threat and should be subjected to the prudential standards outlined above.
Didn’t TechCrunch endorse Obama for President?
Like so many of us, I’m sure the endorsement came before the socialist/fascist agenda of the administration was really apparent. So long, free market.
Republicans had their chance with deregulation, and you see where it has gotten our society. Time to step aside for rational, non-greedy, backed-by-thought, secular policies.
Rational? Are you kidding me? These guys are going to kill innovation.
> Republicans had their chance with deregulation, and you see where it has gotten our society.
Except that they didn’t deregulate. (They did lose when they tried to regulate Fannie and Freddie and roll back the CRA, but they lost to Dems who insisted that Fannie, Freddie, and subprime loans were a godsend.)
> Time to step aside for rational, non-greedy, backed-by-thought, secular policies.
Dems: The nasty Repubs did all sorts of dumb things.
TD: Yay!
Dems: So we’re going to double-down on the dumbest and find some even dumber things to do – Hope and Change.
TD: Yay!
What are you talking about. Clinton-Gore were the deregulators, remember the tech bubble bursting over their foolish telco and energy policies. Greedy.
TC’s endorsements have hardly anything to do with this. This post is really just asking for clarity on the issue.
+1
URL shorteners aren’t evil but the treasury sec. certainly is
Erick does a good job pointing out the apparent weakness in the WSJ’s criticism. The whole thing just seems based off a pretty weak statement from Geithner, almost like they were just searching for something that wasn’t really there.
Follow me now @ http://twitter.com/IanMikutel
Any time the government is involved with changing the rules covering any industry, it’s best to get activist, fast. In the absence of detailed guidelines, as Eric highlights, we have doubt. Doubt is not a market lubricator, of that we can all agree.
Until we see specific, detailed proposals, skepticism is the order of the day.
Top VC Funded Business Plans in 2009 (reply to add more)
10. TaxPledgie – works with the IRS.gov API
9. iPhone app for exchange of virtual Carbon Credit gifts
8. Monster-like job board for Union workers (works only Mon-Fri, 404 on holidays)
7. Twitter client for elusive Obama tweets
6. LegalZoom like site for released Gitmo detainees
5. Amazon’s Medical Turk
4. Web 2.0 Turbo Tax (Exempt Edition for Government officials)
3. O-Zazzle, for Obama branded custom merchandise only
2. Amnestees.com – Witty tees, as voted on by La Raza
And the number one VC Funded Business plan for 2009…
1. The Deadpool Recovery and Reinvestment Act
This is probably the single best post in tech crunch history.
http://www.clasilistados.org
Ditto, why is Geithner’s picture and name all over these stories. He serves at the pleasure of the president and acts on his behalf. It’s OBAMA who’s the real problem regarding regulating VCs.
They sure did…
Exactly. No complaining if you voted for Obama. We tried to warn you this kind of thing would happen.
“No Complaining” is a Bush-era rule, not Obama’s. Where were you five years ago when every dissenter was being called unpatriotic?
Bush’s sole job was to put in place the ‘necessary’ machinery to take away civil rights while Obama’s role is to make use of it. Sorry to be a (two) party pooper but…
LOL
True, plenty of blame to go both ways. The real issue isn’t which governance to blame, but widespread corruption throughout all levels of society.
G’s plan doesn’t address coruption, it actually encourages business as usual, which means that it will only put off the inevitable.
Be responsible now, and put the law to the offenders, no mater what their affiliation.
Sure you can complain, but don’t look shocked.
I have always wondered how a town that thrives on raw capitalism can be so fiscally liberal…
Uh what?
You are certainly allowed to gripe even if you voted for the guy you disagree with. That’s what this country is about.
White House control over other private industries is good but get your hands off my industry?
I always wondered why folks in the business world supported Obama. Now maybe it is going to bit them in the butt.
Geithner is trying to make sure every penny managed by hedge funds is tracked. Bad move. Now the SEC would have only themselves to blame for these Madoff-related debacles.
The SEC has proven itself to be toothless and incompetent besides.
He’s also not exactly complaining about “this kind of thing”… In fact it’s a “WSJ, stop making stuff up so you can look more right wingy” article.
