NVCA goes it alone on carried interest

In the old days, private equity was an umbrella term used to describe a number of asset classes including buyout firms and venture capitalists. However, in the last several years, the buyout industry claimed the term private equity as its own, which was not too confusing at the time but recently grew to be as the debate on carried interest tax legislation began to receive media coverage.

It became clear over the summer of 2007 that the press was making no distinction among any of the asset classes swept up in the carried interest bill. News stories almost exclusively referred to the private equity industry as being targeted by the legislation. Whether the media was including venture capital in that term is up for debate. What was critical was that the venture capital voice was being buried under the more salacious stories of large birthday parties and even larger lobbying efforts.

The National Venture Capital Association needed to step up our public relations efforts very quickly. Our team had been working diligently all summer to educate members of Congress on the economic contribution of venture capital, the simple compensation structure and the important value of a venture capitalist’s sweat equity.

We had been strongly asserting our uniqueness in this regard. No other asset class can claim the creation of more than 10 million U.S. jobs and $2.3 trillion in revenue—all on investment representing just 0.2% of U.S. GDP.

Venture capitalists are investing today in the same industry sectors the government is trying to promote through bi-partisan innovation agendas. Why would Congress discourage investment in these areas?

While buyout firms, venture capital firms, real estate firms and oil and gas partnerships may have a similar tax structures regarding carried interest, we feel strongly that each asset class has its own virtues to bring to the table.

We would be doing our members a tremendous disservice by not stepping up with our unique story. Our messages of economic growth and innovation continue to be our own.

Mark Heesen, President, National Venture Capital Association

In going public with the messages that we had been relaying to Congress all along, the NVCA was faced with a new challenge. The media interpreted our strategy as an overt criticism of our buyout brethren and we were accused braking ranks and even “throwing them under the bus.” It was a difficult angle to dissuade, but our intention was clearly not in that vein.

We had never been a part of buyout industry’s lobbying strategy, nor had we ever been part of a coalition on this issue. You can’t break ranks with a group of which you were never a part. We continued to assert that the best possible outcome for this bill was for it to be defeated in its entirety—for all asset classes.

However, as the National Venture Capital Association, we would be doing our members a tremendous disservice by not stepping up with our unique story. Our messages of economic growth and innovation continue to be our own. Joining with other groups with different messages and different stakeholders would be dilutive to our voice.

Further, our advocacy efforts were not going to be compatible with any other efforts. Having been lobbying for entrepreneurs on Capitol Hill for more than 30 years, we remain committed to a process that has worked well for us. We rarely hire outside lobby firms and prefer to leverage the bi-partisan relationships we have built, going door to door with a small contingent comprised of NVCA staff and perhaps a member or two to make our case—not just on this issue but on all issues. That approach has served us well.

As I write this article, it remains to be seen how the story will end. We believe that the passage of a carried interest tax bill could be the evil equivalent of the Prudent Man rule of 1979, which fueled venture capital investment and drove the U.S. economy forward to an enviable position today. Raising taxes on venture capitalists when they are successful in building startup companies is bad public policy. Whether the bill is defeated in its entirety or the startup community is somehow protected has yet to be seen. We would readily accept both of these outcomes. We are the NVCA for a reason.

Mark Heesen is President of the National Venture Capital Association. He may be reached at mheesen@nvca.org.