190. Immigration, Privacy, and Foreign Investment — The Biggest Threat to Venture is in Washington D.C. (Bobby Franklin)

Nick Moran Angel List

Bobby Franklin of NVCA joins Nick to discuss Immigration, Privacy, and Foreign Investment — The Biggest Threat to Venture is in Washington D.C.. In this episode, we cover:

  • Backstory/path to Capitol Hill.
  • You served as the Executive Vice President of CTIA –tell us a bit about that experience and how it led to NVCA.
  • At NVCA – what’s the mandate?
  • What specific actions does the organization take in order to deliver on this mandate?
  • You just wrapped up NVCA’s annual VC’s to DC conference this month– What were the three most critical issues that Venture Capital is facing?
  • I came across your article on TechCrunch about FIRRMA (the Foreign Investment Risk Review Modernization Act) and CFIUS (the Committee on Foreign Investment in the U.S.). Can you talk a bit about the issue the industry is facing and the key players?
  • What suggestions do you have for VCs and high growth companies — with exposure to FIRRMA and the expanded power of CFIUS?
  • At the VCs to DC conference there was a panel on the rise of populism…Trends from trade to immigration, tax policy and cross-border financial flows, that are rapidly impacting global commerce – Can you talk a bit about these issues and their impact on the ecosystem?
  • Currently large tech companies are under increased scrutiny in DC and policymakers are cracking down on data privacy regulation, antitrust enforcement, etc. Do you think this “techlash” is appropriate or not?
  • What guidance or insight would you give entrepreneurs to ensure that their companies are operating within regulatory boundaries?
  • Any other suggestions for the audience — a mix of VCs, LPs, Angels and Founders — on specific things we all can do to support this asset class in D.C.?

Guest Links:

Key Takeaways:

  1. Bobby currently serves as the President and CEO at the National Venture Capital Association (NVCA).  Prior, he served as the Executive VP of the Cellular Telecommunications Industry Association (CTIA) for eight years and worked on Capitol Hill.
  2. The NVCA helps “to empower the next generation of American companies that will fuel the economy of tomorrow” by representing emerging companies in the face of public policy change.
  3. Specific policy issues include tax issues, immigration, health care, regulatory issues, drug pricing, and blockchain/cryptocurrencies.
  4. Thematically, the NVCA anticipates needing to engage on policies regarding “the techlash” and privacy but is still forming their opinion on how to do so.
  5. On immigration, the NVCA supports the need for a way to enable foreign innovators to come to the US.  In fact, half of today’s unicorns have an immigrant founder/co-founder.
  6. The Foreign Investment Risk Review Modernization Act (FIRRMA) of 2018 came out of the Defensive Innovation Unit (DIU)’s study proving that foreign investors can access key innovation technologies in the U.S.  Its intent is to protect nonpublic information from being taken outside of the US.
  7. The Committee on Foreign Investment in the United State (CFIUS) is the enforcement mechanism of FIRRMA, chaired by the US Treasury Agency.
  8. The NVCA is lobbying to ensure that the law is not misconstrued to implicate the venture industry.  While timing is still flexible, the rulemakings on FIRRMA implementation most likely will begin at the end of 2019 and continue through 2020.
  9. 20 years ago, 90% of venture capital investment was made in the U.S.  Today, this figure sits at 50%, with foreign and domestic investment dollars at an all-time high. With the rise of unicorns, later stage investment has skewed venture investment data.
  10. The NVCA is trying to build on the 2012 Jumpstart Our Business Startups Act (JOBS) to make it easier for companies to go public, so that entrepreneurs and investors have more of a choice in their financial future.
  11. The NVCA is lobbying to the SEC to update the registered investment advisor requirements to include secondary investments, fund of funds, and cryptocurrencies/blockchain as qualified investments.  This is to align incentives so that venture investors are the ones making risky investments in emerging technologies.
  12. In 2014, the NVCA took action to address equality in venture capital.  These measures include their ongoing diversity task-force and diversity survey, which can be found here.
  13. Venture firms, angels, and founders should engage with the NVCA to ensure that their best interests are represented through policy.  The more details and education of the industry, the better. 

