Archive for the ‘Policy’ Category

The Senate Should Finish the Good Work They Started

With ongoing partisan politics fostering endless inertia in Congress, it would be easy for us citizens to throw in the towel and assume that nothing of legislative substance will get done this year.  Yet VCs and entrepreneurs are eternal optimists and, in fact, we actually have a bill poised to do great things for venture-backed portfolio companies showing signs of significant bipartisan momentum.

S. 1933 or the “Re-opening American Capital Markets To Emerging Growth Companies Act” was originated in the Senate late last year and is now being considered by members of Congress.  With the House poised to pass their version of this bill at some point this week, there is no better time for the Senate to finish the good work they started and put their bill up for a vote — and pass it — as soon as possible.

Essentially, the provisions in the bill provide a regulatory on-ramp for emerging growth companies (defined as under $1 billion in revenues) for a period of up to five years after an IPO.  This on-ramp allows smaller companies to save massive amounts of time and costs that today are required to be spent because of Sarbanes Oxley compliance and other regulations.  Once the company reaches $1 billion in revenues or five years post IPO – they leave the on-ramp and comply with existing regulations.  The bill also allows for these smaller companies to communicate more effectively with potential investors – something that has become increasingly difficult post the Spitzer settlement which separates investment banking from analysts research.  A good summary can be found here at the NVCA website but suffice it to say that the bill has many provisions that will make the IPO process significantly less daunting than it is today.  Its easy to assume that all is well and good in the IPO market with the hype surrounding the Facebook filing — but it is also wrong.  Make no mistake.  We need more IPOs overall – both large and small.  They are good for the economy and create plenty of jobs.

Here at Foundry Group, we strongly support this legislation and are encouraging our CEOs to do the same.   Given the track record of our Colorado Senators Udall and Bennet in supporting entrepreneurship, I am optimistic that they will act in our best interest.  Still I urge them and other Senators to bring S. 1933 to the floor and vote yes for a smoother path to IPO.

March 6th, 2012     Categories: Entrepreneurship, Policy, Venture Capital    

Techdirt Absolutely Crushes the Patent Debate

Under the “I wish I had written that article” category for patents, Techdirt completely takes to task the notion that letting the USPTO create a ton of extra patents will create more jobs.

I won’t insult the author, Mike Masnick, by trying to summarize it.  It should be read in its entirety here.  In short they’ve called out folks who are trying to rewrite patent history in order to gain personal advantages today. 

October 2nd, 2010     Categories: Entrepreneurship, Patents / IP, Policy    

A Balanced Summary of the Berkeley Patent Project

Recently, I wrote a strong rebuke of one author’s interpretation of the recently released High Technology Entrepreneurs and the Patent System: Results of the 2008 Berkeley Patent Survey that came out the day after Bilski was decided.

I was particularly upset in that I believe the author was intentionally distorting the facts of the survey for his own benefit.  Given how important patent policy is to this country’s innovation economy, I was amazed how a professor at a major University could be so cavalier with the facts of his own survey.  It was also disappointing that the first and best analytical study of its kind was being degraded by false interpretations.  If you feel like seeing the back and forth, feel free to check out his article and our collective comments). 

While I was away recently, Pamela Samuelson, (who was also one of the authors of the survey) gave her interpretation of the survey.  Her article is entitled Why Software Startups Decide to Patent …. Or NotI realize that I’m  a bit biased from view of software patents in general, but Pam’s analysis is much more neutral and balanced and therefore much more instructive in its teachings.  I will also point out that many of my comments of the prior article are supported by Pam’s analysis.

My partner Brad wrote an excellent summary of Pam’s analysis and is a must read for anyone who is interested in the subject.

Well done, Pam.  I really look forward to your future work based off the survey. 

July 31st, 2010     Categories: Education, Patents / IP, Policy    

Silicon Valley Bank Hosts Innovation Roundtable

Last week, Silicon Valley Bank hosted a roundtable discussion featuring members of the New Democrat Coalition and SVB clients from the venture capital community.  The event allowed Silicon Valley entrepreneurs and innovators to discuss first-hand with legislators focused on championing innovation a variety of ideas for promoting U.S. economic growth.  SVB summed up the event well in a press release

As part of the discussion, there was a focus on the Startup Visa effort that has been introduced in both the Senate and House of Representatives (including by Jared Polis in the House).

