In 2021, NVCA successfully navigated significant policy challenges and opportunities for the venture capital industry. Our activity was driven by two main factors. On the one hand, there is new excitement around the promise of the startup ecosystem and its ability to solve key problems. Many policymakers understand how venture-backed companies are addressing the ongoing pandemic, climate change, deep tech, and other issues. On the other hand, the startup ecosystem is often misunderstood or forgotten and becomes collateral damage as policymakers address another ill in the marketplace.
In 2022, many of the policy debates of last year will continue. But one lesson is clear: there are “known unknowns” – policy issues will come out of left field, and we will be prepared to defend the industry. Let’s look ahead at what this year will bring.
Build Back Better Act
Last year, NVCA spent significant time and resources on the Build Back Better Act. As the year closed, the legislation fortunately did not increase taxes on carried interest or the top line capital gains rate, but did include misguided changes to Qualified Small Business Stock (QSBS). We raised concerns to key lawmakers regarding the proposed QSBS changes, which are detailed in a coalition letter NVCA joined with 31 innovation and entrepreneurship organizations.
The path forward on Build Back Better is unclear in 2022. Negotiations appear to be on pause between the main actors – Senators Sinema and Manchin on one side and the White House and congressional leadership on the other. President Biden recently stated the path forward might be to break the package up into more manageable pieces. Whether this strategy works or not is uncertain, but regardless we must remain vigilant and explain how counterproductive changes to QSBS would harm the entrepreneurial ecosystem.
Antitrust and Acquisition Restrictions
Antitrust scrutiny of large tech companies will continue this year and is likely to include restrictions or bans on acquisitions by these companies. NVCA will continue to voice our opposition to the Platform Competition and Opportunity Act (Op-Eds here and here) as Congress considers whether to crack down on Big Tech. The legislation is effectively a ban on acquisitions by large tech platforms and negatively impacts venture-backed companies that see an acquisition as the best opportunity for founders, employees, and investors.
At the same time, we will be active on proposed M&A policy changes at the Federal Trade Commission and Justice Department. Earlier this month, those agencies opened a public comment period on changes to prevent anticompetitive deals. Of particular interest is the agencies’ focus on “threats to potential and nascent competition. . .which may be key sources of innovation and competition.” A recurring theme in the current antitrust debate is the idea that acquisition restrictions are needed to protect young companies from large ones. We have repeatedly pushed back on this idea and educated policymakers on how acquisitions drive interest in entrepreneurship.
Financial regulatory proposals
NVCA will spend significant time this year on financial regulatory proposals that impact venture firms and their portfolio companies.
This month, SEC Chair Gary Gensler announced his agency is working on a plan to require more private companies to routinely disclose information about their finances and operations. Gensler stated he wants to ensure that private companies and investment firms are disclosing enough information to stakeholders. NVCA CEO Bobby Franklin was quoted in the Wall Street Journal in response to the development:
“We caution the SEC from putting additional and unnecessary burdens on privately held companies that could have unintended consequences. . .This segment of the U.S. economy has driven innovation and delivered products and services that have been very beneficial during the pandemic.”
Going forward, NVCA will engage in an important conversation with policymakers, including the SEC, about the role private markets play in the innovation ecosystem. Young companies should not be weighed down with regulatory requirements that are better suited for mature companies in the public markets. Instead, policymakers should focus on improving the public markets to attract more high-growth companies.
Two other financial regulatory issues will be important for NVCA. Last year, President Biden signed into law the Corporate Transparency Act that imposes new beneficial ownership reporting requirements on small businesses. In May, we submitted comments to the Treasury Department’s FinCEN to reiterate the importance of the uniform exemptions from reporting obligations for all VC funds, which was included in the statute due to NVCA’s advocacy efforts. We also stressed the need to minimize the regulatory impact on small companies. FinCEN has since released the draft regulations and we will formally respond through comments in early 2022. Separately, NVCA will provide input into proposed changes by the SEC for 10b5-1 plans, which allows major shareholders in a company to sell a predetermined number of shares at a predetermined time. Our comments will reflect how 10b5-1 plans are used by VCs and ensure our industry’s experience is understood as changes are contemplated.
Endless Frontier Act / U.S. Innovation and Competition Act
NVCA has been deeply engaged in the bipartisan Endless Frontier Act that would renew the United States’ commitment to federal basic research and offer tools to support the transition of technology from lab to market. The legislation was included in the larger U.S. Innovation and Competition Act (USICA) that passed the Senate in June. In November, Speaker Pelosi and Majority Leader Schumer announced an agreement for the House and Senate to begin conference negotiations on a final version of USICA.
We will continue to advocate for passage of this important technology bill that will increase our nation’s competitiveness at a time when other countries are ramping up their startup ecosystems. As the bill moves forward, we remain focused on prioritizing new company formation in the proposed programs.
NVCA has long been the leading organization in support of a startup visa – a dedicated visa category for foreign-born founders who want to launch startups in the U.S. Last summer, Rep. Zoe Lofgren introduced a new startup visa bill called the Let Immigrants Kickstart Employment (LIKE) Act. This year, we will work closely with Rep. Lofgren to build support for her bill, advance it in the House, and make progress on a Senate companion. Immigration reform has been elusive for many years, but despite this frustration it is important to build support for sound policy so we are well-positioned to pass his commonsense idea when the political stars align.
Bipartisan Infrastructure Law
The $1 trillion bipartisan infrastructure package signed into law in November includes dozens of programs to incorporate technology into infrastructure-related systems, accelerate research and technology demonstration projects, and re-shore advanced technology manufacturing. These include programs for cybersecurity, energy storage, transportation and mobility, climate change, and smart city technology. Key decisions around program design and eligibility rules will be made over the coming year. NVCA will be engaged with agencies like the departments of Energy and Transportation on implementation of these programs to ensure that venture-backed companies are able to partner with the federal government.
NVCA’s past success has been possible because of our strong partnership with our members. Our industry is at its best when we are unified and work together to encourage pro-entrepreneurship policy and push back on threats. Together we will address known and unknown challenges and share the compelling story of venture capital as it delivers jobs and innovation to the American people.
Jeff Farrah serves as General Counsel at NVCA, where he advocates before Congress, the White House, and agencies for pro-entrepreneurship policies and leads in-house legal matters for the association. He loves working at the intersection of venture, public policy, and the law. Jeff concurrently serves as Treasurer of VenturePAC, the political action committee of NVCA.