Transcribed with AI:

welcome to the podcast about investing in startups, where existing investors can learn how to get the best deal possible. And those that have never before invested in startups can learn the keys to success from the venture experts. Your host is Nick Moran, and this is the full ratchet

Welcome back to TFR today Bobby Franklin joins us. Bobby is the president and CEO at the National Venture Capital Association, a nonprofit organization serving as the definitive resource for venture capital data that also represents the VC industry’s interests in Washington. In today’s interview, we discuss the role of the MBCA the key policy areas immigration, privacy, the Cepheus and firmer issues that are challenging funds with foreign LPs and startups with foreign investors or operations. We also cover national trends in venture tech companies staying private longer secondaries. VC firms that are switching to become ri A’s the importance of emerging ecosystems and we wrap up with Bobby’s and the NVC A’s efforts to promote diversity and inclusion. Here’s the interview with Bobby Franklin of the NVC a.

Bobby Franklin joins us today from Washington DC. Bobby is the president and CEO at the National Venture Capital Association. And VCA is a nonprofit organization whose membership includes 1000s of those that invest in the formation and growth of innovative startups. Prior to joining NVCA, Bobby served as the Executive Vice President of CTIA and was responsible for helping manage the organization’s $58 million budget and 90 employees. Bobby began his professional career on Capitol Hill working on various Senate committees, including agriculture, finance and governmental affairs. Bobby, welcome to the program.

Thanks so much for having me, Nick.

Yeah, let’s start off with with your story. You know, how did you arrive on Capitol Hill?

Well, way back in the late 80s, as I was graduating from the University of Arkansas with a degree in financial management, my eyes were set on New York to go to Wall Street to work there. I think the movie, Wall Street with Gordon Gekko had just come out and I thought that would be my career path. And the meantime got offered a six week internship on Capitol Hill for one of the US senators from my home state of Arkansas. As I say many times I came here for six weeks, but still haven’t left. And that’s been about 30 years now. Wow.

Wow. And you served as executive vice president of CTIA. Can you tell us a bit about that experience, specifically and how that led you to NBC?

Yeah, so after my senator retired, I became what a lot of former Hills staff do become a lobbyists worked for land grant colleges and universities. I then went to the wireless company called Alltel. And that was their lobbyist. I then ran their DC office and a guy named Steve Largent, who many people know is a former Seattle Seahawks wide receiver, NFL Hall of Famer was a member of Congress. And he had spent years in Washington in the 90s. And he had gone back to run for governor of Oklahoma, he lost by just few votes and looking for something to do. And in the meantime, got hired on at CTIA. He asked me to help him get ready since I was one of his member companies. And we’ve developed a relationship and a friendship that lasts until today. And he asked me if I would leave Alltel and come over and be his head lobbyists. And I did so and a couple of years after that. He asked me to be his executive vice president and I helped him for about eight years manage the group and in Washington. It’s one big small town and I think that’s sort of put my name on the radar sort of executive search firms that were looking for folks that had trade association management experience. And I got a call one day from Russell Reynolds. And they said in VCE. And I said, Well, I’ve never heard of that. And they said, Well, here’s what they do and their longtime president for some 20 years is retiring. And we think you might be a possible fit. And the more I learned about the industry, the more excited I got took a few months to get through the process. But at the end, they offered me a job and I started September 2013. Very good. So

you’ve been there since 13. So going on six years, about five and a half years now. That’s correct. So you’ve probably seen quite a bit of transition. Tell us a bit about you know, the role of NVCA for the venture industry. And you know, what in VCE does to kind of fulfill that mission.

You know, our mission statement is that we help empower the next generation of American companies that will fuel the economy of tomorrow. And certainly that could be the same mission statement for many of our members. I think that a lot of folks kind of share that vision that they really think of themselves as helping next great companies get started and surviving. And the way we think about our role is really, whatever is happening, either in Washington or sometimes even beyond DC, that’s going to impact the success of newly founded companies that are struggling to survive and grow. If there are public policy issues that impact them, we want to be in the middle of those, we want to give voice to the emerging growth companies that are not meant to be a mom and pop, you know, on the corner in some small town, they’re obviously not yet a fortune 100 company, but that’s their desire. And that set of companies has very different needs many times in the arena of public policy. So we feel our job is to make sure we represent their interests before policymakers, and help policymakers understand how important these sets of companies are.

