In the maze of regulatory actions that will reshape our financial sector, one in particular will have a potentially profound effect on America’s continued leadership in technology innovation and entrepreneurship.By January, the Financial Stability Oversight Council must issue recommendations on how to implement the so-called “Volcker Rule,” part of the Dodd-Frank bill passed last summer. The Volcker Rule is designed to get banks out of the business of investing in and sponsoring hedge funds and private equity funds. At its heart, it was designed to deal with high risk, highly leveraged proprietary trading. From there, it oozed into hedge funds, and from hedge funds into private equity funds.
Now the Council must decide: what is a “private equity” fund?
It’s critical the Council focuses on the purposes and potential effects of the Volcker Rule as it answers this question. A broad definition could sweep in venture capital funds, which provide capital to our nation’s startups.
Congress didn’t say anything about venture funds in the Volcker Rule. They don’t pose systemic risk or safety and soundness risks. And perhaps most importantly, they are the lynch pin to the innovation sector, which in turn is the lynchpin to our economic growth.
I’ve spent most of my professional life working with startups. I’ve seen what these companies can do – creating jobs and entire new sectors of our economy, driving exports, transforming how we work and communicate and live, and developing new ways to prevent, manage, and treat disease and illness. Investments by venture capital firms represent a tiny fraction of GDP – two-tenths of one percent. But through hard work and a lot of “sweat equity,” these investments turn into companies that generate 21 percent of GDP and more than 12 million jobs (that’s 11 percent of all private sector employment).
If you sell things on eBay, use Apple devices, shop at Whole Foods, search on Google, get coffee at Starbucks, buy things at Amazon.com, use Cisco devices or Intel processors, you should care about whether we’ll continue to fund similar startups in the future. If you’re one of the more than 100 million Americans who’ve been positively affected by a health care innovation developed and launched by a venture capital backed company, you should care.
People in the innovation sector know the critical role startups play in our economy. But many in Washington D.C. are less familiar with the innovation ecosystem. That’s why we are actively working to educate policymakers and help ensure they make an informed decision. If you’d like to read the comments we filed with the Financial Stability Oversight Council, click here.
Innovation is going to happen – the only question is where. Ten years ago, it happened here. The question the Council will help answer is … what will happen in the decade to come?
