Jul 20, 2012, 06.16 PM | Source: Reuters
VENTURECAPITAL-ROMNEY:Venture capitalists say Romney is not one of us
(Reuters) - When staffers at the National Venture Capital Association see a report that refers to U.S. presidential candidate Mitt Romney's investments as venture capital, they grimace -- and then contact the author to explain politely why it's wrong.
The Republican White House hopeful was head of Bain Capital LLC, which does the bulk of its work in private equity and not venture capital, the NVCA would clarify. Venture capital backs companies from their earliest days, and some go on to create thousands of jobs; private equity typically comes in at later stages to turn around underperforming companies, sometimes via job cuts and other unpopular cost-savings moves.
The distinction has become important as the U.S. election shines a harsh spotlight on the private equity industry, with President Barack Obama's campaign accusing Romney of slashing U.S. jobs at Bain-owned companies and outsourcing them abroad.
While Obama does not muddle venture capital and private equity, many journalists and politicians do. Venture capitalists fear those slips could tarnish their public image and lead to unfriendly tax policies and other regulations down the road.
"People care about what they do and their reputation and what their job is," said investor Yanev Suissa of venture industry giant NEA, which has $13 billion in committed capital. "When you're faced with the attitude that what you do is job-destroying, it's problematic."
It is a delicate balancing act for venture capitalists to defend their own industry without disparaging private equity or castigating the career path of the man who might become president next year. Many venture capitalists believe PE firms ultimately help the economy by making lagging companies more competitive, and many PE executives also invest in venture capital funds.
But with Democrats highlighting companies that went bankrupt or shipped jobs overseas under Bain's ownership, the VC industry is concerned that negative associations could harm its ability to move an ambitious legislative agenda through Washington.
That agenda includes preserving preferential tax treatments like the carried-interest tax break, which allows VC and PE investors to pay tax on investment gains at the long-term capital-gains tax rate, which is just 15 percent, compared with a top income-tax rate of 35 percent.
"In tax policy, you can see the concern there," said Mark Heesen, president of the National Venture Capital Association, which represents over 400 VC firms.
Given an increasingly squeezed federal budget, the capital-gains tax break could be drastically scaled back or eliminated altogether, he said.
While stopping short of saying private equity does not deserve the tax break, Heesen makes it clear he thinks venture capitalists merit special treatment because of the risks they take on investing in start-ups. "We create something from nothing," he said. "We have a much better story to tell."
Venture capitalists are split on which party seems more likely to preserve tax breaks for them. While Republicans are considered the party of business, many Democrats supported the JOBS Act, which makes it easier for young companies to raise money. Heesen said Republicans might feel more pressure to balance the budget and close up anything seen as a loophole.
The NVCA does not donate to presidential campaigns but it does give to congressional races - about $624,000 so far in the 2011-2012 cycle. About $358,000, or 57 percent, has gone to Republicans, according to a spokeswoman. Individual venture capitalists have given $453,550 to the Romney campaign, compared with $402,915 to the Obama campaign, according to the Center for Responsive Politics' Opensecrets.org.
GNASHED TEETH, ROLLED EYES
The venture capital industry has enjoyed some successes in Washington in recent months beyond the JOBS Act, which passed in April. Venture capitalists helped to snuff out controversial Internet legislation that would have affected the business prospects of Web startups. They also fought for streamlined regulations on approving new medical devices, an important venture investment area.
In addition to retaining preferential tax policies, venture capitalists want to make it easier for entrepreneurs to secure U.S. visas and to preserve government funding for basic research that could benefit start-ups.
With these issues on their agenda, it's no wonder venture capitalists do not want to be tarred as job-cutting villains -- they prefer to be thought of as the people behind such American success stories as Apple Inc