Daily reports of layoffs and belt-tightening at tech companies coupled with the continuing dotcom shakeout have raised questions among policy makers in Washington as to the health of the venture industry. An automatic assumption exists that the fate of the venture industry follows every peak and valley of high-tech and biotech concerns.
The truth, of course, is that things could be better. But, at the same time, the National Venture Capital Association (NVCA) has been striving to impress upon policy makers some salient facts. Short of quoting Mark Twain, the NVCA has let it be known that the venture community is doing well and emphasizes that the industry has established itself as – and will remain – a critical component of the U.S. economy. In fact, the NVCA hastens to point to statistical data making it clear that the industry is an enabling factor for our country’s growth and prosperity – and will be one of the key tools for the recovery of a slowing economy.
The first point the NVCA makes when discussing the venture industry with policymakers is to ask them to view current investing trends in the context of the industry’s growth over the past five years. Most members of Congress are stunned to hear that total annual disbursements in the U.S. grew to $105 billion in 2000 from roughly $5 billion in 1995. An easing of investing back to a more manageable growth rate is not only expected, but will actually be a healthy development for the long-term prospects of the industry. Even if disbursements decline in 2001, the industry’s participation in backing start-ups and building existing portfolio companies still will be extraordinary from any perspective.
As impressive as the level of investing is, the dollar size is even more striking when venture disbursements in 2000 ($105 billion) are compared with the fiscal year 2000 federal budget for research and development (roughly $80.7 billion). This contrast will become acute as federal investment in basic R&D is slated to decrease in real dollars according to the President’s FY 2002 budget proposal. Venture investing and the federal R&D budget are not, of course, interchangeable. Indeed, the NVCA is a strong advocate for robust federal support for basic, pre-commercial R&D. Industry does not have the resources to support the type of R&D done at government agencies and universities in addition to its own research. Nor would it be able to recoup those costs through the marketplace if it were able to take on that enormous responsibility. However, the size of venture investing in high-growth tech and biotech companies – which is even larger than the gross domestic product of Ireland – is as strong a testament as anything to our industry’s commitment to advancing our country’s technological leadership and international competitiveness.
A common misperception that the NVCA works hard to dispel is that venture capitalists are short-term investors. One senior government official even asked if venture investors operate along the lines of day traders. The precipitous drop in the Nasdaq and the sudden turnaround of the dotcom world have the media and some policy makers looking to point fingers. Such questions are easily laid to rest in the context of discussing venture funding of biotech companies, for example, where the return on investment is not expected for 10 to 15 years in some cases, and after tens of millions of dollars have been invested. What’s more, the NVCA strives to point out that many VCs have remained involved in portfolio companies long after their initial public offerings by serving on their boards and in other capacities.
The maturation of the venture industry from a small, regionally-based community of investors to a national and even global phenomenon has significantly and irreversibly heightened its profile among the public, the media and policy makers. The fact that the industry plays a critical and unambiguously positive role in our economy and our ability to compete internationally can unfortunately be overlooked or discounted by these constituencies in the face of bad economic news. The NVCA works hard in Washington to dispel misinformation about venture investing and to educate the public and policymakers on the economic impact the industry is having. It is incumbent on all of us in the industry to deliver this message. For better or worse, we must accept this responsibility.
Mark Heesen is President of the National Venture Capital Association