It’s gotta be a tricky endeavor, because the startups themselves, you know, when they’re starting up, not often very well funded, not well heeled, not a very strong voice, right. But those startups that do have tremendous success and go on to raise growth rounds and scale, and become, you know, renowned tech companies, their interests sort of change, right, they may not be as interested in new startups that could could be disruptive to their cause. It must be an interesting balance, kind of that you strike between sort of the early stage emerging tech companies and those that are more established. Well,

you’re absolutely right. And in many times, here in Washington, frankly, we find ourselves at odds with companies that were certainly wants venture backed startups, but now are mature, grown up companies with their own Washington offices having their own set of policy issues that they’re trying to advocate in favor of or against. And We butted heads against many of them. And sometimes that causes some concern, because some of our members are still part of those companies, or maybe sit on the Board may still be stockholder, we many times get calls from VCs whose names that most people know saying, hey, wait a minute, you know, why are you doing this? This is This is bad. And we sort of have to take the peer position that our job is to work on behalf of a set of companies until they can work on their own behalf. Yeah, and many times those policies are are conflicting.

Yeah. So let’s let’s talk about some of the policies, you know, what are those policies that are affecting our industry and what’s NVCA doing on the ground?

Well, there’s a whole host of them. And it seems that every week there’s something new that pops up. But I think that, you know, right now, I would say our main focus has been around tax issues, certainly immigration issues, health care issues, regulatory issues, like the Volcker Rule, or the definition of what has to become a registered investment advisor versus someone that’s exempt using the venture capital definition, areas around drug pricing. You know, there’s an example of drug pricing debate is about those large companies, big pharma companies, but we know that there’s a certain policy positions that can be taken by policy makers that would have a difficult impact on those venture back new drugs that are discovered every year. So we pay attention to that blockchain, what the SEC, or what the CFTC ends up doing with blockchain and cryptocurrency, what they allow what they don’t allow. And I’d say even on a broader sense, kind of thematic areas like the overall tech lash, whether that manifests itself in strict privacy regulation on behalf of big tech companies, and how that might impact kind of new disruptive startups and whether they are in the right position to comply with something that may come down when, you know, policymakers oftentimes have some big company in mind when they write regulations. And many times they’re not thinking about the next generation of potentially competitive and disruptive companies that come along. And so you know, that’s an area that we also focus on. Yeah,

so that the last one there, you mentioned the tech lash. This is in reference to sort of the data privacy issues that have emerged with with many of the large tech companies as As you mentioned, where does the FCC stand on that? And kind of what, you know, what is the policy approach or position?

Well, it’s something that, you know, an issue like this. It’s one that we’re having conversations with our members. We had a board meeting last week, we talked about this issue at great length, we were sort of strategizing with our board about, you know, what should we be doing? There have been groups that have approached us and said, you know, what do you think about some of the startups kind of adopting a very friendly posture and position and kind of covenants that they would agree to early on to show policymakers that new startups can, you know, come into being in a very different and positive place on issues like privacy. So I would say that this particular issue, we anticipate that we’re going to need to engage on it, but exactly how or what our position is still being formed as we speak.

It’s interesting, we invested a little over a year ago in a privacy startup. So a privacy that is sort of counteracting the surveillance of established online tech companies. And just the backlash on that so far has been really interesting that the number of inquiries they’re getting from major players is it raises an eyebrow? Well,

I think that’s what’s so great about the entrepreneurial ecosystem, whenever something is identified as a challenge or a problem or a practice by, you know, incumbents or large companies, I have full faith that somebody’s going to come up with a better idea. And they’re going to be able to provide something that consumers and policymakers think is far better than the solutions out in the marketplace. As we speak. That’s the

great thing about startups, right? If you encourage the innovation, and you support the innovation, then often they create the necessary tech that consumers are looking for. Right?

Absolutely. They solve problems, right? I mean, entrepreneurs essentially, at their heart, identify a problem and bring a solution to meet it. And sometimes the problems are in the products and services that are in the marketplace today. And they’re either not meeting consumer or again, policymaker demands for the way they’re treating those consumers or the privacy, how they’re taking that private information, how they’re using it, what that implications are for those folks. And I, again, I love being part of this industry, because it’s a wonderful opportunity to see people solve problems.

Bobby, you mentioned tax, immigration, healthcare, regulatory drug pricing, blockchain and crypto as well as some thematic areas. Quickly, can you talk about where we stand on immigration? I know that you’ve written about this in the past, you’ve been featured on TechCrunch. And, you know, where are we at with regards to immigration? And are you feeling good about the way that policy has adapted to where we need to be to encourage sort of the right folks to be able to operate in country?