Good point. Typical pattern: 1) no regulation – profit is everything. 2) scum bags come in = wall street sharks 3) the mess blows up in everybody’s face. 4) over regulation (see international travel security etc.)
+1 The calls for Government regulation are going to do more harm than good.
Systemic risks exist when high-risk money is “risk-laundered” through vehicles improperly assessed as low-risk. Had S&P correctly assessed Citibank’s risk exposure through its assets, Citi’s liabilities (i.e., deposits) would have evaporated. We shouldn’t be limiting people’s ability to take risk, but we should limit people’s ability to borrow as a low risk and lend/invest into a high one.
Techcrunch could really use an editor. I’m available. Cheap.
Show me the money!
This isn’t a big deal for the VC community. What people should be worried about is taxing carried interest as income instead of a long term capital gain. I haven’t seen to much coverage on that, but its in Obama’s budget.
You are dead on and this is what is being reverberated by every vc I know.
Personally, I find it funny that the VC’s (and that would be most as I am in silicon valley) who funded the Obama campaign are no getting pissed about his policies. They should have done more due diligence before investing!
The only time you don’t get to gripe is if you didn’t vote.
Wrong! The only time you get to gripe is when you don’t vote.
Don’t blame me, I didn’t vote.
Everybody gets to gripe. “Don’t Vote? Don’t Complain!” is just bullying.
Next time vote GOP
And elect another retard in the form of George W Bush. No thanks…
the GOP no longer has rights to call itself fiscally conservative. it’s themes are social intolerance and fiscal stupidity!
Poor true blood fiscal conservatives need to find a new party.
I was at a hedge fund conf yesterday and this very topic was discussed.
The Treasury wants all private pools of capital, hedge funds and venture capital funds, to either register and be overseen by the SEC (OR FINRA) or form a self regulatory body (and regulate themselves.)
Mary Schapiro, current chairwowan of the SEC and former chairwoman of FINRA, has indicated she wants FINRA to regulate all hedge funds and veture capital funds.
The same Mary Schapiro that ran interference for people like Madoff and was responsible for, at minimum, criminal incompetence when it came to industry oversight?
Comparing a VC firm to a corporate-welfare bank or Bernie-style hedge-fund is like comparing a flower to a week. They’re both plants, and the similarity ends there. Geither’s insistence on keeping the banks alive is already doing enough violence to the VC firms by not allowing them to fund new banks, with new business models, to fill what should be a gaping market void.
I voted for Obama and, for the most part, still strongly support him. But he’s decided to adopt Bush’s economic strategy and it’s now obvious that neither trickle-down nor trickle-up economics works. The best market regulator is the threat of failure; none of this nonsense — no-doc loans, option ARM’s, credit-card loan balances to 90 year-olds with no income — would have happened if GSE’s and the large banks were sure we’d have let them end up like Lehman.
“I voted for Obama and, for the most part, still strongly support him. But he’s decided to adopt Bush’s economic strategy… ”
can you please clarify how Obama’s economic policy adopts Bush’s? This I gotta see.
Are you serious?
More like Bush adopted a liberals’ economic policy when he decided to get in the business of bailing out businesses that should be allowed to fail. And Bush was naive enough to think it would end there…
But it’s obvious now that the order of the day is to have the government in charge of deciding what kinds of businesses are a good idea. So you better hope the next start up you need funding for in some way helps one of Obama’s social engineering projects.
What is wrong with the proposal from Geithner?
It is not like the VC industry will loose its charm if they are subjected to regulation.
For all the cry of regulation being a big burden it is actually not that onerous. Most of the VC firms have a finance team (although small) that comply with existing IRS rules. This will be a addition to it – but nothing huge.
Do you have any idea how much of a pain in the ass Sarbanes-Oxley compliance is? It’s onerous to the extreme.
Sarbanes-Oxley is complicated. But it is not the end of the world.
