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November 20, 2008

"Killing" of VC Industry to Hamper US Recovery?

ABC's technology industry columnist Michael Malone makes a passionate pitch for freeing of regulations governing IPOs that are "killing" the VC industry in that country.
We are looking at the current crisis in Venture Capital and assuming that it is self-inflicted. But the more likely reason is that the industry has taken so many external shocks in the past seven years -- Sarbanes-Oxley (which has killed new IPOs because of its onerous costs to young companies), full disclosure laws (which have driven smart people away from serving on corporate boards), and options expensing (which has all but erased the prime motive for people to join new start-ups) -- that it can't help but be in bad shape, a once-robust industry reduced to a sick, shrunken shell. [And now, of course, there's talk of raising the capital-gains tax rate again, which will be the final nail in the coffin of venture capital.]

...And the biggest roadblock of all is that they have taken away the all-important liquidation event -- the IPO -- to which VCs, their investors and their companies aspired. With that gone, these players have no choice but to opt for the earlier, and lesser, liquidation event of acquisition

...Kill the venture-capital industry and you kill most new company creation (angel investors and corporate capital won't adequately fill the vacuum). Kill new company creation and you starve the single most important source in the economy for new wealth and new job creation

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in