Well, being around VCs for this long gives me eternal optimism. So let me try to find some optimism here in a town that is not really welcoming to immigration right now. Here’s the good news. The good news is we have bipartisan support, Republicans Democrats in the Senate in the house, that understand the area that we’re pushing for, which is essentially, we have to have a visa category, we have to have a way for an entrepreneur somewhere around the world that wants to start and grow a company to come and do that here in the US. And we get widespread support on that. The difficulty, of course, and making that become law is that when you’re in Washington, you realize that everything that might be a part of some comprehensive deal becomes trade bait. So until we can get both sides of the aisle, both sides of the issue to sit down and agree to move something on immigration, we can’t move this piece, even though if you brought it up for a vote today, it would probably be voice voted. I can’t imagine. Well, I can’t imagine because I know a lot of these folks in Washington, I can’t imagine a couple people objecting but by and large, everybody agrees that if there’s somebody that’s so talented, that has the backing of professional investors, they’re going to create a company, they’re going to create jobs, they’re going to create innovation, they’re going to keep the US in a leadership position. We want that to happen. No one disagrees with that. It’s simply a matter of all the other issues, illegal immigration walls, refugees, dreamers, all that stuff that until they get some sort of path forward. We can’t get our peace to move.

Yep, yep, it’s super important. hot button issue. We invested in in a recent company called pliant led by a fellow named vest backcloth, an immigrant whose last company he he sold the Bain Capital for, I think a few 100 million dollars. And, you know, if if immigration policy at the time that he entered the country was, was not in support of entrepreneurs, that that could have been a much different outcome.

Right. And you know what, there’s tons of stories like that. And certainly, because other countries have figured this out, like Canada has a startup visa and an entrepreneurial visa and countries in Europe do. And we hear anecdotally, from our members every day about companies that are simply deciding to go to Vancouver or go to Toronto, it’s too easy. You know, we just put out a report last week along with the Kenan Institute of private business, down at UNC Kenan Flagler business school as well as Stanford Business School. We it’s basically titled immigrant entrepreneurship, an American success story. They’re all the studies, and there’s all this work done on the correlation between somebody that’s willing to leave their home country come to the United States. And that same type of person has a very high correlation, and somebody that’s going to start a company. Yep.

And even even success rates as well. If you get, you know, successful IPOs and successful tech companies, there’s a way disproportionate percentage of those companies that are founded by immigrants, I

think half of the unicorns today have a founder or co founder that was an immigrant.

Wow. Amazing. You mentioned last week, also, I believe, last week, you did the VCs to DC event? Is that right? That’s correct.

That’s what we’ve now turned our basically Annual Meeting into an opportunity to bring the industry here in Washington, talk about the policies that are important, and make sure we get an opportunity to take them up to Capitol Hill and be a lobbyist for a day.

Good, good. Any key highlights or key takeaways from from that event?

Well, yes, we have several. So we fanned out into different groups. The first thing we talked about the issues. And by the way, one issue I didn’t raise which I would be remiss if I didn’t talk about the issue around foreign investment. And the changes, which I’m sure you’ll ask me about at some point. But we had, we had folks come in a couple of 100. Folks, we spent all day talking about the issues hearing from Republicans, Democrats, senators, members of Congress about the issues that they’re faced with, we talked about the issues that are important to the industry. And then the next day, you know, over 50, folks joined us and we fanned out into five or six different groups, we sent one group to the White House. Then they went to the Treasury, then they went to Commerce Department, we send another group over to the Securities and Exchange Commission to talk about cryptocurrency and blockchain. We sent several of the other groups either to the House side or the Senate side, we met with members, we had a ton of meetings talking about all of our policy priorities, we typically obviously talk about the issue that is relevant to whomever we’re meeting with. So in the case of the White House, and Treasury and Commerce, it was a lot about the foreign investment issue. The SEC, it was about the registered investment advisor definition it was about the Volcker rule, it was about cryptocurrency and blockchain. And then when we were in various members of Congress, depending on what committees they sit on, we would talk about immigration, or health care or drug pricing or tax. So it was a success, because as much as we can say the very same words. At the end of the day, Washington views me and my colleagues here at nbca as lobbyist. And when a practitioner in the industry comes and they see a person, they have a name, they see a face, they understand that these people do this every day for a living that has such a greater impact than somebody that’s just their representative here in DC. Yes.

You know, as you alluded to, I do want to get into Cepheus and firma. I read your article on TechCrunch. And you and I discussed these issues at length at at a recent dinner. But actually, let’s just start out with Can you tell us what each of these things are? So we affirm the foreign investment risk review Modernization Act, and we got Cepheus, the Committee on Foreign investment in the US, can you can you talk about what each of those two things are? Sure.

