Why VCs have 'white hats'

What do you spend most of your time doing? 

As president I spend a lot of time as the spokesperson for the association—working with the press and speaking at conferences as well as in front of legislative and regulatory bodies, testifying or meeting with congressmen and senators and their staffs along with my public policy team.
That takes up a huge portion of each week.
Other areas I spend time on would be, of course, administrative issues. But we also have a lot of sub-groups within the association. One is dedicated to venture firm CFOs; one is dedicated to venture capital firms that are in the life sciences arena; another is for the general counsel within firms.
We have an education component where we put on webinars for our members. But by and large being a spokesperson from a public policy as well as press perspective takes up the lion’s share of my time.

What do the NVCA’s board officers and directors do?  

We have a board of 26 individuals. We have four board meetings per year. One of those is in Washington, DC where we meet with public policy officials. One is in Palo Alto, California, and one is our annual meeting, which rotates coast to coast. And then we have an additional one.
Each member of the NVCA board must sit on at least two (or more) committees, such as the education committee, the research committee, the public policy committee, life sciences committee. All of these groups meet individually, very often by phone, and talk with our specific staff people in charge of those areas. Board members basically give us the long-term vision of where they want to see us going over the next year.
It is a very active board. There is intense competition, frankly, to become a board member of the NVCA. We get people who actively seek out board seats. But our executive committee makes a conscientious effort to go out to those venture capitalists they believe would bring a lot to the board and actively solicit their nomination to the board.

Why do so many people want to serve on a position with the NVCA?  

It’s a great networking opportunity. Second of all, I think limited partners understand what the NVCA does and see it as a credible association. In addition, these are all type-A individuals who are very driven, therefore they all believe they have something to contribute. They are not people who simply pay dues and walk away—they want to take part and see what they’re getting for their money.

What have been some of the NVCA’s most important recent accomplishments?  

Just recently we put out a report on the impact of immigrants on the VC industry. We’ve gotten over a thousands stories placed all over the world from that. We were on National Public Radio, we were on CNBC, talking about the importance of open borders. Those reports had an important impact on Capitol Hill. At the end of the day, were not able to get an increase on H1B visas [for foreign professionals]. But our voice was heard loud and clear, and we believe that study will give us much-needed ammunition at the beginning of the new congress when we do think that cooler heads will prevail.

A handful of very large private equity firms recently launched the Private Equity Council. Why has the NVCA never expanded to include buyout groups?  

This issue has come up literally almost every year at board meetings and discussed. We do have members who do a lot of buyouts but have a venture capital arm—groups like Carlyle and Warburg. But if you’re doing pure buyouts, you cannot be a member of ours. The reality is that venture capitalists have a very good reputation on Capitol Hill. We are perceived as job creators, as innovators, as technologists, as working with entrepreneurs. I always say, “Venture capital, white hats.
Buyouts, black hats.” That may not be the reality, but that has been the perception on Capitol Hill for many years. I think that a lot of this goes back to 1994 when [current Massachusetts governor] Mitt Romney ran against [current Massachusetts senator] Ted Kennedy for the Senate.
Kennedy had never been in a tight race and had never run a negative ad until Romney’s polls showed him ahead. Ted Kennedy got very scared. And what did he do? He ran ads all over Massachusetts that showed factory gates closing and metal chains being thrown around the gates. The ads said, “This is what Mitt Romney does.” And Romney’s numbers dropped precipitously after that.
What the buyout community has not done is show the positive impact that they have had on the US economy and the world economy. The NVCA puts out economic impact studies. We’re actually finishing one up in a couple of weeks that shows the amount of jobs that venture capitalists have helped create and the amount of GDP that venture capital creates for the US economy. Ten million Americans today work a company that was at one point venture-backed. That’s almost 10 percent of the US private work force. And yet less than 0.2 percent of all financing is venture capital financing, so it’s a huge impact on the economy. These are things that public policy makers want to see.
The one thing that the buyout groups have done right is to not use the word “buyout” any more. The press no longer uses the term buyout, even though private equity is much larger class. Buyout does not have a good connotation.

What challenges does the buyout lobby face from politicians?  

For years buyout groups were way behind in understanding that perception is very important in Washington, DC, and around the world. And now they are getting hit around the world. It’s not just the locust comment in Germany.
They’re being hit in various countries in Asia on tax issues. The UK’s FSA is looking at them; there’s the US Department of Justice inquiry.
You cannot decide to simply put out an economic impact study and change our reputation and all these positive things are going to happen in a couple of months. Private equity firms are also raising huge sums of money in a very short period, and this puts people on notice. The last few years has seen this industry absolutely balloon. So the question is—is this a house of cards that can fall.
If it is, you now have a Congress that is going to be much less sympathetic than the Congress before.
Buyout firms have a lot of money, and they’ll be able to come onto the stage quickly, but I think a lot of damage has already been done. They’re going to have an awful lot of work from a public relations angle. And the public relations is not only with the media itself and the public, but with politicians in the US and all over the world.

What advice have you given to the Private Equity Council?  

That this is a long-range public relations campaign. And you can’t provide fluff—you have to use very good, scientific evidence that you are in fact are not what the perception is. That is, that you in fact create jobs, you help innovate, you help keep companies alive, you are efficient drivers of capital. You return capital to investors like pension funds (—quote unquote good guys). All of those things have to be put together to demonstrate that private equity contributes not only to the economy but to society as a whole.