Big (and Smart) Government
In the past few months I have had the opportunity to interact with a number of state and federal officials as the financial crisis has unfolded. And for the most part my faith in the system has been renewed.
In my capacity as chair of the New England Venture Capital Association, I have met a number of times with Governor Deval Patrick of Massachusetts, and in fact I chair his recently formed Entrepreneurship Committee for the Mass IT Collaborative. I have also worked closely with his Secretary of Economic Development, Greg Bialecki, who is working very hard on a number of important initiatives to drive local job growth and company formation. As a board member of the National Venture Capital Association I have also met with Representative Barney Frank to review possible federal regulation of the venture capital industry as part of the pending overarching regulation of the financial services industry.
And what I found was a group of legislators very concerned and engaged in finding constructive solutions—and I appreciate better the big sticks they wield. As the crisis began to unfold last fall the meetings went along the lines of “What is going on? How bad is this going to be?” Now that we seemed to hit a point of some stability, the meetings now are much more focused on finding solutions and launching programs to bolster the innovation economy. For instance, Secretary Bialecki was instrumental in securing initial funding for MassChallenge, an exciting initiative to bring entrepreneurs and investors together.
Admittedly my initial interest in being involved was to see how the VC industry might play a role in seeing as much of the federal stimulus moneys make their way to our portfolio companies as possible. I had suggested to Governor Patrick that a group of VCs advise in the allocation of stimulus dollars on a local level. Notwithstanding the enormity of the stimulus spending, it turns out to be reasonably difficult to pull levers which would quickly get funds to our companies.
My other interest in being involved was much more parochial. I was worried that the government would paint with too broad of a regulatory brush as it tried to “fix” the hedge fund industry and perhaps inadvertently slap around the VC industry as well. The idea that the VC industry somehow caused systemic risk to me was ridiculous—we do not use leverage, do not have public securities, ask our investors to lock up for 10 years, do not use derivatives, etc)—yet there was emerging rhetoric about the risk VCs brought to the financial markets.
On this score I was very pleased with what I heard from key government leaders, particularly Representative Frank. There is great understanding of the important role that the venture industry plays—most officials clearly understand that it is the new companies which create the jobs and growth—and importantly that the VC industry is fundamentally different from the hedge fund world and does not inherently pose great risk.
As I said to Governor Patrick in my office a few months ago, since we started Flybridge Capital Partners nearly 8 years ago we have helped to start almost 45 companies which at the end of 2008 employed 1,231 people.
So maybe I am wrong—we do have a very highly leveraged model.