So we’ve had a committee on foreign investment in the US for a long time. It’s been around it’s been here it’s been designed to review major transactions when somebody or some entity that’s in another country is desiring to purchase a company here in the US Last, and we’re familiar with that I think the most recent kind of big news example was Broadcom Qualcomm, that got stopped by the Cepheus process. So I think that’s something that a lot of people are familiar with. But what happened a couple of years ago was the Department of Defense Innovation Unit, first known as diu. X, then they dropped the x, which is experimental. So it was just diu. And still is diu. Today, that’s their office up in Silicon Valley. So diu commissioned a study a couple of years ago, and basically, the study was to go find out if foreign investors could get access to critical technologies here in the US. And the result of that study was the study came back and said, yes, they can. And that was pretty much, you know, the the punch line, it wasn’t so specific as to which country they were talking about, or studying or worried about, or anything else. It just said, yes, it’s going to happen. So then Congress goes, and they pass a new law, which you mentioned, farm is the acronym that stands for the foreign investment risk review Modernization Act. And by the way, that’s the same acronym that’s been used in the past, when they done things to the Committee on Foreign Investment us. And so the past a new one at great speed. I mean, if anybody tells you that nothing’s happening in Washington, I can point to a lot of examples, suggest otherwise. And this is one of those cases, it was not on our radar. And we started hearing grumblings about this, this idea that something was going to change. And we had actually, the authors of that report that was commissioned by diu, came to meet with us a couple of times asking questions about venture capital, what it does, how it works, things like that. And so we had some concern early on, we are sort of antenna went up and said, This isn’t going in the right direction. This could be very bad for us. And sure enough, that’s what Congress introduced a bill, we took a look at it, it could have potentially wiped out all foreign LP passive investment into us venture funds. Yes, it could have, you know, done a lot of very draconian things. Now, fortunately, we were able to act fast to get up to Capitol Hill to talk about how venture works. To explain that, you know, even a general partner at a VC firm, in a fund that makes an investment and sits on the board of a company, it’s not like they’re getting access to the code of that company. And now you’re talking about at least in the case of the foreign LPs, you’re talking about passive investors that, you know, every once in a while, we’ll get financial return information on the overall fund and have some idea of what they’re invested in. But it’s not like they’re getting the, you know, secret keys to the innovation that’s happening at the portfolio company level. So we had to explain that they ratcheted it back a little bit, we made improvements to it. But now the bill is law. And now, various agencies are trying to write rules to administer this new law. So there’s a rulemaking going on at Department of Treasury, that will have a great impact on this. There’s a rulemaking going on at the Department of Commerce, that also has a great influence on what happens here. It’s basically trying to update the definition of critical technologies, and what should be on the list of the foreign Export Control Act. And what the that group has to the authority basically, to look in and see what you’re trying to export. And by the way, even if you’re not exporting it, but you could have an accompany a foreign national, that happens to be from, you know, the wrong country, working at your startup, working on issues that fall on this newly defined list that commerce has to come out with. They could even if you don’t intend to sell a product or service overseas, the Export Control administration could come in and say we deem this an export, because you have this foreign national from the wrong country working at your company. So there are tons of implications on how this new law and certainly how these new rulemakings will implicate our entire industry. And the rulemakings haven’t even completely or officially started yet. Is

it? Cepheus? That’s the enforcement mechanism. Yes, that committee.

It is. And Treasury being the lead agency that’s part of Cepheus they’re basically chair this this committee, but it has representatives from other government agencies. They’re the ones that will take the lead on most of the rulemaking to implement this new law.

Is the risk more severe to fund managers that have LPS in foreign nation’s or is is the risk more severe to to startups that have either investors or operations in foreign countries? Well,

I think that’s part of what we’re trying to, frankly, advocate for, you know, let’s let’s not throw the baby out with the bathwater here. The answer is I don’t know, it will depend on how some of the T’s get crossed, and I’s get dotted. As these rulemakings make their way through the process. I can certainly imagine the situation where the investors, you know, if you if you have these foreign LPs, and they’re starting to get into the weeds about what non technical or non public information is allowed to go to a foreign person who happens to be an LP, and certainly when it gets down to the company level, if a foreign person sat on a board, what sort of information would be allowed to go to them? They’re in the rulemaking we will tease out what is the definition of nonpublic information. I mean, there are all sorts of issues that will be essentially debated on the public record. And it’s all against the backdrop is there has been a significant sea change by the entire US intelligence community about how they feel, frankly, about China. The problem is the bill doesn’t say China, right? It just says foreign. And so you know, here’s the case where we’re trying hard to try to get support for the idea of a whitelist of countries, like, you know, do we have the same concern about Canada that we do China? Or, you know, if you don’t want to whitelist countries? What about a blacklist? Do we have same concern about China that we do Russia or North Korea or, you know, a rack or Iran or somewhere like that. So that’s the kind of sort of advocacy that we will be providing, in all of these rulemakings trying to narrow the focus? You know, we agree, there could be an issue, we’re not disputing that. We, you know, we’re not trying to allow any bad things to happen. But we also want to make sure that the national security community understands how the entrepreneurial ecosystem works and understands capital flows and understands where entrepreneurs are understands, you know, what is a real threat and what’s not a real threat? What

