It is difficult for policy makers to grasp what is a venture fund. I feel Washington's pain.
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The National Venture Capital Association can congratulate itself on its success so far in lobbying Congress for an exemption for venture firms from financial reporting requirements that Capitol Hill seems likely to impose on the private equity industry.
A key subcommittee chairman, Rep. Paul Kanjorski, D-Pa., included the provision in draft legislation he released Thursday. But the proposal leaves it to the Securities and Exchange Commission to define the term "venture capital fund." This will be interesting because the line between the venture and buyout industries has always been a bit blurry and it's not getting any clearer.
Bain Capital, for example, started out as a venture firm and still has a venture unit that invests from dedicated funds. Venture investor Sequoia Capital has been doing growth-equity deals for years from separate funds. The last few years have seen a slew of firms emphasizing growth-equity to deploy more capital and to achieve faster exits as the time to get start-ups to the finish line grows longer and exit values shrink.
New Enterprise Associates has said it will devote about half its current $2.5 billion fund to what it calls venture growth equity. Early-stage specialist North Bridge Venture Partners has launched a later-stage affiliate, North Bridge Growth Equity. Oak Investment Partners and Technology Crossover Ventures act more like private equity firms than venture investors.
Some believe true venture investing can best be done by a few partners with a small fund. That movement has even spawned a support group: VC2.0. In fact, the NVCA's anti-regulation effort often seems aimed at its smaller constituents, who have more limited resources for complying with government paperwork than giants such as NEA.
No one has yet cooked up a venture-fund definition for the SEC to consider, says NVCA spokeswoman Emily Mendell. "There are many different ways to define venture and we have been active in many discussions about this over the last year," she wrote in an email.
Everyone from general partners to limited partners to us here at Venture Capital Dispatch will be waiting to see what description gets nailed to the wall.
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