The question is – will regulation benefit the general public or hurt the VC industry.
you clearly dont work for or with public companies…Sarbanes oxley is a giant tax on public companies…moreover, it does nothing for the investing public as we have seen
the more and more government puts its nose into private enterprise, the less competitive the US will be on a global stage.
capitalism has provided all of the greatest standard of living the world has ever seen. It is not an enemy–lets stop making it such.
Regulation is not a big deal. You have no idea what the SEC filings involve and what a burden that iposes..
“the whole Madoff crew on Wall Street that got us into this economic pickle”
c’mon, mr. over-generalization
So funny, Mr. Madoff who made off with the money. Great one
They just feel like they need to cover their asses. Who knows? VC’s have been burning money to b.s. startups for years. Maybe regulation will help everyone …. or cripple them.
Hah! serves all the Sand Hill Road “geniuses” who were taken in by the smooth talking con man from Chicago.
The VC indusrty is the only one that impulse the people with very risky and creative ideas. At the contrary, the only regulation could be is for impulse this. First at all, who are the losers when one investment fail? The VC not the general public, and in mostly case – I have not known record of collateral damage – from companies in the “dead pool” -that be the cause of catastrophic damage.
At the contrary, the government and the regulators need to know and learn about the Risk. The master of risk management are the VC.
Apparently, you guys seem to have no idea where VCs get their money from and what happens to the huge investment losses they produce.
The money from VC came from people, how like invest in potential return of investment [ a huge one] from a very risky investment. And this investment is provided with very lean monitoring.
Ergo, just, WallStreetPerson, show me one “VC scandal” with 20% of impact of [many] of the huge funds or [now we discover that the banks has not a severe regulation and some very well establish WS players] in the VC world.
Funny how a guy who doesn’t pay his own taxes wishes more regulation on others.
These folks at the top are above the law. If you could make the law, wouldn’t you make it so that you are above it too?
On a side note, I’ve always enjoyed the ‘I’m an American, I pay my taxes’
Can someone show me the law for making individuals pay taxes on a federal level?
yeah, i’d like to see the law too.
I hate how we are born into countries where we are forced to conform to rules and laws that are already in place. I feel like humans are similar to sheep, with a small ruling class, the rest of us suffer and pay taxes. The world is so corrupt, the law makers do not have to obey the same laws that they make, money buys you out of problems, and for the most part society suffers.
even better than that, the government continues to make it more and more difficult to make money.
Perhaps you could move to the Congo. What the hell are you talking about? Thats just foolish.
You should be grateful for the freedoms that you have and realize that without these rules and laws you would live under the oppression that most of the world lives under.
Zach said…
You should be grateful for the freedoms that you have and realize that without these rules and laws you would live under the oppression that most of the world lives under.
Wrong Zach! The US doesn’t breed brutal oppression or it ever will in the future. The US is moving far to the left (ie, less freedom), but it will never ever reach brutal dictatorship (like Congo) as you implied.
I suggest, that you get a classic good book by Ayn Rand (”Atlas Shrugged”) and read it. The book will educate you on what’s the meaning of “free” which is directly opposite to your view, ie, regulations (or more of it) will give you more freedom.
I’m Canadian. I would survive just fine with an axe, a knife, and a rifle, and being let go to build my own house with my bare hands in the forest. Humans nowadays have no idea how to provide for themselves, we go to the grocery store for food, I bet most people don’t even know how to grow food or go hunting. I will always and forever instill the values that my father did into my children (when I have them).
Money corrupts, Politicians corrupt, the world is corrupt.
I live in this world and I do conform to the rules and laws because I do not want any stress in my life, but I long for the days that the entire world will be unified in human advancement and we will stop using religion and other artificial reasons to kill and murder each other.
We evolved from animals, and yet some how we forget this, and have become machines, on the 9 to 5 treadmill, making big brother richer, and losing ourselves in the process.
Thanks to TC for pointing out this information. As more and more of our economy and businesses are being controlled by Washington, can regulation of our personal affairs be far behind? Recall the words of Alexis de Tocqueville in 1848: “La democratie etend la sphere de l’independance individuelle, le socialisme la resserre. La democratie donne toute sa valeur possible a chaque homme, le socialism fait de chaque homme un agent, un instrument, un chiffre. La democratie et le socialisme ne se tienne que par un mot, l’egalite; mais remarquez la difference: la democratie veut l’egalite dans la liberte, et le socialisme veut l’egalite dans la gene et dans la servitude.”
fuck the government.