do you expect? The timeline is on this? You know, when do you think that some of these issues will be resolved in the the act and implementation of that act and enforcement is going to be established?

Well, every time I guess, I guess, wrong, but I think that I think by the end of this year, those rulemaking should officially kick off. So the clock starts, and they take time to receive input from the public and from us and others. And then they take time, you know, once the deadline passed to absorb the eminences the way it’s supposed to work. The Administrative Procedures Act says that an agency when making rules, needs to invite public comment and give ample notice, right, so something called the Notice of Proposed Rulemaking will go out, it’s an official big document. And everybody will sort of devour that. They’ll look at it and say, Okay, we have concerns here, there, et cetera, let’s make a formal comment on it. So we’ll make a big submission back to the agency and say, here’s the way we think you should implement it, we’re concerned about, you know, what you propose here, we like what you propose there, and it’ll be a kind of a thick document that will go back, then they take time to read that you have the opportunity to read other comments all on public record, so you can see what others are arguing. And then there’s usually an opportunity to, you know, say something back to respond to what others have said. So, this process, you know, like I said, if I’m imagining a timeline, I think it’s, you know, somewhere, November timeframe, it starts and it goes for months into next year. And then the crystal ball gets a little more fuzzy, because then we’re in the middle of a presidential election. And that sometimes makes it more difficult for agencies to kind of do their work. There’s lots of distractions going on. And so whether or not they can complete that next year, whether or not somebody thinks that’s, you know, an advantage of one particular candidate or another. I mean, there’s a lot of other things that come into play once you try to get some of these things finalized here. But I can imagine this playing out starting later this year over the following year.

Got it. So that transition a bit here. You know, National Venture Capital Association, you guys have many different concerns. issuance that you represent, you have an awareness and you have a sort of a lens that that many of us don’t that are in various regions in various ecosystems. Can you talk about some of the overall national trends that you’re seeing across venture? Yeah,

well, certainly last year, we had, you know, the historic year of capital flows, we had more VC fundraising, we had more VC investment, we had higher VC exit value, it was kind of a year. Yeah, exactly. All because of NDCA. But, you know, I think it sort of shows, I think I gave you that stat, where 20 years ago, over 90%, of global venture capital dollars, went to us startups. And over the last few years that our market share in the US has dropped to around 50%. And so if you first look at that, and you go, Oh, I guess the US has dropped off investing? Well, no, because we just hit record highs in 2018. It just shows that there’s capital available around the world. So it’s something that, you know, we use when we talk to policymakers here in Washington, often. So the trends are, you know, it’s all been up into the right. Now, that means certainly bigger funds, bigger investments, bigger exits. But the corollary to what we’ve seen is fewer funds, fewer investments, and fewer exits. And that, of course, has led to rising valuations and maturing companies that are staying private longer. So that’s kind of the, I would say, overall trend of what we’ve seen over the last couple of years. Obviously, unicorns have made the biggest mark on all of that. And it’s because of the unicorns that some of that data all makes sense, right. So you’ve got fewer investments in these mega funds. And, you know, I would say one of the failings of the data that the industry has, is that it’s, you call a company, a venture backed company, when they get all this, you know, series A Series B, Series C. But once you get further down the alphabet, and they’re raising funds, it’s really not coming from traditional venture, it’s coming from the, you know, other sources, sometimes known as the tourist investors, yet that still gets counted as investment in a venture backed company. And, you know, I think that going forward, we need to continue to try to find ways to discern the difference in the investment dollars. And what that means, because it really does skew a lot of the data,

or their policy efforts to change the ability for tech companies just stay private.

