Friday, November 5, 2010

Venture Capitalists love-hate relationship with the GOP

From our Nov. 2, '09 post "California: "John Doerr For Governor?"":
...The bigwigs of the valley were serious Obamaniacs in the run-up to the general election even while Santa Clara county went for Hillary, 53.8%, to Barack Obama's 41.1% in the primary.
We had a couple others* that may be of interest.
From Fortune:

Venture capitalists hate their taxes but love green energy. Here's how the issues stack up for the financiers now that the Republicans run the House.
Venture capitalists are difficult to define politically. On the one hand, they are wealthy financiers who fit snugly in the Republican wheelhouse. On the other, most of them live in Democratic bastions like suburban Boston and Silicon Valley.

This partisan split also appears in the specific policies that affect the VC industry. In terms of taxes, a GOP-controlled House of Representatives is more likely to produce VC smiles come April 15. In terms of energy policy, however, Tuesday's election will result in broken dreams. On immigration, healthcare and financial regulatory policy, it's mostly a wash.
Here's how the biggest issues break down with the venture capital community:

For the past two years, venture capitalists have been operating under the assumption that their taxes were going to significantly increase. This was not only because of the expiring Bush tax cuts – including those nifty ones on capital gains – but also because Democrats had promised to change the tax treatment of carried interest (the percentage of profits that VCs keep for themselves, before distributing the rest to investors).
Now, they have reason to be optimistic.

The last serious attempt at filling the carried interest loophole came this past spring, when a so-called "tax extenders bill" went down in flames. Harry Reid didn't even bring it up for a final vote in the Senate, after Republicans objected to unemployment insurance provisions tied into the same legislation (Democrats later passed that insurance, but not the carried interest change).

Conventional wisdom says that a GOP-controlled House means even bigger trouble for carried interest legislation, which is good news for venture capitalists. This isn't to say, however, that VC lobbyists have counted all of their chickens.

One possible scenario is that Republicans could use carried interest taxation as an olive branch in order to get Democrats to sign onto larger tax reform or budgetary measures. They could position it as closing a tax loophole (i.e., not a tax increase), and save face at home since very few of them hail from VC-laden states like California or Massachusetts. Were this to happen, expect VC, PE and hedge fund managers to get hit, and real estate and energy partnerships to be exempted.

But, again, the most likely outcome is maintenance of the status quo. For VCs, that's a win.
A growing number of VC firms have launched energy investment practices over the past few years, with a particular emphasis on "clean" technologies and infrastructure.

Their general hope was that Congress would pass comprehensive climate change legislation, or at least an energy bill that includes things like renewable energy standards and the formation of a Clean Energy Deployment Administration (CEDA).

The former now looks dead, while the latter is on life support. The National Venture Capital Association says it will likely be at least two years before any bills will even be considered.

But energy VCs got a big win the state level, in the form of Prop 23 in California. The ballot initiative was designed to suspend the state's landmark air pollution bill signed by Gov. Schwarzenegger in 2006, until California proves able to sustain a 5.5% unemployment rate for one year (it's currently above 12%). The measure, which was defeated by voters, was strongly opposed by the VC community, which felt that the anti-pollution law had turned California into the nation's most successful incubator for cleantech companies (and, in turn, cleantech jobs)....MORE
I'll have more on prop. 23 and AB32 in the next post. The funding mechanism may not be there.
*Obama names valley tech leaders John Doerr, Charles Phillips to economic recovery board

Obama Shelves Jobs-Credit Proposal
...London Times -Aug. 25, 2008
Why Silicon Valley is backing Obama

Senator Barack Obama doesn't have any particular expertise in technology policy, nor any backround in business. Like many Democrats, he's ambivalent about free trade, in favour of higher taxes on the wealthy, and officially suspicious of the corporate elite.
Yet in Silicon Valley, and throughout the "New Economy," Obama enjoys overwhelming support, and the backing of this relatively small but influential segment of the electorate is central to his presidential bid...
From the New York Times -May 14, 2008:

Obama Green Talk Is Gold to Silicon Valley

The Atlantic -June 2008:

The Amazing Money Machine

How Silicon Valley made Barack Obama this year’s hottest start-up