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21

Feb

2013

Final FATCA Regulations and Deadlines Issued PDF Print E-mail

John Taylor

Written by John Taylor   
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On January 17, 2013, the U.S. Department of the Treasury and U.S. Internal Revenue Service (IRS) issued final Treasury Regulations under the tax provisions commonly referred to as the Foreign Account Tax Compliance Act (FATCA). The full alert from Proskauer can be found here. The mobile version is also available.

There is quite a rubric of rules which could apply to venture firms and funds with any kind of foreign presence or affiliated entity. Member general counsel and CFOs need to be familiar with these new rules which are specified in a 543-page IRS document.

 

07

Feb

2013

Jim Healy Presents at FDA Hearing on Special Medical Use Pathway PDF Print E-mail

Kelly Sloane

Written by Kelly Slone   
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On February 4, FDA held a public hearing on a new proposal that would create an alternative approval pathway for certain drugs intended to address unmet medical need, also referred to as a Special Medical Use (SMU) designation.  Jim Healy, Managing General Partner, Sofinnova Ventures, presented NVCA’s perspective on the proposed new pathway before the FDA panel.

The SMU pathway was one of the recommendations that came out of the President’s Council of Advisors on Science and Technology (PCAST) report released last September entitled, “Report to the President on Propelling Innovation in Drug Discovery, Development, and Evaluation,” as a way to improve drug evaluation.

Under the proposed SMU pathway, the drug’s safety and effectiveness would be studied in a smaller subpopulation of patients with more serious manifestations of a condition and would likely involve smaller and more rapid clinical trials.  NVCA believes this new pathway could improve research and discovery in novel therapeutic areas, reduce the risk to patients and companies in the development of new treatments and encourage renewed funding of disease areas that are currently viewed as too risky or costly.

NVCA appreciates FDA’s continued efforts to explore thoughtful ways to increase patient access to innovative treatments.  We look forward to participating in an open dialogue with all stakeholders in working out the details of the SMU pathway.  There is tremendous promise here to promote innovation and improve discovery, development and regulatory review of new innovative treatments for important unmet medical needs.

 

04

Feb

2013

Corporate VC is Here to Stay PDF Print E-mail

John Taylor

Written by John Taylor   
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While statistically, 2012 wasn't a very dramatic investment year for U.S. venture capital (with a slight decline overall from 2011, but higher levels than 2010), corporate venture capital (CVC) continued to quietly gain strength. In 2012, CVC reached a 4-year high in participation (percent of deals with at least one corporate VC) of 15.2%, rising more than a percentage point from 14.1% in 2011. And dollar share also rose to 8.2% of total VC dollars in 2012, up from 7.5% last year.

Historically, it has been during difficult economic times that corporate venture programs have waned. So, it is significant that the CVC investment numbers have held steady as we have moved through the recession. This stability, coupled with more and more corporates joining the NVCA each year (it is our fastest growing new member segment), suggests that the sector is poised to become an even more important part of the VC landscape in the next five years.

Compared with total VC, corporate VCs are playing their largest roles in industrial/energy deals (21% of all deals have CVC in them), biotechnology (20%), computers (19%) and networking/equipment (18%). And within the CVC investment pool itself most dollars are being directed to companies operating in software (27% of all 2012 CVC dollars); biotechnology (21%) industrial/energy and IT Services (11% each).

Among the four stage categories (seed, early, expansion, and late), corporate groups far and away were most active in expansion stage deals measured by both total dollars invested (almost 10 % of all expansion stage dollars), deals completed (18% of all expansion deals) and 42% of all CVC investment.

For more information on corporate venture capital investment, check out our 2012 YE data here.

 

29

Jan

2013

Final Ruling on SBIR Grants = Victory for VC-Backed Companies PDF Print E-mail

Kelly Sloane

Written by Kelly Slone   
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After years of advocating for clarification on rules governing Small Business Innovative Research (SBIR) Grants so that venture-backed companies could qualify, we, at long last, have closure on this issue - and it is good news for our companies who seek government grants for critical, early stage basic research.

On December 28, the SBA issued a final rule amending its regulations governing size and eligibility for the SBIR and Small Business Technology Transfer (STTR) programs in accordance with the SBIR/STTR Reauthorization Act that passed Congress in 2011. Overall, the final rule, which is effective as of January 28, 2013, achieves a reasonable bright-line test for majority vc-backed small companies, and should ensure their ability to once again participate in the program. However, NVCA will be requesting that SBA provide greater clarity with certain provisions including the changes to the affiliation rules.

The Final Rule makes positive changes to the SBIR program's ownership and affiliation rules and allows an SBIR applicant to be more than 50 percent owned by multiple Investment Funds, as long as no single Investment Fund owns more than 50 percent of the applicant. A summary analysis from NVCA's counsel Mary Kuusisto of Proskauer can be viewed here.

We look forward to the positive impact this rule will have for our companies going forward.

