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31

Jan

2011

Start-Up America and Zero Cap Gains PDF Print E-mail

Mark Heesen

Written by Mark Heesen   
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The NVCA applauds today's announcement by the White House of the Start-Up America campaign that seeks to create jobs through investment in and support of our country's most promising start-up companies.  The spirit of this campaign is consistent with the goals and objectives of the venture capital community.  We remain committed to supporting a public policy environment that fosters entrepreneurship and innovation, as it is key to our country's long term economic growth.  

We have been fielding specific press inquiries today regarding the proposal by the White House to make permanent the zero percent cap gains rate for investment in small business.  The NVCA supports public policies that reward long term investment in our nation's start-up companies and believe this proposal is well intended.  As a candidate President Obama called for encouraging entrepreneurs through long term capital gains incentives.  And throughout his presidency he has supported this particular zero capital gains incentive.  

Unfortunately the complexity of the tax code inhibits most entrepreneurs and those who fund them from enjoying the benefits that the President espouses.  In practice, this section of the tax code (Section 1202) is riddled with complexities that historically have made it very difficult for venture investors to take advantage of this zero percent rate.  It’s important to remember that these provisions were originally enacted under President Clinton.  Since that time, our understanding is that very few venture investors actually have been able to apply and qualify.  By making the rate reduction permanent, perhaps more investors will explore this opportunity and find a way in which to participate, but we are skeptical that many will overcome the significant hurdles imposed by the regulations.  We continue to urge tax policy makers to examine a simplification of this section in order for it to reach its potential in terms of spurring increased investment in the nation’s start-up community.

 

 

25

Jan

2011

NVCA Submits Second SEC Comment Letter PDF Print E-mail

Jennifer Dowling

Written by Jennifer Connell Dowling   
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On January 13 the NVCA submitted its comments to the SEC on its proposed definition of venture capital for the purposes of exemption from SEC registration.  Yesterday, January 24, we submitted a second comment letter in response to the SEC’s “implementing proposal” also issued in November requesting comments on reporting requirements as part of Dodd-Frank.  In our letter we address what we believe is a missing exemption for venture capital funds from SEC examination.  While venture capital firms have historically been exempted from these examinations under the Advisers Act, Congress did not include specific language to bring forward this exemption in the Dodd-Frank legislation.  The NVCA and a number of SEC commissioners believe the omission was unintentional and represents a technical oversight that can now be clarified.  You can view our full letter, recommendation and rationale here.

We expect this issue to be reviewed and addressed by the SEC in conjunction with other comments submitted during this period and expect a response by the second quarter of 2011.

 

14

Jan

2011

NVCA Files SEC Comment Letter on VC Definition PDF Print E-mail

Jennifer Dowling

Written by Jennifer Connell Dowling   
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Yesterday, the NVCA submitted our comment letter to the SEC regarding their November 2010 proposal to define a venture capital fund for the purposes of the registration exemption under the Dodd Frank Act. Here, in layman's terms, is a summary of our reaction to their proposal and our overall comments:

In general, we were encouraged by the SEC's original proposal as it took into account the nature of venture capital investment as a means to define it. It would have been easy for the SEC to set a size limit on capital managed as a means to define venture capital. It also would have been wrong. The SEC realized this and made the effort to get this definition right.

Still, the devil is always in the details and the NVCA did comment on several issues we believe to be a priority if we want this definition of venture capital to stand the test of time. A summary of our comments can be viewed here. They include a request for the following:

  • Allowance for up to 15 percent of the fund's capital to engage in activity that may not meet all the components of the venture fund definition
  • Clarification on the borrowing activity restriction proposed for portfolio companies
  • Adjustments to rules around secondary transactions or the purchase of stock by venture funds from founders or employees
  • Allowance for follow-on investments in public company in specific instances

The letter also contains comments on technical issues as well as responses to specific questions posed by the SEC regarding the proposal.

In crafting our comments, the NVCA's intent was to reflect the types of activities undertaken by the majority of venture capital firms. We recognize that we will not capture every nuance of individual firm activity and have encouraged NVCA member firms to submit their own comments to the SEC by the deadline of January 24, 2011.

Where does the process go from here? The final rule is scheduled to be in place by July 2011 - one year from when the Dodd Frank Act was signed into law. The SEC will collect all comments and review them. The staff will make a final proposal to the Commissioners which has to be voted upon and approved. Based on this schedule, we can expect a final rule to be issued sometime in the second quarter, giving time for transition before the regulation goes into effect. We will keep you updated as developments occur.

