Startable – Healy Jones’ & Prasad Thammineni’s Blog

Two quick items today:

1) Mass High Tech just announced their “2009 All-Stars of New England Innovation” Congratulations to Dharmesh Shah of Hubspot and David Beisel of Venrock for making the list! Also, congrats to Scott Kirsner, the founder of the New England Innovation Month and one of New England’s major technology journalists, and Gail Goodman, who doesn’t know me but whom I’ve seen speak at an entrepreneurship forum and who I greatly admire. Also, congrats to all the other innovators on the list, who I don’t know at all but who sound like they are doing some really forward-thinking things here in NE.

2) Growthology has a sobering post on the White House’s proposal to lump venture capital firms in with PE funds and hedge funds for new proposed financial regulation. VCs over a certain size would be required to report “information on the funds they manage that is sufficient to assess whether any fund poses a threat to financial stability.”

I guess I understand what is going on here. It is probably too hard to distinguish between some hedge funds and VCs. Except for the fact that VCs use almost no complex derivatives and very modest leverage. Now, I’ll admit that there are sometimes some pretty serious repercussions when a VC funded company fails, like if a major corporation relys on a VC portfolio company for important ERP software and it one day goes under, or if Kozmo.com goes out of business and you can no longer have DVDs and Starburst hand couriered to your house at 3:30 in the morning (yeah, that was a tough one to see go bye-bye.) But a “threat to financial stability?” That seems a little far fetched.

If you believe that VCs a) create high paying jobs by funding companies and b) foster home-grown innovation by taking risks with pre-development technologies, then you should probably be against this sort of regulation as it will slow mid and small-sized VCs ability to make investments. I left the following comment at the bottom of the Growthology post:

The main cost of complying with these types of regulation is the time involved for the managing partner(s). While larger funds can afford to hire non-deal COO/CFO partners, financial administration at smaller funds falls onto the active deal partners. Since the limiting factor at most VCs is the investing professionals’ time, anything that keeps them from investing or working with portfolio companies could be a real burden. Having been a junior VC at a larger firm & having helped with the silly exercise of annual portfolio valuations for the auditors, I can tell you that these sorts of low-value added administration are major time sucks – and did I mention that they don’t really add much value?