I think Jared says it best:

"As a former entrepreneur, I know first-hand what it takes to build a company — and I know what opportunities a successful company can create for its workers, its suppliers, and its community.  If an entrepreneur has an idea for a company that will attract investors and hire workers, we should be welcoming and encouraging that entrepreneur to start their company in the U.S.,"

Furthered Mary Dent General Counsel of SVB when speaking about the impetus of the event:

"There is a great deal of evidence showing the profoundly positive effect that venture-backed companies have on our economy — creating jobs, creating entire new industries, and promoting U.S. competitiveness around the world," said Mary Dent, SVB’s general counsel. "Congress hears a lot from companies that have already made it.  We want to make sure they also hear from the growing companies that will shape our economy in the future.

Kudos to SVB for organizing such a worthwhile event and the New Dems for supporting their efforts.  Among all the issues that are important to our continued leadership role in technology and entrepreneurship, the value of initiatives like Startup Visa can not be overstated. 

July 15th, 2010     Categories: Entrepreneurship, Policy, Venture Capital    

NVCA Lunch With Jared Polis

Today, the NVCA hosted Jared Polis for lunch.  Jared is the Congressman for the 2nd District of Colorado. 

Why is Jared important to you, if you aren’t from his district? jared

Simple.  He’s absolutely one of the most intelligent and thoughtful elected officials in our country when it comes to issues regarding startups, innovation, education, immigration and jobs.  (And probably a lot of other subjects, too, but these are just the ones that I engage him on). 

Jared was previously a serial entrepreneur (, Blue Mountain Arts) and has been a thought leader on many issues that affect our industry.  He has stood strong in the face of political pressure to change his views.  In fact, I’m am most impressed with Jared’s resolve to do the right thing for our country as a whole, although he represents one district in one state.

Jared has been a steadfast partner with the NVCA on issues such as job creation, innovation, immigration, education reform and tax policy.

Today, Jared and the invited guests talked about everything from future policy decisions to mechanics of how things really get done in Washington.  It was a great learning experience.

I’m also happy to report that the NVCA PAC contributed to Jared, as well as several of the attendees personally, including yours truly.  I’d highly recommend folks contributing to Jared, no matter how small of a donation as every bit counts.  We need more people in Congress who really understand what drives this country’s success. 

Contribute here.  (Picture, L to R.  Me, Jared, Paul Schanitter and Mark Heesen, President of the NVCA)

July 8th, 2010     Categories: Entrepreneurship, Policy, Venture Capital    

The Carried Interest Debate – Down to the Wire

Unless you have been living under a rock, you’ve no doubt read about the debate in Congress going on regarding carried interests for venture capitalists.  Many in Congress, in order to continue to fund their agenda, are looking to change the tax classification of VC profits from capital gains to ordinary income.

It looks like the next 48 hours will determine how this debate works out.  The finance folks on the Hill are in full swing deciding on a number of issues, including the good news today about leaving angel Investors alone and allowing at least that part of the startup ecosystem to remain unscathed. 

As for the carried interests issue, it’s been overly-politicized in a myriad of ways including those who like to frame this as class warfare, those who see this issue as just a bunch of winey VCs who don’t want their taxes increased or those who claim that VCs make money off of services and should be taxed accordingly.

I don’t think any of these are accurate.  What this is really about is the future health of the innovation economy in the United States.  It’s really that simple.

Now don’t get me wrong.  I understand the political rhetoric.  Every time a new tax is proposed, some group of politicians rise up claim the sky is falling and that the new tax will “kill” an industry.  The fact that it usually doesn’t means that when there are real concerns, they fall upon deaf and / or suspicious ears.

I’m not one of those folks.  I don’t like taxes (like most folks), but understand that in many new tax cases the markets adapt and life goes on.  I honestly feel, however, that this is not one of those cases. 

Whatever you believe about VCs, their wealth, they way they earn their income, etc., one thing that is apparent is that VCs partner with great entrepreneurs to create jobs.  And we create a lot of them.  In fact, we risk our personal wealth and reputations to invest money in highly risky startups that take 5 to 10 years to mature in these efforts.  

Most of our investments do not work out as we plan.  The ones that do, create sustainable, long-lasting jobs that benefit the job market today and for future generations. 

