The following is the National Venture Capital Association’s public policy agenda for 2003.
The 108th session of the U.S. Congress is just getting started and, by press time for Venture Capital Journal, Pres. Bush will have given his state of the union address. While many of our priorities remain in place from 2002, the change in senate committee leadership will alter the debate on issues such as homeland security, the cloning ban, privacy and whether to mandate technology for managing digital rights. For venture capitalists, the emergence of a Republican “trifecta”-control of the White House, Senate and House of Representatives-presents both opportunities and challenges that will play out over the next two years.
Given these political realities, the needs of the venture capital community and the issues facing the economy as a whole, the following is a brief outline of the NVCA’s public policy priorities for 2003. In addition to these issues, we continue to work on other issues that have public policy ramifications, such as venture capital transparency and consistency of return data.
The D.C. Agenda
In Washington D.C., the NVCA is closely monitoring activity in the areas of national broadband policies, tort/securities litigation reform and H-1B visas. Our Medical Industry Group is monitoring Medicare prescription drug coverage, science and technology funding and net-operating loss tax issues.
As I write in January, Pres. Bush has put forward an economic stimulus proposal and the Democrats have offered their own proposal. The NVCA has and will continue to support the inclusion of targeted capital gains reduction for investments in qualified small business stock and further acceleration of depreciation to encourage business investment.
Here’s where the NVCA stands on a variety of other hot-button issues:
* Expensing stock options. While continuing to engage the Federal Accounting Standards Board and congress, we will focus on actions under consideration by the International Accounting Standards Board (IASB). The IASB is advancing a proposed accounting standard that would require companies to record a value for stock options and charge that value against earnings. For pre-public companies, the IASB proposal also would eliminate the ability to use minimum value in calculating that expense. The NVCA continues to believe that expensing options under the currently available valuation models would be a disservice to investors, leading to misleading numbers and lack of transparency on financial statements. We will continue to lead a broad international coalition to prevent the adoption of an expensing standard that would dramatically hurt entrepreneurial growth companies
* Taxes on ISO and ESPPs. Last year we helped lead a coalition that prevented the IRS from forcing companies to assess payroll taxes (FICA and FUTA) on ISO and ESPP programs. However, the moratorium is not permanent and could be withdrawn at any time if not statutorily prevented. This issue has bipartisan support, and while the moratorium is in place it can be achieved at zero cost to the government.
* Sarbanes-Oxley. Although the SEC in recent months had indicated reluctance to revisit any of the provisions in the Sarbanes-Oxley accounting reform bill, the change of leadership in the U.S. Congress is providing a new opportunity to seek legitimate technical corrections in the new statute.
Two key areas the NVCA will seek to clarify are the definition of the terms “financial expert,” and “affiliated person” as applied to the ability of individuals to serve on a company’s audit committee. We are optimistic about the opportunity to work with William Donaldson, the nominee for SEC chairman, to address our concerns.
* IPO reform. We are heeding the growing concern among venture capitalists that portfolio companies are becoming reluctant to consider IPOs. Many of these issues closely track the problems with the Sarbanes-Oxley legislation and the generally growing burdens and scrutiny public companies bear.
We will work with congress to educate lawmakers about the unique requirements of our industry in working with small investment houses in the IPO process. We will also be heavily involved with the NASD and NYSE blue ribbon panel examining the IPO process to improve the transparency and integrity of IPOs.
* Human cloning ban. Legislation to ban human cloning will be introduced and, unfortunately, the chances of passage of such measures have increased. We oppose the ban, given the inevitable chilling affect the legislation will have on other interrelated biotechnology research and the biotechnology product pipeline.
* Human subject protection and conflicts-of interest policy. The NVCA supports reform in this area but will work to ensure these needed reforms will not overburden trial procedures, unreasonably increase trial expense, or unnecessarily limit access to clinical experts to perform advisory and trial roles for portfolio companies.
This is not an exhaustive or inflexible list of priorities for the coming year. Importantly, if there are public policy items that you think the NVCA should address, please