Wednesday, November 26, 2008

Is Venture Capital in Trouble?

Is Venture Capital in Trouble?: "But the real reason, as I discovered at the time, was that the high capital-gains rate was keeping investors out of VC funds, which, in turn, made venture capitalists more conservative with their investments. When President Reagan cut the cap-gains rate, we had the greatest new business boom in history.

I believe we are seeing the same thing now. 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.]

In their blind frenzy to punish perceived evil-doers of the bubble seven years ago, government regulators and boards have taken the most efficient new company and wealth-creation process ever devised and set up roadblocks all along its path.

And the biggest roadblock of all is that they h"


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