Well, the way we focus on how long a company is private is trying to make sure we build on the work that was done years ago, pushed by NVCA and others trying to you know, the so called Jobs Act, and trying to make it easier for companies to go on to the public markets, we think that’s a very healthy thing for the entrepreneurs and for the investors to have a choice, a true choice. And, you know, today, too many people don’t want to go on to the public markets. And we think that can lead to companies staying private longer. Certainly the amount of capital available, allows them to stay private longer. And if that were to change, you know, I’m sure the data would start to reflect something different. But in our view, as it comes to public policy, we want to make sure Washington understand understands that the lack of publicly listed companies should be thought of as a problem. And if there’s anything that they can do, either at the SEC, or by Congress or anything else to, to help make it more attractive for companies to go on to the public markets, we want to see him do that.

What about secondary markets? Do you guys have any exposure or involvement in? I don’t know freeing up the ability for transactions and liquidity to exist in the secondary market? Absolutely.

I’d say our biggest issue around secondaries right now is our proposal into the Securities and Exchange Commission to convince them to update the definition of who has to become a registered investment advisor. So as you know, if you’re an exempt registered advisor, or reporting advisor, then you have this non qualifying investment bucket and it can’t get over 20% and secondary investments go into that non qualifying bucket. So, we believe because secondaries are such an important part of the entrepreneurial ecosystem today, and many venture investors are using that to increase their positions or you know, to get into certain companies etc. that we don’t think just because it’s a secondary, that it should be counted as like some strange investment. And so our proposal would ask the SEC to take secondaries out of the definition of non qualifying investments. Along with other things. We also believe that if they’re making investments into other funds and helping other funds get started, like fund a fund model that shouldn’t be disqualifying. We also think on the cryptocurrency and blockchain stuff that that should not be disqualifying. We take the fundamental view that it is venture investors, who policymakers in this case regulators at the SEC should want to take chances and make risky investments into people who are trying to develop what may be the most important next set of technologies that transform the world. And so instead of pushing that investment overseas and other places, we think that they should encourage VCs to help entrepreneurs take chances. That is

sort of the unofficial definition of the asset class. Right? Absolutely. Is this also why Andreessen Horowitz sort of switched their designation from being a venture capital firm now to ra.

It is, you know, Scott Cooper was our chairman of the board, when they really started getting into cryptocurrencies. And I believe that if the proposal that we have before the SEC, were to be considered and approved, I actually believe they didn’t tell me this, but I believe they would probably switch back to being exempt.

Yeah, let’s talk about so other national issues. So you’ve done quite a bit of work with emerging ecosystems. Bobby Kenya, talk about the importance of emerging startup ecosystems and what the NVCA is doing, you know, as the flagship trade association.

Yeah, so I’m very transparent when I talk about this issue. And let me kind of put that out front, we understand how Washington works, we understand how policy and laws are, are created and passed and become law. And the way we understand Washington is that you’ve got to get a lot of people to care about your issue, before it gets attention before it passes. And what I mean by that is, we only paid attention to the congressional delegations of the state of California, New York and Massachusetts, which clearly the lion’s share of the VC world operates, we probably wouldn’t get that much accomplished in Washington. As it turns out, you know, you have leadership, either committee chairs, or ranking members, or, you know, Speakers of the House or just Senate majority leaders and minority leaders that are often from other parts of the country. Sure. And so we have to be able to talk to those elected leaders about what’s happening in their states. And even if there’s not much activity, frankly, we find that any sparks of activity are hugely important to those leaders, they want to see something develop, you know, I don’t think they have rose colored glasses and thinking that they’re going to be the next Silicon Valley. But I think they do understand that if their regions of their states of their congressional districts are to stay ahead. In the economic race that many times people find themselves in, they’ve got to make sure they stay in that innovation lane, and have opportunities for their citizens and their constituents. So we know they care. We identify and try to help these regional, emerging ecosystems become healthier for the lack of a better word. mean an ecosystem is obviously a complex, dynamic, you’ve got got to have entrepreneurs. Our thesis is there are talented entrepreneurs kind of evenly spread all over the place. It’s just that they don’t have the support to become successful entrepreneurs and have companies if they don’t have capital when they need it. If they don’t have service providers that understand this world, and can you know, give them advice and coach them through and legal advice that helps them navigate their way into a successful company. So, you know, we believe that it’s part of our mission as a national association to try to help other parts of the country become healthier. But like I said, I’m very transparent. We also understand the political benefits from doing that. Sure. Yeah.

We recently had Steve Glickman on the program talking about On opportunity zones, did you guys have any involvement with that piece of legislation?