 

21

Dec

2010

President and Congress Give Competes Act New Life PDF Print E-mail

Emily Baker

Written by Emily Baker   
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By a vote of 228-130, the House of Representatives today voted to reauthorize the America COMPETES Act of 2010.   The measure has already been passed by the Senate, so it will now go to the President for his final signature.  NVCA members may recall that COMPETES was originally passed in 2007 to address the competitiveness gaps that were highlighted in the National Academies of Science report Rising Above the Gathering Storm.

COMPETES contains important measures to address STEM education and basic research needed for the USto remain a global leader in innovation. Federal spending on basic scientific research is an investment in our economy and has been singled out by the Bowles-Simpson Commission on Fiscal Responsibility and Reform as being essential to the long-term economic growth needed to reduce budget deficits.

ARPA-E, which is very important to venture-backed cleantech companies, is part of COMPETES and now that the program has been authorized, our efforts to get it funded next year will be better supported.  ARPA-E has now completed three rounds of funding for projects and already some of those projects are showing promise. It is critical that Congress not pull the rug out from under this nascent program, but rather allow it to flourish and yield results similar to the kinds of successful innovations that came out of DARPA many years ago. NVCA is pleased to be a strong supporter of ARPA-E and will work diligently next year to educate the new Members of Congress on the important role that ARPA-E and COMPETES play in the innovation ecosystem.

Thank you to the many NVCA members and portfolio companies who supported COMPETES through letter writing and calls to Congress.  The work has paid off.  

 

17

Dec

2010

Carried Interest Off Table, Thank You to All PDF Print E-mail

Mark Heesen

Written by Mark Heesen   
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Last night the House of Representatives passed a tax bill which keeps the Bush-era provisions in place through 2012. The bill did not contain any provisions to change the tax treatment of carried interest and, at this point, we can safely assume that there will be no such change enacted with the 111th Congress.

On behalf of the NVCA, I would like to take this opportunity to thank our membership and staff who have worked tirelessly on this issue for the last three years. Our position, that carried interest for venture capital investment should receive a meaningful tax differential to reward long-term investment in company formation and job creation, was heard by lawmakers loud and clear - thanks to the efforts of a dedicated and committed venture community.

The 112th Congress begins its work in January. It will be a  very different Congress than the previous one. While the carried interest debate may arise again over the next two years, the likelihood of a change in this provision has been greatly diminished. Still, we at the NVCA will continue to advocate for fostering an environment that supports venture capital and motivates entrepreneurs as the issues of partnership tax, capital gains rates, and the utility of many tax credits and deductions may arise as a part of overall tax reform. Thanks to our membership and staff, we are well positioned to make our case.

 

10

Dec

2010

NVCA Presses Congress to Extend Two Energy Tax Credits PDF Print E-mail

Emily Baker

Written by Emily Baker   
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Yesterday NVCA and TechNet submitted a joint statement to Congress strongly encouraging lawmakers to include the extension of two critical incentives for renewable energy in the tax bill that is currently being considered.

The Treasury Grant Program, Section 1603 and the Advanced Energy Manufacturing Credit, Section 48C are both due to expire at the end of the year. We are concerned that if they are allowed to lapse, investment into clean energy technology companies in the U.S. will suffer. While both of these tax credits have been very successful, they are unfortunately falling victim to partisanship since they were originally part of the Administration's economic stimulus package.

Late yesterday afternoon, the Senate Finance Committee released their draft of the tax bill which included Section 1603.  We were pleased to see this inclusion.   NVCA will continue to press lawmakers on including Section 48C.  Several members of the House have indicated their support for its inclusion as well.  Thank you to all the NVCA members who made calls to their Senate offices in support of this effort.  We are montioring the situation as the larger negotiations on the tax bill take place.

 

08

Dec

2010

NVCA Supports SEC Increasing Offering Limit PDF Print E-mail

Mark Heesen

Written by Mark Heesen   
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Today the House Financial Services Committee will hold a hearing to examine "A Proposal to Increase the Offering Limit Under SEC Regulation A".  The proposal seeks to raise the offering limit from $5 million to $30 million under which companies can be exempted from certain regulatory requirements when accessing the public markets.  The current $5 million dollar limit has been in place since 1992.
The NVCA  has submitted a statement to the Committee today, articulating our support for this proposal.  While this year we have seen significant improvements in the IPO market (YTD 2010 there have been 63 IPOs and 44 U.S. VC-backed companies in registration), we are well below the levels necessary to declare a full IPO recovery and the path to IPO continues to be longer than necessary.  Increasing the offering limit for regulatory exemption will offer an additional liquidity option for these promising companies.  We are encouraged that Chairman Frank has taken up this issue and hope it will move forward in the 112th Congress.
 
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