SOURCE: National Venture Capital Association

National Venture Capital Association

October 06, 2009 14:00 ET

NVCA Chairman Terry McGuire Testifies Before House Financial Services Committee in Support of Private Fund Investment Advisers Registration Draft

WASHINGTON, DC--(Marketwire - October 6, 2009) - National Venture Capital Association (NVCA) Chairman and Co-Founder of Polaris Venture Partners, Terry McGuire, today testified before the House of Representatives Financial Services Committee in support of the Private Fund Investment Advisers Registration draft which exempts venture capital funds from mandatory registration with the Securities and Exchange Commission (SEC). The draft legislation seeks to achieve greater transparency into financial systemic risk and eliminate regulatory gaps in wake of the financial crisis that has taken place in the last year. It has been the NVCA's position that the venture capital industry does not pose systemic financial risk and that requiring firms to register would place an undue burden on the venture industry.

"The legislative draft recognizes the important difference between entrepreneurial risk in which venture capitalists engage and financial systemic risk in which we do not," said McGuire. "Our investment model is simple. We invest in start-up companies run by entrepreneurs using capital from ourselves and outside investors. We invest cash to purchase equity and hold that equity, working side by side with the management for 5-10 years until the company is sold, goes public, or fails. In the latter case, there is no multiplier impact on losses. While we lose our capital, there are no derivative transactions or leverage that would lead to a ripple effect."

Mr. McGuire asserted that the venture capital industry understands the need for increased transparency into the industry's activities and offered to explore an enhancement to Form D, the document that is filed with the SEC when a venture capital firm raises a fund. Per McGuire, an enhanced Form D, which he referred to as Form D-2, would be completed by venture capital firms annually and would pose questions on systemic risk factors such as leverage, trading positions and counterparty obligations.

Said McGuire, "The D-2 solution could be a viable option because it does not require a lengthy regulatory process to test a definition of venture capital. It would cause venture firms to annually confirm that they are 'safe from systemic risk' by responding to questions that reveal the nature of their investing activity."

Mr. McGuire expressed the industry's appreciation for the Committee's work in drafting legislation that recognizes the role of venture capital in the U.S. financial system.

"We applaud the Committee's intent to protect entrepreneurial growth and innovation," he concluded. "We stand ready to work with you so that you can gain the transparency you require without hurting our industry and the start-up companies we support."

For a full copy of Terry McGuire's written and oral testimony, please visit www.nvca.org.

The National Venture Capital Association (NVCA) represents more than 400 venture capital firms in the United States. NVCA's mission is to foster greater understanding of the importance of venture capital to the U.S. economy and support entrepreneurial activity and innovation. According to a 2009 Global Insight study, venture-backed companies accounted for 12.1 million jobs and $2.9 trillion in revenue in the United States in 2008. The NVCA represents the public policy interests of the venture capital community, strives to maintain high professional standards, provides reliable industry data, sponsors professional development, and facilitates interaction among its members. For more information about the NVCA, please visit www.nvca.org.

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