As we approach the NVCA Annual Meeting in California next week, lawmaking activity in Washington D.C. has accelerated around two issues that are critical to the venture capital industry.  Here is a synopsis of where the NVCA stands with regards to the carried interest debate and financial reform:

Carried Interest

This morning the NVCA posted an updated FAQ to the carried interest debate which includes the current state of play, our continued position and important messages, and timing for advocacy efforts.  We urge all interested parties to review this document to understand the latest developments, but to summarize:

Changing the tax status of carried interest from capital gains to ordinary income is back on the table in the Senate to pay for the 2009 Tax Extenders Package.  This situation has come about because most of the pay-fors that were connected to the Tax Extenders bill were used to pay for Health Care Reform.    The NVCA continues to meet with Senate members and staff to state our position that changing the tax status on carried interest would not just harm hedge funds and buyout firms but would also punish venture capitalists who are creating companies and adding US jobs.  We are asking to be considered separately in this provision.

Financial Reform

The language in the Dodd bill continues to exempt venture capital from SEC registration and additional regulation.  The NVCA has supported this language as it is our position that venture capitalists do not create systemic risk.  There are also two provisions in the Dodd bill that have been identified as a concern to angel investors: 

• Section 412 Adjusting the accredited investor standard for inflation
• Section 928 Repealing existing federal pre-emption of state regulation over accredited investor securities offerings

A letter signed by the NVCA and the Angel Capital Association detailing our concerns with these provisions can be found here.  It is our understanding that Senator Dodd has taken these concerns seriously and is working to amend the bill so that angel investors are not unfairly compromised.  We are waiting for those amendments but otherwise are comfortable with the Dodd bill language. 

The month of May is poised to be an important one indeed.  Please stay tuned to NVCAccess over the next several weeks for more updates and upcoming calls to action around these critical issues.  And know that the NVCA is working diligently to make sure the venture voice is heard.