The venture capital community has made a self-serving request of the federal government, but is may not be entirely without merit.
The industry’s trade association “called for lower taxes and loosened listing rules, to galvanize the pace of IPOs for when the economy improves,” according to Reuters. The VCs are trapped in their investments in a number of private companies. At this point, some of these VCs are running low on money, and taking some of the operations in which they have money public is the only possible way out unless they can sell their investments in M&A transactions. In the current credit crisis, that won’t happen.
VCs get a lot out of the potential program. Their investors can get some of their money back. Returns from many of the funds can be lifted. That will allow them to raise more money.
The reason that the government may look on the proposal as having merit is that VC’s which make better yields on the money are likely to invest in new companies. This may allow for more productivity in the economy and job creation at young firms that are starved for the capital to expand.
A stimulus package for IPOs may also save a number of jobs. If companies cannot get cash from their troubled venture capital investors, many will have to curtail their operations or shutter them complete, forcing their employees to rely on federal and state assistance.
Venture capitalists, rich from years of good returns due, in part to what was a good economy, may get their bailout, even if it is unpopular, but it will be to some extent a government assistance package for the people who work at the companies that they finance as well.
Douglas A. McIntyre