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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.

 

28

Sep

2012

PCAST Report Includes NVCA/MedIC Recommendations PDF Print E-mail

Kelly Sloane

Written by Kelly Slone   
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Last week, the President's Council on Advisors on Science and Technology (PCAST) released its "Report to the President on Propelling Innovation in Drug Discovery, Development, and Evaluation" this week. NVCA Board Member and MedIC Chairman Jonathan Leff of Warburg Pincus, participated in the release of the report.

NVCA/MedIC is pleased to see many of the key messages and recommendations for which we have been advocating included in the report.

The report acknowledges the U.S. leadership and tremendous progress in biomedical research and discovery of breakthrough treatments for patients but also recognizes that the current system has not kept pace with the explosion in scientific knowledge.

The report concludes that the biopharma ecosystem is under stress primarily due to the cost, time and risk of drug development which have reached unsustainable levels. The report reinforces the importance of many of the steps we have been advocating throughout the FDA reform debate, and also calls for a national innovation strategy and the creation of a public-private "Partnership to Accelerate Therapeutics," involving all key stakeholders. NVCA/MedIC believes that the development of a national innovation strategy and this type of partnership could help provide the comprehensive framework needed to tackle the critical issues facing the future of the biomedical enterprise.

PCAST is an advisory group of the nation's leading scientists and engineers, appointed by the President to augment the science and technology advice available to him from inside the White House and from cabinet departments and other Federal agencies. PCAST is consulted about and often makes policy recommendations concerning the full range of issues where understandings from the domains of sciences, technology, and innovation bear potentially on the policy choices before the President. Therefore, since PCAST is appointed by the President, we are hopeful that if the President is re-elected to a second term, the issue of biomedical innovation will become a national priority in the second term.

 

30

Aug

2012

Medical Innovation Language Included in GOP Platform PDF Print E-mail

Kelly Sloane

Written by Kelly Slone   
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With the Republican and Democratic conventions front and center, NVCA and MedIC were pleased to see language around preserving American medical innovation included in the GOP Platform.  On page 34 of their document, we applaud the following section:

Reforming the FDA

America’s leadership in life sciences R&D and medical innovation is being threatened. As a country, we must work together now or lose our leadership position in medical innovation, U.S. job creation, and access to life-saving treatments for U.S. patients. The United States has led the global medical device and pharmaceutical industries for decades. This leadership has made the U.S. the medical innovation capital of the world, bringing millions of high-paying jobs to our country and life-saving devices and drugs to our nation’s patients. But that leadership position is at risk; patients, innovators, and job creators point to the lack of predictability, consistency, transparency and efficiency at the Food and Drug Administration that is driving innovation overseas, benefiting foreign, not U.S., patients.

We pledge to reform the FDA so we can ensure that the U.S. remains the world leader in medical innovation, that device and drug jobs stay in the U.S., that U.S. patients benefit first from new devices and drugs, and that the FDA no longer wastes U.S. taxpayer and innovators’ resources because of bureaucratic red tape and legal uncertainty.

Clearly this language dovetails with the efforts of NVCA and MedIC over the last several years and we are encouraged by the support.  We are hopeful the Democrats will also make medical innovation a priority issue in their platform, expected shortly, as well.

 

02

Aug

2012

NVCA Weighs in on "No More Solyndras" Bill PDF Print E-mail

Emily Baker

Written by Emily Baker   
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After more than eighteen months investigating the Department of Energy Loan Guarantee program, the House Energy and Commerce Committee yesterday passed H.R. 6213, the “No More Solyndras Act” by a vote of 29-19. The bill prevents loan guarantees for any applications submitted after the end of 2011, and would place new restrictions on application reviews and existing loans.

The NVCA, along with TechNet, ACORE, SEIA and E2, put out a statement against the bill saying that the program should be reformed, not shut down.  Our statement read in part, "While the DOE Loan Guarantee Program can be improved, elements of the ‘No More Solyndras Act’ go far beyond reasonable reforms and threaten to shut down a successful policy that has helped drive billions in private capital investment, supported tens of thousands of badly-needed jobs and spurred innovation across the sector.” You can read the full statement here.

The bill will be voted on by the full House in September.  However, we believe passage in the House would only send a political message rather than ensure passage of a substantive piece of legislation as it stands no chance of moving in the Senate.  Chairman Bingaman and Ranking Member Murkowski have both indicated that they see a role for the federal government in programs like the DOE loan guarantee and, despite the failings of Solyndra, the entire program is not a failure.

When it was first enacted in the energy bill of 2005, the DOE loan guarantee program had the strong support of the Bush Administration and bipartisan support. The program was accelerated and began making loans following President Obama’s 2009 economic stimulus bill.  The NVCA will continue to support the DOE loan program with a commitment to appropriate reforms to protect taxpayers.

 
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