Could venture capital destroy the world? Is it, in other words, up there on the systemic risk pantheon with derivatives, credit default swaps, excessive leverage and MIT physics grads who write software-based valuation algorithms for toxic securities?
For sure! After all, Facebook could one day do something wild and dangerous, something that … okay, bad example. Alright, maybe a new Jawbone bluetooth headset will be created that is so small and smart that it bores its way into people’s brains, like a battery-powered Babel Fish, only to force everyone to hear things in Amurdag, which … oh, that is becoming implausible too. But then there’s Twitter! It could get caught up in the middle of an election in a fragile country, one yearning for democracy and using Twitter to mobilize against the forces of fascism. Nah, that’d never happen. The Amurdag/Babel thing is more likely, which is saying something.
You know, the more that I think about it the less likely that venture capital seems a source of systemic risk after all. Sure, it could re-enact a dot-com debacle, but in the great scheme of things that wouldn’t be so bad, would it? Like the old bumper stick says, This time we’ll know what to do.
All of this is a long-winded way of saying that I’m sympathetic to the National Venture Capital Association’s release today asking that the Obama administration reconsider lumping venture capital in with private equity and hedge funds as a generic source of systemic risk. As venture funds get smaller, which I argue is inevitable as the industry becomes more fleet-footed and risk-taking, the inherent tax in forcing costly registration could become a sort of SarbOx of VCs. Is there no lightweight way of accomplishing this goal that wouldn’t pretend a $70m VC is just as terrifying as a $70b levered CDO-centric hedge fund?
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