And for this, Congress is thinking of effectively tripling the tax rate on our risky efforts.  This at a time where job creation is the single most important issue our country faces.  This at a time when countries like China and Russia are considering EXEMPTING VCs from taxes that invest in startups.  This is simply stunning to me.

We’ve already seen a lot of investment capital (from both VCs funding startups and those that invest in VCs) go overseas to places like India and China.  Anyone who is active in our ecosystem knows that money available to U.S.-based startups is less than it has been in 15-20 years.  I guess that i could argue that 2009 might have been a bit worse, but go ask most entrepreneurs or VCs what it is like to raise money these days and they won’t wax poetically.

And the Congress is saying: “hey, we don’t care.  Take more of your money overseas.  In fact, let’s move all the VC activity offshore.”  What’s left of our long-term economic viability if we give other countries the ability to compete better than we can?

Nice.  Really nice. 

Another argument that I love is that “VCs haven’t returned profits in the last decade to their investors, therefore they shouldn’t get incentive-based tax treatment.”  This makes no sense on a number of levels.

1. It’s arguably true if you look at the entire industry, but says nothing about many funds who are successful making their investors money.  We cannot assume the successful VCs will continue to want to work hard  if their taxes are tripled; and

2. And, if true, this just proves my point about how risky all of this activity is, further supporting the point that incentives need to exist.

And remember, VCs do pay normal income taxes on management fees (salary) that they receive.  And many VCs return all the management fees to their investors before they take profits, so effectively they are paying normal income tax rates on money loaned to them. 

But what worries me the most is the slippery slope that we are going down.  Even if you believe that VC profits should be taxed as services/income, then how on earth do you distinguish this from the cheap equity that founders allocate to themselves when starting a company?  Isn’t all of their success based on the labor and services as well?  While VCs may be using other people’s money to invest, so are entrepreneurs.

So how do you distinguish?  Answer:  you can’t.  Entrepreneurs, you are next. 

Bottom line, the Congress is going down an irreversible path that threatens to undermine the innovation economy in this country.  I hope that logic, instead of politics, prevail.  We’ll know shortly the answer.

May 18th, 2010     Categories: Policy, Venture Capital    

NVCA Argues Against Parts of the “Restoring American Financial Sustainability Act”

Today, I received notice that the NVCA has formally rejected two parts of this lengthy-titled bill.  (You just have to love the names they put on these bills). 

Don’t let your eyes glaze over – this bill, if enacted with currently wording could really hurt innovation in this country.

As I previously wrote, Senator Dodd brought wants to repeal the existing federal preemption of state regulation over “accredited investor” securities offerings. This would end the uniform, national set of rules for financing start-ups. By eliminating regulation that is working well, the draft bill would expose technology startups to a potentially complicated system of patchwork, state-by-state regulation, resulting in higher costs, more legal risks, and the potential of not being able to raise capital because of different rules in different states.

Nothing would be gained from this change: no additional protections would be provided to the accredited angel investors and there would be no benefits to the national financial system or to the economy.  It would just make raising money much harder for entrepreneurs and line the pockets of corporate lawyers who would comply with these new rules.

Secondly, the draft of the bill recommends adjusting the accredited investor standard for inflation. As we understand it, this section would change the current requirement for an individual of $1 million in net worth or $200,000 in annual income to about $2.3 million in net worth or $450,000 plus in annual income. At a time when many accredited investors have lost more than 20 percent of their net worth in 2008 and innovative start-ups are having an increasingly difficult raising equity capital, decreasing the potential pool of angel investors is counter-productive to supporting the very companies that will create new high-paying jobs.

the Angel Capital Association has joined forces with the NVCA.  Hopefully Washington will listen to reason here.  Otherwise, this could have a tremendously bad effect on our ecosystem. 

March 3rd, 2010     Categories: Entrepreneurship, Financings, Frustrations, Policy    

Has Governor Ritter Lost His Mind?

Apparently, the answer is yes, if reports are true that he is trying to fast track a bill that would create a special new tax for Colorado-based software companies.

End result?  Job killing.  While I usually am skeptical of politicians decreeing that “taxes kill jobs” (I don’t think it’s always clear), this one is very clear.

If you enact a special tax on software companies, they will go elsewhere, Bill.  This isn’t the Silicon Valley.  And while Colorado is a great place to create a company, we are still competing with a lot of other great places for talent and venture dollars.

