Polaris’s McGuire Takes Helm at U.S. Venture Group, Plans to Fight Obama Effort to Hike Taxes on VC Firms

5/1/09

It’s probably fitting that I caught up with Boston venture veteran Terry McGuire this week while he was chatting in a corner of a busy conference room with his West Coast counterpart, Dixon Doll. McGuire, a co-founder and managing general partner of Waltham, MA-based Polaris Venture Partners, introduced Doll to me as the chairman of the National Venture Capital Association, which was having its annual meeting in Boston at the time. But that wouldn’t be true for long. Now, for those who don’t know him, meet Terry McGuire, the new chairman of the National Venture Capital Association.

McGuire, 53, yesterday began his one-year term as the head of the NVCA board of directors. It’s no secret that he takes the baton from Doll, a general partner at Menlo Park, CA-based venture firm DCM, amid uncertain times for the U.S. venture industry. The number of venture-backed companies to complete initial public offerings has fallen off a cliff since the dot-com bubble went pop in early 2000, prompting an action plan put forth by the NVCA on Wednesday for reviving the IPO market. Meantime, amidst a litany of other problems facing venture firms in these turbulent economic times, the lack of exit pathways leaves many stuck with stakes in startups at a time when their options for selling those positions for a profit have hit historic lows.

Enter McGuire, who at least has the resume to provide leadership to the Arlington, VA-based venture industry group in troubling times. He and two other colleagues from former venture firm Burr, Egan, Deleage & Company started Polaris in 1996. With capital from Polaris’s maiden fund, McGuire became a founding investor in Advanced Inhalation Research, a Cambridge, MA, developer of inhaled drugs, co-founded by renowned MIT inventor Bob Langer. In 1999, Cambridge, MA-based biotech firm Alkermes (NASDAQ:ALKS) acquired the startup for about $125 million in Alkermes common stock. Polaris didn’t sell its shares in Alkermes until the stock had multiplied in value at least a couple of times, McGuire tells me, and the profit from that one deal contributed to about half of the returns of Polaris’s first fund. The firm now has $3.2 billion under management, and several other big exits in the life sciences and technology sectors under its belt.

At least at Polaris, which also has an office in Seattle, McGuire has proven that it pays to play nicely with entrepreneurial inventors. MIT’s Langer, for example, says that about 90 percent the companies he has helped found—and there have been more than a dozen of them—have chosen to work with Polaris. “His rule is to treat people well, and that’s more important than making money,” Langer said of McGuire, in an interview yesterday. “And by treating people well, he’s made a lot of money.”

But because of the dire straights that the venture industry is in, my conversation with McGuire yesterday about taking over the NVCA reins focused more on future hurdles than past successes. Here are some excerpts from our conversation:

Xconomy: The venture industry is in rough shape. What are your plans to address that?

McGuire: We have a number of challenges that we need to make sure get addressed, and to maintain the innovation that venture capital stimulates. Those challenges include doing our part to make sure that the capital markets open up for venture-backed companies and IPOs. The second goal would be to make sure that we as venture capitalists have the same incentives to build companies as entrepreneurs, and that means taxing our returns on investments at a the current 15-percent capital gains rate rather than, as proposed in the President’s budget, paying double that amount on our profits in the form of an ordinary income tax. And we clearly know that under [U.S. Treasury Secretary Timothy] Geithner’s initial proposal, the venture capital industry would be regulated, and our goal would be to make sure that, if we are regulated, we are not regulated in an adverse way that causes limited partners to stop investing in venture capital.

X: What are your concerns about where things are headed in the venture industry?

TM: We recognize that everyone in the marketplace, whether it’s the average individual or endowments and pension funds, their assets have shrunken. Their assets dedicated to investments in venture capital will likely shrink, so our industry will probably get smaller within the next several years. We’re also part of the mix of stimulating innovation. The contradiction is that at a … Next Page »

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