Entrepreneurial

A report claiming the number of U.S. venture capital firms has contracted by more than half in the past three years is incorrect, the president of the National Venture Capital Association said.

The report, which recently ran in the San Jose Mercury News, said the number of VC firms has dwindled to roughly 400 today from about 1,000 in 2007. It cited the National Venture Capital Association as its source.

“Have there been firms shut down? Absolutely,” NVCA President Mark Heesen told Reuters this week. “But has the number been cut in half? No.”

Heesen said 2010 figures for the number of firms have not yet been released.

The 10-year period ending in 2009 showed a net increase in the number of firms, he added, noting the count rose to 794 from 753 in 1999.

In addition, the NCVA’s MoneyTree Report, prepared in conjunction with PricewaterhouseCoopers and using data from Thomson Reuters, showed that 2010 marked the first increase in annual VC investment since 2007.

If the American Jobs and Closing Tax Loopholes Act is passed there will be a lot of unhappy venture capitalists, who say they may stop investing in startups.

The new legislation, co-drafted by democratic senator Max Baucus and democratic congressman Sander Levin, aims to re-classify the returns fund managers and venture capitalists receive as ordinary income and not capital gains, as it has been for much of the last decade. This amounts to a much larger income-tax hit for VCs, jumping from 15 percent to nearly 40 percent.

Proponents of the bill, such as angel investor and blogger Paul Kedrosky, say that since VCs, like hedge fund managers, don’t invest their own money when funding startups, that they should have to pay the same tax rate as the rest of us.