Government is not all bad. But I don’t see how big government is helpful to anyone but the LAZY.
Considering Venture funds INVEST pension fund money they should be regulated.
Also, the venture folks should be required to pass a securities license just like a financial advisor is required to pass one. There’s no way around this
Lastly, this is the first step in cramming down the delusional exorbitant amounts of money these vc guys make as the expense of pensions (teachers, firefighters..). The Obama Administration simply will not sit back and allow these funds to charge 2% to 3% management fees when the industry as a whole has negative returns.
Then what incentive to venture funds have to take the risk investing in the next google if there are caps their returns? The effect of what you propose would trickle down to the entrepreneur in the form of not being able to secure funding for disruptive/innovative ideas.
But thats ok, China and Israel will just continue to breed new innovation and leave US further in the dust.
I thought we already learned the lessons of what happens when govt intervenes and removes capitalistic incentives with the Soviet collapse. I guess not.
Sandhill Road. Get a grip on reality. Maybe if you are based on Sandhill Road, you might appreciate that the VC industry is what made the valley you live in, a Silicon Valley from what it used to be called in the ’50s, “Prune Capital of the US.” Pension funds invest in VC b/c they make money, not because they want to lose money you idiot!!!
First they came for the Jews
and I did not speak out
because I was not a Jew.
Then they came for the Bankers
and I did not speak out
because I was not a Banker.
Then they came for the Manufacturers
and I did not speak out
because I was not a Manufacturer.
Then they came for me
and there was no one left
to speak out for me.
-Insert your name here
I highly recommend anyone who is interested in freedom to watch Glen Beck’s show on Fox News. Glen labels Geithner a tax-cheat. Obama administration & Geithner had moved the US way far to the left, which is against what the founding fathers intended the US to be. Moving far to the left , means more curbing on free enterprise and also means less freedom.
The US is sliding towards socialism quite fast. This will destroy the American dream, which is based on individual freedom that the founding fathers envisioned.
Are you freakin kidding? What planet are you living on? Glenn Beck’s idiotic oversimplified fear-mongering is not worth even mentioning. Socialism? Get a clue before you post.
Change we all “have” to believe in !
Organize a petition I’d say. Regulating VC funds is just plain crazy!
Venture industry is proving to be another whiny little version of UAW – albeit with better suits.
On the one hand they are pouring money into Congressional coffers to be allowed to play in off-limit arenas such as the SBIR program. The VCs lobbying efforts has effectively killed the program, thanks to the Congressional greed to beef up their campaign chest for 2010. On the other hand, they complain, directly or through their surrogates such as TechCrunch, about the slightest hint of oversight.
Well boys (and girls) why not just throw in with AIG and collect all the cash you can without any restrictions?
OY VEY!
Obama and his central planners will fix everything and make sure no one makes too much money and that everything is distributed fairly. Him and his surrogates are far more intellectual and rational then us and as such they deserve the right to make decisions on our behalf, and to spend our money because they can do it far better than we can.
AGREED!
You keep the CHANGE i’ll keep my MONEY!
Regulating VC funds is the stupidest thing I ever heard. We cannot let this happen! Tech Cruncher’s unite.
@GuiatLocal
@PJ
@Fisi
@Jeff
Read the facts and then answer the question.
Fact: GM owes the Union Pension Fund $15 BILLION
Fact: Pension funds invest in VC funds
Fact: VC’s make 2% per year on committed funds
Fact: VC returns over the past 10 years is NEGATIVE 10% as an industry (there are only a few positive returns with ONLY a couple of firm
Question:
If you are Obama and/or Geithner would you not take action to regulate. The only people getting rich are the VC’s.
Personally, I’m for making as much money as possible for delivering quantifiable returns aka “the carry”. But, when someone is getting filthy rich just on yearly management fees I draw the line. Why does a $500M fund charge $10M per year in management fees when they have less than 10 employees? Keep in mind this is just one fund. Most VC’s have multiple funds laddered.
