- April 10, 2009

Is Silicon Valley a Systemic Risk?

This WSJ article caught my eye and, at first, I couldn’t believe what I was reading. How on earth could the government think that VC firms represent a systemic risk to the financial system? Has the pendulum swung so far that the government now thinks that any financial entity is a potential threat to the stability of the financial markets and needs the government’s control. With all due respect, Mr. Geithner, the solution to a drought isn’t a flood.

I decided to poll a few of my venture friends to get their reaction to the article. Without naming names, here are a few of the verbatims. You’ll quickly see the emotion that is at play here:

“I agree with the article but unfortunately we may be in an environment where the government has declared war on entrepreneurs and the investor class that builds companies and creates the bulk of the net job increase in our country. Regulating hedge funds and credit default swaps (CDS) makes sense and is likely needed. Regulating venture funds is solving a problem that does not exist and can only further slow economic development and technological innovation.”

“It is a deep disappointment to me to see the Obama administration move the wrong way here. Instead of cleaning up the ecosystem and restoring it to health, if this is true, the ecosystem will be more polluted.”

“I think they are lumping buyout & venture into one Private Equity bucket. It has happened with the tax on carried interest discussion (thank you Schwartzman), happens when the Pensions & such make allocations (x% to private equity) and happens often in the press. You see this in his comments around fears of firms/deals being over-leveraged. I see it in the Illinois Legislative activities we are involved with. We have had to spend a lot of time educating state legislators about the differences of the two sub-classes. Perhaps we need a VC independence movement from the Private Equity class...we seem to keep getting drubbings as a result of our Buyout friends' issues and excesses.”

“I am just astounded by how someone in Geithner's position could be so ignorant. He's an idiot, simple as that.”

What do you think?

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