 

02

Jan

2013

Fiscal Cliff Agreement's Impact on VC PDF Print E-mail

Jennifer Dowling

Written by Jennifer Connell Dowling   
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Both the U.S. Senate and the House of Representatives have passed a bill temporarily forestalling the “fiscal cliff” and closing at least the opening round of negotiations on tax policy.  While the bill postpones sequestration – the mandated budgets cuts to defense and non-defense discretionary spending – it only does so for two months, meaning the Administration and Congress will be back at the negotiating table in short order.  The new deadline on sequestration coincides with the expected deadline on increasing the nation’s debt ceiling.

For the venture industry itself, the bill is generally good news, albeit temporary in nature.  As expected, the final legislation sent to the President returns the capital gains rate to 20% for individuals with income above $400,000 or families with income above $450,000.  With the addition of the 3.8% capital gains tax mandated under the Affordable Care Act, the capital gains tax rate in 2013 will be 23.8% for most VCs. The Administration had pushed aggressively for a higher cap gains rate, but was unsuccessful in that effort.  Also significantly, the measure does not include any change to the taxation of carried interest.  As we move forward into overall tax reform, we would therefore not anticipate any further increase in the capital gains rate, but we fully expect to see carried interest as a part of the discussion.

For venture backed companies, the bill offers a two year extension of many tax policies such as the Section 25C credit for energy-efficient improvements to existing homes, the ITC and the PTC, as well as the cellulosic biofuels producer credit.  However, the bill does not provide any relief for medical device companies facing the excise tax mandated under the Affordable Care Act.

The impact of this agreement will go beyond the immediate term.  The temporary cliff provisions in the new law may necessitate that Congress delay serious tax reform discussions until the second half of the year. While world markets are up today,  the continued fiscal uncertainty likely will not assuage the markets in the first quarter which continues to seek long term stability.   In sum, the agreement hammered out over the Holidays presents the venture and entrepreneurial communities with some pressing unresolved issues that could impact us in 2013.  However, NVCA is confident we can navigate these shoals and have a prosperous 2013.

 

07

Nov

2012

2012 Election Presents VC Industry with Familiar Landscape PDF Print E-mail

Mark Heesen

Written by Mark Heesen   
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This morning America awoke to the political version of the 1993 Bill Murray film Groundhog Day.  After billions of dollars spent during a brutal campaign, we essentially had a status quo election.  The re-election of President Obama, a Republican House and Democratic Senate presents the venture industry – and the country – with an identical political landscape for the next four years.  However, if you recall the film, once the main character, Phil Connors, understood what was happening, he began to greatly improve his actions and interactions with the people in his world and, of course, a happy ending ensued.  We are optimistic that the same holds true for our country this time around.

While overall, the political power makeup is very much the same, there are subtle differences that will impact the way we interact with Congress and the Administration. The Senate became more divided as moderates were turned out in favor of candidates on the right and left. The Republicans did remarkably well in the House, thereby creating an effective lever against President Obama suring the lame duck session. Hopefully, both parties will recognize that the country needs comprehensive solutions to problems that have been with us for several years: a budget that needs balancing, a tax code which needs fundamental change, an immigration policy which honors the entrepreneurial spirit, and a government that recognizes the importance of research and development to the future of the country.

These challenges will all be addressed by one of the most  inexperienced Congresses in history.  The education process on Capitol Hill never ceases.  NVCA will continue to educate new members and their staffs about the importance of maintaining and supporting a vibrant entrepreneurial sector of which venture capital is an integral part.  Because of this inexperience, particularly in House, party discipline could be problematic and finding solutions to pressing problems could take longer than many are currently anticipating.

Aside from the obvious challenge President Obama will face with a country divided, he will also have to address the makeup of his Administration.  The President has done a remarkable job in keeping the lion's share of his appointees in their positions for four years.  Come January you will see many who will leave the Administration, potentially opening up major slots at Treasury, DOE, SEC, and many other departments and agencies with whom our community interacts. This turnover will take time.  We are going to have to be patient as this process unfolds.

Venture capitalists are by their nature optimists and thus we view these elections as a time to inform the newly elected and re-engage with those returning about the venture process and its important contribution to moving our economy forward.  Like Phil Connors, we know this drill even better than we did four years ago and intend to use this familiarity to advocate even more effectively for our industry.

NVCA has posted a comprehensive election report on our website.  We encourage you to review it today.

 

 

01

Nov

2012

NVCA Raises Concerns About FASB’s Private Company Decision-Making Framework PDF Print E-mail

John Taylor

Written by John Taylor   
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NVCA yesterday filed our comments with FASB highlighting concerns with the draft private company decision-making framework. While many of the draft provisions were consistent with anticipated reforms in private company accounting rulemaking, the concern raised by NVCA was the possible interpretation of the draft that using investment company accounting preempted use of the much-anticipated and much-needed private company accounting changes. That is, as private investment companies, venture capital firms would be unable to benefit from private company reporting improvements.

In the letter, Mark Heesen, NVCA President states, "... we firmly believe that the draft Framework needs to be substantially revised with regard to its treatment of private investment companies so that they are clearly placed on an equal footing with other private entities."

NVCA will continue to work with the Financial Accounting Foundation's (FAF's) Private Company Council (PCC) and the Financial Accounting Standards Board (FASB) to bring about relevant and appropriate private company accounting changes to benefit the industry's private investee companies, and the private investment companies which invest in them.

 
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