With the November election rapidly approaching most industries and their political action committees (PACs) are working feverishly to turn states and regions either Republican Red or Democratic Blue. The venture capital community is just as invested in the political process as any other group, but the enormous diversity within our industry often puts us to work for candidates on both sides of the political aisle.
For this reason, the NVCA focuses more on key issues during and after the election rather than supporting political parties. Although political cynics may bemoan the lack of a true difference between candidate Kerry and President Bush, this election will affect the venture capital community in a number of ways.
One of the most dynamic impacts of the upcoming election surrounds key appointments within the administration. A Kerry victory would certainly bring about massive turnover in important departments such as the SEC, FTC, FCC, FDA and EPA, as well as in the departments of Commerce and Health and Human Services, resulting inevitably in an adjustment period in which new people will have to get up to speed on the issues and decide whether to stay the course. A Bush victory, however, is no guarantee of administrative continuity. While this administration has done a good job of maintaining its cabinet-level executives the simple reality is that people often move on after four years.
The transition time involved for Bush or Kerry to select their department leaders could result in fewer drugs on the market, spectrum allocation delays or legislation enacted at the state level regarding the re-importation of drugs. A good example of this challenge is with the FDA, which currently does not have a permanent commissioner. Even if someone is nominated for the post as early as January, Congress likely won’t confirm the nomination until March. So, regardless of the November victor, we will need patience as the transition takes place.
Life Sciences/Health Care
Both presidential candidates have supported the life sciences and health care sectors in different ways. As an advocate of stem cell research, Kerry could seek additional research and funding for the area, which could lead to more breakthroughs for various diseases and afflictions. However, he might champion an overhaul of national health care system, which could potentially send the biotech industry into a tailspin. President Bush would certainly ensure a continued friendliness to the life sciences sector, as he has also been a strong supporter of research in biotechnology and health care, having doubled the NIH’s budget during his term. Yet his stance on stem cell research remains troubling to many.
The venture capital community will certainly keep its eye on the current capital gains rate of 15%, which is set to expire in 2008. While a second Bush Administration would likely support its permanent extension, a Kerry Administration may see things differently. Depending upon the business climate, either candidate may look for opportunities for additional taxes on corporations or additional regulations from a more aggressive SEC. In fact, Kerry could replace SEC Commissioner William H. Donaldson as Chairman, who despite his opposition to our position on stock options understands the VC industry and its role in our system.
Federally funded basic R&D still sets the stage for many venture capital innovations. President Bush has called for even more research budget increases in life sciences and R&D, but achieving them will be difficult given our country’s commitments in Iraq and Afghanistan. Although a Kerry Administration may convince other nations to share more of our costs abroad, there is no guarantee that Kerry would re-channel federal money into R&D. Neglecting R&D would be dangerous for American competitiveness because developing countries like Korea and China are beginning to make major financial commitments to all types of basic research.
Additionally, the President always has the bully pulpit and can use this to direct investment, particularly if statements are backed up with significant tax credits or R&D money.
Amid these uncertainties, one realization remains evident: The government will always play an integral role in the venture capital business. We depend on our government to make the system work as well as it does. And while the entrepreneurial spirit created venture capital, the government can help preserve and perpetuate it by enacting laws that enable us to market and protect our innovations and the businesses they engender.
Mark Heesen is President of the National Venture Capital Association.