Congressional Reapportionment Offers Venture Industry Opportunities and Challenges –

Although the U.S. population is always in flux, Congress reapportions is membership between states to reflect this perpetual change only once every 10 years. The end result of this process abruptly shifts not only congressional seats but also political influence from state to state and region to region.

This transfer of power, which will be formally realized when a new Congress is elected using new district maps in 2002, is taking place at a time when the venture capital industry is adjusting to fundamental changes borne of phenomenal growth. In some cases, political power will shift away from regions traditionally associated with VC, which would seemingly lessen our influence in Washington. At the same time, however, political power is transferring to regions where the venture industry is experiencing some of its most rapid growth. It is important to note that in a Congress that is almost equally divided between the parties, this shift in power will have added impact on policy.

As an industry seeking to support good government and industry-friendly policies, we must recognize that the maturity and national – and even international – scope of our industry and its importance to our economy is affording us the opportunity to increase our influence in Washington. While reapportionment and redistricting – the actual redrawing of district lines within each state, which is the responsibility of each state’s government – will challenge us to develop relationships with new members of Congress in different regions of the country, we have the opportunity, and responsibility, to work with and educate a broader array of policy makers on the issues that are important to us and – by extension – to our nation’s economy.

The U.S. Constitution requires that the 435 seats in the House of Representatives be divided up among the states based on population as determined by the decennial census. The 2000 head count reports a story that has been repeated in each post-war census: the American populace continues to flow from the Northeast and Midwest to the South and West. Correspondingly, Connecticut and every state around the Great Lakes except Minnesota will lose at least one of its seats in Congress to states on the Southern and Western borders.

This shift in regional power will lessen the influence of congressional delegations in important states, mainly New York, Illinois, Pennsylvania and Connecticut, to the venture industry. However, three of the four states gaining two congressional seats, Georgia, Florida and Texas have seen VC disbursements within their borders increase between 1990 and 2000 at a rate faster than the national rate and faster than every state mentioned above except New York. Furthermore, total disbursements in these three Southern states have eclipsed, or are about to eclipse, figures in each above-mentioned state, again, with the exception of New York.

As congressional seats and political power shift to the South and the West, so too has much of the focus of the venture industry. The remarkable growth of our industry in the past 10 years has garnered the attention of the public, the media and congress, all of whom have developed – to varying degrees – something of an understanding of venture capital’s impact on the economy. It is now incumbent upon us to reach out to policy makers not only in these fast growing regions, but all throughout the U.S. to help them make the connection that VC = high growth companies = jobs and a better standard of living.

We urge all in our industry to become involved at every level of government, either independently or through public policy organizations such as the National Venture Capital Association. Considering that the reapportionment shifts in congressional seats track, to a great degree, the shifts in our industry, we have the opportunity to make a greater impact. Considering the size and importance of our industry in today’s economy, we also have the responsibility to do so.

James H. Cavanaugh is a Partner at HealthCare Ventures LLC in Princeton, N.J. He is a member of the NVCA Board of Directors and serves on its PAC Committee.