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May 11, 2010

Barney Frank says: Don't Mess with VCs or Angels

Barney Frank was crystal clear in his briefing with a group of CEOs that I participated in this afternoon:  he is going to make sure that the final Financial Reform bill that gets worked out with the Senate won't mess with the angel or VC communities.

I came to Washington DC today with the Progressive Business Leaders Network (PBLN) group that I co-chair.  It was our group's annual trek to DC where 80 CEOs and business leaders from Massachusetts had the opportunity to dialog with the leadership from the congressional and executive branch.  We met with Congressman Markey to talk about cap and trade (Senator Kerry is releasing his bill tomorrow and one of his staffers briefed us on its content), Senator Warner to discuss innovation investments and deficit reduction, and Congressmen Frank and Capuano to talk about financial reform.

On Financial Reform, Barney Frank was very direct when I pressed him on the myriad restrictions that are being discussed in the Senate bill around angel investing and the discussions about taxing carried interest.  Here's what he said:

  • "We will exempt venture capital from the carried interest tax."
  • "We will not tighten the regulations on angel investing."
  • "We will fight back on any attempts to regulate or register venture capital funds."
  • "When this is passed, we will look to loosed RegA to facilitate IPOs."

He confidently stated that the Senate would pass a bill by Memorial Day and that the reconciliation process would be done such that the President would sign a bill by the 4th of July. 

Encouraging support from a powerful source - let's hope he follows through!

If you want to lend your support on this issue, keep track of the NVCA's activities and write your own representative.  Mark Heesen, NVCA executive director, wrote an email to thousands of VCs today stating: "This morning we delivered the letter to every U.S. Senator with more than 1700 signatures from 41 states plus the District of Columbia. You can view the letter here and our corresponding press release here."

President Obama's staffers told us:  "We understand that start-ups and entrepreneurs are the key to leading the US out of the recession."  Again, let's hope both sides of the aisle get the message.


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Thanks for your work on this. Extremely helpful for founders like me.

Funny, I just read the section in your book including your IPO rant (chapter 6). Great to hear that loosening IPO regulations is next in line.

Thanks. I'll believe it when I see it but it seems Barney at least "gets it".

That's good news and like you I'll believe it when I see it. There is one thing that I don't see in Barney Frank's statements: Anything about startups. Did Frank say anything about not burdening start-ups?


What burdens do you have in mind? Through PBLN (www.pbln.org), we have the access to the right folks to push an entrepreneur-friendly agenda.

Can't disagree more Jeff, posted my comment on PE Hub where I thought the original lived:

Notice the subtle distinction between Barack’s statement and Barney, the support for startups and entrepreneurs is important, not the support for defunct financial system that even with its subprime investment tactics and deplorable performance dares to call itself a Venture Capitalist and chokes groundbreaking innovation.

I am glad Barack’s people are reading my blog too and hope that the discussions will lead to a change in the way we build more robust financial systems, rather than a useless plethora of restrictions that allows those who have the interest to con the system to take it for a ride. Changing the symptoms of a defunct system does not cure the systemic disease in Venture.

The NVCA is the ultimate protectionist who’s only agenda appears to be to protect VC downside rather than build the proper financial system that secures upside. Any VC who associates himself closely with their agenda, is exactly a VC you never want to build a company with, as only subprime VCs will spend time on protecting a subprime agenda.


Jeff - just heard from someone on Capitol Hill that the carried interest tax will be included in a "tax extenders" bill and not in the financial reform bill. Both bills are over in the Senate right now. The carried interest tax is a "pay for" to cover extending some other expiring tax credits. As far as I know, there are no exemptions for VCs (so far).

Interesting. Barney Frank was very clear that VCs would be exempted. Mark Warner also was very focused on this. We'll see how it plays out.

If I'm not mistaken the bill requires that all startups would be required to file with SEC and a 120 day waiting period would commence.

Additionally if the SEC couldn't get to the filing and 120 days elapsed then the startup would have to refile all over again in each individual state that potential investors are in.

In your post I didn't see Barney Frank commit to startups in the same way he committed to investors.

You're obviously more up to speed on this than I, however, when I see things that are not talked about then I question.


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I pushed on the angel investing issue and
the 120 day waiting period and was assured that this would be eliminated.  We’ll

i have very little faith in the government, i think it is profoundly broken and the evidence shows it.

i hope at some point entrepreneurs and VCs can begin to explore the idea of creating their own monetary and financial system. i think this is basically the route to a peaceful revolution while being consistent with the social trends of the internet (individual empowerment, coupled with new forms of governance and collectivism).

The carried interest tax exemption is indefensible. Fund managers should pay income tax just like everybody else. The NVCA's position is unbridled rent seeking for which all members firms and their partners ought to be ashamed. Ask any VC: "Do VC's deserve a handout at the expense of other taxpayers?" and let me know if anybody isn't embarrassed at the mere question.

The capital gains taxation on carried interest is a historical accident. If it didn't exist, nobody would be campaigning for it. No capital at risk = no cap gains treatment.

Don't confuse the fundamental freedom from undue government regulation in fundraising or investing, which is the honorable (and socially productive) fight we're waging here with the purely anti-social rent seeking aspect of the carried interest tax loophole.

The NVCA and its members should show intellectual and moral leadership by dropping the campaign for the loophole.

Progressive Business Leaders Network? - I know you don't think so but that's a fundamentally contradictory organization. Business and profit are bad, bad, bad according to the progressive agenda.... unless you happen to know the right people to protect your slice of the pie. It's not what you do but who you know that matters and that is antithetical to the meritocracy that is the business world (until you can buy off government officials to, again, protect your business).

The progressive agenda is an anti-business agenda. Just because your ox isn't gored now doesn't mean it isn't slated to be gored eventually.

When Barney Frank comes clean and admits how the organization under his protection and associated legislation created a moral hazard for the financial industry, then I will start to listen to what he says. Until then, he is a corrupt, unrepentant politician who cannot be trusted other than to act according to his own selfish, greedy goals.

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Princeton economist Alan Blinder wrote a great book in the 1980s called “Hard
Heads, Soft Hearts”, which I think captures the spirit of a hard-nosed business
mindset applying economic principles to do go.

In your post I didn't see Barney Frank commit to startups in the same way he committed to investors.

Great article,
It is very important for everyone to have health insurance.If you don't have insurance and you have to go to hospital, you'll have to pay over $20,000.That happened to a friend of mine.I know a site that offer the cheapest possible price for health insurance, free quotes and a lot of benefits.


Great info, thanks for sharing. Everything is connected now. From the local wine shop in Portugal to the chemistry factory Brasil. I recomend the Freakonomics book for some inside thoughts.

Old post I know, but I had the same thought, what an oxymoron.

I guess they fall into the same camp as Christians that don't believe in Christ and The Association of Anarchist for Bigger government.

I suspect when the dog he has fed for all these years turns on him he will be the most surprised of all.

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