Democrats’ tough road can lead to benefits for venture industry

Last November—before the ink of the headlines announcing the Democratic victory had even dried—political pundits began to question whether the Democrats under Harry Reid and Nancy Pelosi could make the transition from opposition politics to legislative leadership. While critical reaction to Pelosi’s First 100 Hours initiative has been predictably mixed, the effort demonstrated one thing for certain: Democrats know that the public is watching closely and that they will be judged largely on what they accomplish between now and 2008.

Unfortunately for the Democratic leadership, the road to 2008 is littered with obstacles. Pre-election politicking for the 2008 Presidential race is prevalent, especially in the Senate, where the minority still retains enough pull to extract significant policy concessions and where the five leading presidential candidates hold powerful committee seats. And the ongoing military operation in Iraq will likely make it extremely difficult to pass the type of major legislation that Pelosi, Reid and company would like to hang their hats on come the next election.

It is within this forbidding environment that a number of issues germane to venture capitalists will struggle for air time. Whether these will suffer from budget deficit, attention deficit, or some combination of the two is difficult to tell this early in the game, but the NVCA will be keeping a close watch on the following four:

Funding for cleantech innovation. The irresistible force (popular sentiment) will meet the immovable object (the budget crisis) on this issue. The Democrats have been both enthusiastic and aggressive about finding funding for this sector, because it has the power to energize their base and affect the pocketbooks of the average voter down the line. The biggest challenge remains squeezing money out of the Iraq-depleted budget, but look for Democrats to scrape enough together to generate an impact in the sector.

Immigration reform. Ironically, November’s shifting of fortunes has provided an opening for both Democrats and President Bush on this issue. Both have focused more on expanding opportunities for immigrants to meet U.S. workforce needs legally than on rounding up illegal immigrants currently in the country. Legislation resolving the current impasse would likely include an expansion of the current H1-B visa cap—if it sees the light of day. With Iraq and other high-profile issues dominating the budgeting and appropriations processes, lawmakers simply may not have the bandwidth to move this hot-button issue off the backburner before 2008.

The Democrats have been both enthusiastic and aggressive about finding funding for [cleantech], because it has the power to energize their base and affect the pocketbooks of the average voter down the line.

Jennifer Connell Dowling, VP of Federal Policy, National Venture Capital Association

Sarbanes-Oxley reform. Theoretically, this issue should feel the least effect from the Iraq debate, but keeping it on the Congressional radar will be difficult. The question remains whether the regulatory fixes proposed by the SEC and Public Company Accounting Oversight Board last December will go far enough to mitigate SOX’s burden on small businesses. If not, will Democratic lawmakers have the will during the run-up to an election to undertake a legislative fix on what is seen as more of a Republican issue?

Stem cell research. The House passed legislation lifting the ban on federal funding of embryonic stem cell research as part of its First 100 hours push, and the Senate is likely to do the same shortly. Unfortunately for its sponsors, however, this urgency has only put the new legislation on the fast track to a presidential veto that neither chamber has the numbers to override. For this reason, look for individual states to continue establishing and funding their own stem cell research programs.

Of course, these aren’t the only issues venture capitalists are watching closely. For instance, generic drugs could jump to the top of the list next year if Congress clears the way for FDA approval of generic biologics. How the Democrats choose to guide these initiatives through the potholes littering the road to 2008 will determine in large part how VCs engage them in 2008 and beyond.

Jennifer Connell Dowling is Vice President of Federal Policy at the National Venture Capital Association. She can be reached at