Maybe we should all pour tea on April 15 at the Tax Day Tea Party taking place all over the nation http://taxdayteaparty.com/
LMAOFF, you incurious slobbering Obama-sycophants deserve all the misery you get.
Mark Cuban being the classic “Tech” case.
http://www.yout...h?v=XOYAuk809fY
Listen for yourself to “Hey, Paul Krugman,” by Jonathan Mann:
It’s a pretty great song, and not just because of the lyrics:
Hey Paul Krugman,
Why aren’t you in the administration?
Is there some kind of politicking that I don’t understand?
I mean, Timothy Geithner is like some little weasel.
Wasn’t he in a position of power
when all this sh*t went down in the first place?
When I listen to you, things seem to make sense
When I listen to him, all I hear is blah, blah, blah.
Hey Paul Krugman,
where the hell are ya, man?
‘Cause we need you on the front lines
not just writing for The New York Times.
I’d feel better if you were calling some shots
instead of writing your blog and probably thinking a lot.
I mean, don’t you have some influence?
Why aren’t you secretary of the Treasury?
For God’s sake, man, you won the Nobel Prize.
Timothy Geithner uses TurboTax.
When I listen to you, things seem to make sense.
When I listen to him, all I hear is blah, blah, blah.
Hey Paul Krugman, where the hell are ya, man?
(Obama Breakdown)
Sing it with me!
When I listen to you, things seem to make sense.
When I listen to him, all I hear is blah, blah, blah.
Hey Paul Krugman, where the hell are ya, man?
Your country needs you now.
TurboTax!
You do know Obama and his team are Socialists. Right? You have read Atlas Shrugged?
If you answer no to anyone of the above then you fall into the lemming category. Get yourself out of that by reading the book, and…
Wake up and Smell the Coffee…
Of course this is about the Hedge Funds, and probably to lock down anything that smells like Madoff. Geithner probably just wants to know where these Venture Capital groups are getting their money from (ie – are they also Hedge Funds, or other investment funds of some sort, etc.) that allows a group to put up that much capital in businesses that have a 50/50 shot at survival.
Idiots… Not to worry, China will do even better.
Вперед к победе Коммунизма!
What a suprise,
Some of you here need history lesson’s, republican or democrat their would have still been the same problems untill you realize that the US is run by a select few that select few will keep robbing you and your kids of any physical assets and attributes of talent and work throughout your lives on this earth.
Obama is nothing more than a media PR stunt, the sooner people understand and put pressure on the Goverment the better for all within the United States.
The UK is in worse a state than the US and has been for generations a few taking the best out of humanity is devolutionary and feudilistic, the point being why should we let these old rules and power structures dominate us.
This is the problem with liberalism. Every one wants to regulate another, but no one wants to be regulated themselves. What this leads to is totalitarianism where only the very powerful have freedom and everyone else is regulated.
De-regulation did not cause today’s financial problems. It was specific to easing of lending standards so that everyone can own a home. But, is the government tackling this tough issue? No. President Obama is trying to bailout everyone who couldn’t afford a home in the first place. I am not sure how this solves the problem.
If you wanted less regulations maybe you should’ve voted for the candidate who actually advocated less regulations during his campaign…
Hopefully they’ll be reconsidering. Time remains for the lobbyists to do their magic….
I like Tim.
“Republicans had their chance with deregulation, and you see where it has gotten our society”
Hold on there buddy… it was the Demos who pushed the banks since the mid 90s to make risky loans via “Community Reinvestment Act”.
If they didnt they were called racist and sued as Obama did back in the 90s against CitiBank.
It was the Dems who killed any chance of GSE regulation that the Republicans/Bush/Fed were calling for. While the Dems complain about Wall Street bonus, not a word is heard when Fannie Mae was handing over millions in bonus last month.
Please dont insult our intellegence with the twisted liberal propaganda. BTW, where was Clinton when the Dot Com bubble was growing back in the 90s?
Asking the CEOs and VC for Donations… count the number of times he came to Silicon Valley!
scum bags come in = wall street sharks