NVCA’s Heesen says report on death of VCs erroneous
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.
Venture capitalists invested $21.8 billion in 3,277 deals last year, an increase of 19 percent in dollars over the prior year.
Will VCs really stop funding startups?
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.
The closing of the tax loophole would appear the expedient thing to do in a political climate where bankers are being besieged over bonuses and the big hand of government is trying to better control the practices of all types of investors.
But VCs are crying foul over a bill that lumps them in with all fund managers and takes away the one incentive they say rewards them for their long-term and high-risk investments in startups.
“If you talk to congressman Levin, who has been the architect of this, he’ll even tell you that what we do is different,” said Mark Heesen, president of the National Venture Capital Association (NVCA). “Does he want to see a distinction? Probably not, because he just wants the revenue, but he does see that what we do, from a job-creation standpoint and just from how we operate, is very different than what these other folks do at the end of the day.”
Heesen’s NVCA colleague Kate Mitchell, who is also a managing partner at Scale Venture Partners, said what she does as a VC is more a labor of love and is not as financially rewarding as many outside the industry may think.
