I can’t believe that I’ve let a whole week go by without
posting this article from the Wall Street Journal.  I hadn’t seen this reported elsewhere, but
Treasury Secretary Geithner apparently said before Congress that VC firms
should be registered with the SEC, submit regular reports on investors and
portfolios, and that data should be assessed to ensure that VC firms aren’t “a
threat to financial security.”

As Mr. Freeman points out, this is confusing
news since VC work doesn’t really involve banks, and is generally made up of
private investors taking stakes in small companies. Even if VC firms–and all
of the companies in which they invest–failed, how would that be a “systemic
risk” that risks the security of the financial system?  And when the financial system is in shambles,
with no credit or capital to distribute, shouldn’t we be looking to private
investors who are willing to take risks?

Perhaps even more confuddling is trying to justify this
proposal by saying that investors need more protection post-Madoff.  Apparently Mr. Geithner’s selective-memory
isn’t limited to taxes owed, but to larger financial matters—Madoff was
registered with the SEC and investigated several times, but the SEC didn’t
protect investors in that case. (And Madoff wasn’t running—or, more accurately,
purporting to run–a venture firm.)

Venture capital is a risky business, but one that investors
enter with full knowledge of that risk. 
At Innovators Network seminars for entrepreneurs we regularly have
venture capitalists talk about the importance of intellectual property to the
business plans of companies that get funded, as it helps stem that risk by
providing inherent value to the company. Geithner’s plan would have a chilling
effect on the availability of venture capital, and therefore a disastrous
effect on the ability of companies built around IP to generate capital.

It is a great article, IMHO, and worth a close read. My
favorite part is where Freeman writes, “Moral hazard? Not in Silicon Valley. No
tech-company founders or VCs could possibly believe that they are too big to
fail.”

And the closing quote from Cypress Semiconductor CEO T.J. Rodgers, referring
to government regulation of VCs, is classic:

It’s like watching children
deface an economic work of art.