Colorado should want to foster its innovation economy to improve job growth in this state.  A short-sighted money grab is bad a policy for long term economic success.  Read more about it here.

(As an aside, it’s not even entirely clear WHICH types of software companies will be affected.  There are some that think SAAS-based business won’t be taxed, while other, traditional software delivery companies will be taxed.  Whatever the definition is, this is bad for Colorado).

January 26th, 2010     Categories: Entrepreneurship, Policy    

My Day at the Supreme Court

Thanks to our friend Phil Weiser, who is at the US Department of Justice for the next couple of years, Brad, Amy and I were invited to watch the Bilski oral argument at the Supreme Court.  If you don’t believe me, here is a picture of Brad and I on the steps of the courthouse (wearing suits, no less). 


Having been a lawyer, I’ve always held deep opinions about the Supreme Court, many of which were obliterated today.  I’d always imagined that the justices would be old, out of touch, disengaged, dry and not be able to really explore the weight of the issues in oral arguments given only one hour is allocated per hearing. 

If we go to the scorecard:

Old: yep

Out of touch: definitely not

Disengaged: absolute not, so long as you don’t count Justice Thomas who looked like he’d rather be elsewhere and never said anything

Dry: no:  Justic Breyer was cracking jokes, but Chief Justice Roberts is not exactly a humorless judge

Exploration: perhaps most surprisingly, an hour was more than enough

Final Tally:  Jason’s Preconceived Notions: 1, New Found Opinions: 4

For those of you who don’t know, the Bilski argument addressed whether or not business methods are patentable.  Anyone who follows my blog knows that I staunchly favor the abolishment of business method patents and also feel that most software patents are contrary to proper innovation policy.  The judges allowed the Bilski camp about 2 minutes of uninterrupted argument and then launched directly into questioning.  What was impressive was how direct and well prepared they were as they explored the key elements of the issues surrounding business method patents.

To me, it was apparent that the justices had grave concerns about the validity of these types of patents.  In fact, when the rebuttal from the government came (on the side of getting rid of business method patents), the justices pushed him on why software should be patentable.  The lawyer representing them (Malcolm Stewart) ducked and weaved as best as he could, but it felt like the court would have thrown out both business method patents AND software if he had stood up and said “they should go too, your honor.”

My bet is that business method patents are gone.  What will be very interesting will be their language regarding software patents, as software validity wasn’t part of the case, but clearly on the justices’ minds.

All in all, I was massively impressed with the mental horsepower of the court and their ability to parse a very complicated subject in a short amount of time.  Justice Breyer stood out as really engaged, but they all (but Thomas on this particular day) were impressive individuals.  Thanks Phil.  This was really a treat. 

One item to note:  if you get the chance to go to the Supreme Court, their cafe is mostly forgettable.  Don’t get the French dressing.  Way too much sugar.  (Picture of Phil and I below at the cafe).


November 9th, 2009     Categories: Law, Policy    

Oppose Bailouts for Venture Capital Investors

As the Obama administration starts to talk about propping up small businesses with the next phase of the bailout, I’ve begun hearing noise from some venture capitalists and angel investors that the government should provide financial support to startups, early-stage venture capitalists and angel investors.

All I can say to this is “vomit.”

There are white papers being developed, politicians lobbied and it’s all based on the proposition that what’s good for small business is good for the United States.

I agree with the premise.  In fact, my open letter to the Obama administration on what innovation policy should be details my support and how I think the government should be involved in these efforts.

But it shouldn’t involve bailouts or cash handouts to our industry.  I find it offensive that high net worth angel investors or highly compensated venture capitalists along with their sophisticated investors need to be bailed out.  We, as an industry, should be responsible for our investments and frankly, the current recession hasn’t affected our early-stage industry very much.  Asking for government help is just being greedy and opportunistic. 

Similarly, the entrepreneurs who take risks to create companies have the same risks today that they did previously.  Yes, on the margin, it might be a bit tougher, but there are plenty of benefits as well, like lower priced rents and the ease of hiring good people.

To say that we should use the general public’s tax dollars to prop up our industry is wrong and I encourage people to openly oppose it to those that are starting to get behind the movement. 

October 22nd, 2009     Categories: Frustrations, Policy, Venture Capital