Paul Maeder: Perpetuating the NVCA Agenda

When Paul Maeder was named the 2011 chairman of the National Venture Capital Association in April, this carefully spoken and contemplative veteran of venture capital may not have seemed the natural pick.

But ask the Highland Capital Partners GP about his priorities and goals, and Maeder quickly comes across as driven and engaged.

A 27-year investor, Maeder says that immigration reform is high on his list of critical issues. So are regulatory changes tied to the Dodd Frank Act of 2010, a re-thinking of Sarbanes Oxley and topics such as patent reform and clean energy regulation.

He appears to be a realist when it comes to the forces presently remaking venture capital, such as what he calls its “right sizing.” He also apparently understands compromise.

“I don’t personally believe in no regulation,” he says. “My view is if you want to see what too much regulation does to an economy, look at the Soviet Union in 1970. And if you want to see what too little regulation does to an economy, look at the Soviet Union in 1990.”

Maeder is quick to praise the NVCA’s role over the years as an industry lobbyist and says perpetuating it is his duty.

“I think the over arching message is that venture capital promises to be a very effective vehicle for creating jobs and creating growth and creating national competitiveness in the U.S. economy,” he says. Nothing could be more important as the nation struggles to reduce unemployment and strengthen its competitive position in the world.

VCJ Senior Editor Mark Boslet recently had the chance to quiz Maeder about his new position at the NVCA. Here is an edited transcript of his remarks:

Q: What is the role of the NVCA chair?


The focus of the NVCA and the role of the NVCA staff is to promote the innovation economy—policies that benefit venture firms and their portfolio companies. The role of the chair is to make sure the oversight and governance of the NVCA is appropriate to that mission and to act as a spokesperson for the NVCA.

Q: Do you have particular goals?


The NVCA has been successful throughout its history and is respected in Washington because it’s been consistent in its mission and carrying out that mission. My goal is to build on what my predecessors have done so we drive forward with a consistent message and a consistent effort.

Q: Last year was a tumultuous period for Washington regulations. What were the results of the NVCA’s efforts?


Last year, Dodd Frank came in and the NVCA was able to exempt venture capital from Security and Exchange Commission regulation. This was justified because the Dodd Frank Act was, among other things, designed to protect the financial system from systematic risk, and of course venture capital doesn’t present systematic risk. It took a lot of work and a long time to convince Congress this was the case.

Q: Then there’s the question of how to define venture capital at the SEC.


We spent a great deal of effort toward the end of the year with the SEC trying to help it come up with a meaningful definition of what venture capital is.

Q: In July the SEC is set to release its proposed regulations. What do you anticipate?


The SEC staffers are genuinely interested in understanding venture capital. So I actually think the regulations that will come out will be ones that we can live with. After that, how the regulations are enforced, will probably be another area of some concern. We may need to have some input on that.

Q: Another focus of the venture industry is Sarbanes Oxley. Where does this issue rank in your mind?


The regulatory constraints of Sarbanes Oxley do present an undue burden of compliance on smaller companies. The act is totally appropriate for companies with revenue in the billions of dollars that can afford large audit staffs and millions and millions of dollars in expenses.

Small companies—those such as $100 revenue companies or $200 million revenue companies—do not present substantial risk to the financial markets. Sarbanes Oxley is a big reason why small companies can’t afford to go public when it costs $3 or $4 or $5 million to comply with regulations.

Q: Any chance of Sarbanes Oxley reform?

The contraction is the result of natural market forces. It’s healthy. It’s probably been overdue.


We feel Sarbanes Oxley should be modified to be scale appropriate. And in fact there was a major study undertaken when Christopher Cox was chairman of the SEC. It came up with a whole series of recommendations that we recently highlighted at a conference with Treasury Secretary Timothy Geithner. We hope that some of those become adopted.

Q: How will they work?


The smallest companies should be exempted from significant portions of Sarbanes Oxley. Midsized companies should be exempted from a smaller percentage of Sarbanes Oxley. And big companies should of course be subject to Sarbanes Oxley as they are today.

Q: What other issues are at the top of your agenda?


Another major area is the Spitzer accord. The Spitzer accord was a response to the fact that research analyst reports were too tightly involved in the investment banking process. The trouble is research coverage went away for all but the largest companies in the economy. So when we’ve got a $100 or $200 million company that goes public, it all but gets ignored by institutional investors cause there are no third party analysts out there telling the story.

Q: How do you change this?


The Spitzer accord is a consent degree. It recently came up for renewal and the investment banks signed it because none of them are making money in research any more. I’d like to see federal legislation to supersede the Spitzer accord under a regulatory framework that allows research coverage to go back to what it was 15 years ago. You realize an investment banker can’t sit in the same room with a research analyst?

Q: What would you like to accomplish on the immigration front?


If you get anyone in a room alone and ask if it is in the best interests of the United States to not allow people to work here if they have needed skills, people would agree that’s crazy. And yet regularly, people graduate from MIT and have to go back to their home country. And of course they may start a company in their home country that may compete with a U.S. company.

Q: What’s the solution?


The reason we don’t get good immigration reform is because the high-skill end of immigration reform is hostage to the low-skill end of immigration reform. Those two issues need to be politically de-coupled.

Q: What is the biggest challenge facing the U.S. venture capital business today?


Venture capital has been a wonderful engine for growth and competitiveness in the United States. For the last 30 to 40 years, we’ve effectively had a monopoly on it. The rest of the world has taken notice. At this point we no longer are the only game in town.

Q: What do you mean?


The Chinese, for example, built a very robust venture industry, which has very rapidly become highly skilled and domesticated. It started out with U.S. venture firms operating there and U.S. venture firms having affiliates there. Now the Chinese are doing it on their own with RMB-denominated funds. Our startups are no longer alone.

Q: In regards to venture funds, will fund size change?


The contraction is the size of funds will stabilize. That’s a very healthy phenomenon.

Q: Where will it stabilize?


A very typical number now is $400 million. While there are many examples of larger funds and smaller funds, it seems to be the coming sweet spot. There are going to be very few $1 billion funds.

Q: Should the NVCA become involved in slowing or halting the contraction of the VC industry?


The contraction is the result of natural market forces. It’s healthy. It’s probably been overdue. I don’t think it is the role of the NVCA to try to hold back forces of nature. I don’t think we should try to do something about it.