Michael Brown, longtime general partner of Battery Ventures, has just been elected president of the National Venture Capital Association, three years after joining its board of directors. We caught up with Brown to ask him about his new one-year role with the 48-year-old business group; we discussed some of the issues that are currently preoccupying the many American VCs he now represents, and how, if it were up to the NVCA, these issues would be handled.
TC: VCs are always concerned about tax treatments, but those are obviously even more important, given Joe Biden’s proposal last month to raise the maximum long-term capital gains rate to 39, 6% against 20%. What do you think of this proposal?
MB: So you’re gonna hit me right in the face with a two-by-four on tax in the first question, love that.
This is the NVCA position, this is my personal position, and if you ask most venture capitalists, this position is pretty common: what Biden is trying to do with the Build Back Better Plan. . . we fully support that and we are actively working with the administration and policymakers in Congress to do a lot of what it wants to do. Much of what he’s talking about – whether it’s physical infrastructure, like bridges, roads, roads, airplanes; or digital infrastructure, ie broader broadband internet access and cybersecurity; or climate infrastructure, [around] how we transition the economy and the country to a greener, carbon neutral or even carbon negative world – venture capital is needed to fund entrepreneurs to do all of these things. . . It’s really almost hand in hand. He wants it to happen, we want it to happen, and we can help make it easier [because] it will not come from American companies, we know that.
TC: In your opinion, the money has to come from somewhere. Is there a number that you would feel more comfortable with?
I don’t want to speak on behalf of the NVCA about our target rate. I will say that members of Congress and other talking heads are talking about the revenue maximization rate in and around 25% to 28%. . . and I think that’s kind of where people think it’s reasonable to go. What we believe is that long-term investment should be rewarded, not demotivated by the tax structure.
What happened under the Trump administration, where they extended the deadline to three years [from one year] before we could get long term capital gains treatment that was fine with us as we are investing for over three years and i think i have a little time to decide what’s long term and what doesn’t work very good.
TC: Another topic that keeps coming up is the IPO market. It sounds really healthy right now. Do you have any suggestions for the current administration regarding the IPO of companies?
MB: We are obviously very favorable to the capital markets. That being said, if you look at the number of SOEs today compared to the number of SOEs 20 years ago – and that’s not just the case for tech companies – it’s about half of the number. We believe this is a function of several things. One concerns the current functioning of capital markets – the ability to obtain research, etc., caused by [specific] legislation; regulatory issues; and only the charges that a public enterprise has compared to a private enterprise. You also have others [rules] that have been adopted over the past few years that impact the accessibility of capital markets for private companies, and that’s why you see companies raising more money and staying private longer, which doesn’t is not for everyone’s benefit.
TC: Which reform would you like to focus on the most immediately?
MB: A while ago now, in 2012, there was a law called the Jobs Act that helped open up public markets by addressing some of the risks and costs associated with the IPO and regulatory burden. This needs to be updated. This is something in particular that if we can change it and make it current, it will help create a ramp for small businesses to access public markets earlier and earlier.
TC: What do you think of PSPCs, those special purpose acquisition companies that are created to go public with companies, including, often, by those companies’ own previous investors?
MB: It’s good to have more alternatives and more ways for companies to access capital markets. That being said, these vehicles need to be regulated appropriately, and after-sales service is an area where regulation has not kept up with the kind of realities on the ground. I think President Gensler and even before him in the previous administration, [the agency] also felt there had to be better controls on the stock market
One of the advantages of a PSPC is the ability to offer forward-looking guidance. You can’t have this in an IPO or even a direct listing and I wouldn’t be surprised if the SEC issues revised guidance and / or a complete restriction on the ability to provide forward-looking guidance. There is probably something that should be done there, but we’ll see.
As for the conflicts of interest related to the economy centered on investors buying companies within their own portfolios, I don’t know if there will be any regulatory remedies for the conflicts. The SEC has the ability to review any of these [deals] if they wish, but in the meantime we see the market changing economic conditions. You see reduced promotions by SPAC sponsors. You see a reduction in mandate coverage or even elimination of mandate coverage. You have SPACs that are like venture capital funds, where there is really no promotion but instead a success fee if the SPAC completes the merger and is successful. You also see the sponsor’s interest acquisition over a period of time, so they are stuck on a longer time horizon. The market finds out a lot on its own.
TC: The NVCA has long been pro-immigration. What are your proposals on this front? What would you like to see changed or put in place?
MB: We took a very aggressive stance under the previous administration around the international entrepreneur rule and even [successfully] sued the Trump administration to enforce or at least roll out the rule, which allows the entrepreneur to come to the United States as long as he has a minimum amount of funding to grow his business here.
Listen, we’re in a competitive market. If you look at venture capital 15 or 20 years ago, 85% of dollars invested went to companies in the United States, and a large chunk of those dollars went to companies founded by immigrant entrepreneurs. Today that number stands at just over 50% [including because] founders who come here and get educated and go home and start a business.
We want the founders to set up their business here and grow their business here to create jobs and spread the wealth. The International Entrepreneur Rule was a stopgap for what is ultimately called the Startup Visa, an official visa status that would allow entrepreneurs to enter and give them the certainty that they can stay in the United States and start a business and build it. This is something that has been in the works for a long time, and we hope Congresswoman Zoe Lofgren from the 19th District of California will reintroduce this visa bill soon, so that we can make it part of the Build Back Better plan, because we need immigrant entrepreneurs to come here and set up businesses and employ the entire American population.
If you think of the technologies we used to get through COVID, it was Zoom, it was Moderna, it was even Pfizer, dating back 100 years. All three were founded by immigrant entrepreneurs who came to the United States to start their businesses.
TC: Is this a role you volunteered for? Is there a hot potato game that takes place on the NVCA board every year?
Mo: [Laughs.] It wasn’t just a hot potato that was passed over. [NVCA president and CEO] Bobby Franklin and Past President discuss who they think would be good based on attendance at board meetings and someone’s involvement in NVCA activities in Washington and who can be a good defender of the industry and the entrepreneurial ecosystem.
I think it’s a pretty cool time to have this job; intellectually, it’s going to be super interesting, and it’s super important for the industry [because] these are big political initiatives and we are a very important part of the solution here, and this must be well known and understood by the administration and Congress. This is our mission.