Well, we were certainly aware of it. And we noticed that there were a lot of folks that were focused on it, we had so many issues in the tax bill, for example, it perilously close. It came to there being a change in the way stock options were taxed, to be taxed at the point of vesting versus the point of exercise. And you can only imagine the devastation that would have on the entrepreneurial ecosystem and startup company. So I guess I would say we didn’t get ourselves involved as much as others did, and the opportunity zone issue and even today, we still have some questions about how that ultimately gets rolled out. You can certainly see how, from a real estate play or you know, some development, you can see how that would work in a geographical area, it becomes less clear, when you’re talking about a company that may start one place. But as it grows, move another place. And if it’s not in the zone, what happens and you know, maybe it gets complicated when you’re talking about startup companies.

Talk a bit about your work with diversity and inclusion and how that relates to venture. Yeah.

So when I got here, at the end of 2013, several folks had pointed out that there been a lot of attention to the fact that it was basically a white male industry. And so, in 2014, we got together as a board, and we said, let’s, let’s address this, let’s take this on, let’s let’s at least try to learn from others. We’ve all seen studies, and we’ve seen data that shows that diverse teams make better decisions, we’ve seen information about how if you can get investors that understand a hole, you know, more than half of the customer base in the US, you’re probably going to have a little bit better idea of evaluating certain ideas, products and services that might come through the door looking for investments. So we said let’s see what we can do here. So we created a diversity task force. And we, we learned from folks, we did unconscious bias training at the board level here at nbca. We partnered with other organizations, this is where it’s very helpful to have corporate venture members because obviously, corporations have been dealing with this issue for decades. And they have a lot of learnings and you know, things that work and things that don’t work that they were able to share with us. And from our perspective as a trade association. Our idea was, we’re not the experts. But there are experts out there, let us get what information we can and find an efficient way to share it with our members. We can’t force anybody to do anything, but we can share a lot of information about things that have worked and things that have helped others. And so that’s sort of the approach we took, we also were able to create a human capital survey, along with our friends at Deloitte. And you know, our belief was you can’t improve what you don’t measure. And for so many of studies that had been released and the statistics that had been quoted, those are all based on, essentially, interns going to look at websites and looking at pictures. That’s how they were getting their data. And we didn’t think that was defensible or good enough. So we partnered with Deloitte, and we said, let’s go out in the field, do a survey of the industry, let’s make sure we have a statistically valid sample, something that we have a high confidence in. And we released the 2016 human capital survey, we had a dashboard on our website. So you could cut the data and slice at different ways. Look how it’s different, different geographies. And what we said at the time is our intention is to repeat this over time to see if we’re making any progress. And so we were in the field at the end of last year gathering data. The first quarter of this year, we’ve been working with our friends at Deloitte put that together. And in about two weeks from today, in fact, we’ll be releasing that second survey. So we can all as an industry, we can all look at it and say okay, here’s what has, you know, moved. Here’s what’s changed. Here are some of the things out there. Now, we’ll do it again and another year and a half. Can you

can you give us a heads up or divulge any of the takeaways before the survey comes out?

Let’s see. How can I not get in trouble with my comms folks? I don’t think it will surprise anybody if we see movement in the right direction, but we still have a long way to go. I’ll leave it at that.

Bobby, do you have any other suggestions for the audience? You know, we’ve got a mix of UCS, LPs angels, lots of founders, you know, any suggestions on specific things that we can do to sort of support the asset class and in DC?

Well, I’d be remiss if I didn’t say join the MVC. But I really do believe that’s the most important thing. And I know you said, you have angels and others, we work closely with Angel Capital Association, we work with ILPA, the institution of limb to partners Association. You know, I don’t think there are a lot of groups that are focused on the founders. And that’s why I made a point at the beginning of this to say that that really is our lane. All these policy issues that we’re working on are first and foremost, to benefit the company, and by extension, the investor. So we’ve thought about and you know, I wouldn’t be surprised if we don’t figure out a way to kind of engage founders more and entrepreneurs. But to answer your question, in the simplest way, it’s get engaged, one way or another, get engaged. Washington will make decisions in a vacuum of information, whether we like that or not. And if you are in an industry, and this industry is so small compared to others, if you are in this industry, and you’re not making an effort to share with policy makers, what’s important to you, they’ll probably do the wrong thing. Unfortunately, sometimes when you share, they’ll still do the wrong thing. But it is super important, and probably more so when we’re part of such a small industry, just by sheer numbers, that every one of us do our part to help educate policymakers that are going to make decisions that have real world impact on each and every one of us in this industry. And if we’re not helping them make better decisions, then we shouldn’t be surprised by the bad things that happen.

Bobby, if we could cover any topic here on the program? What topic do you think we should address? And who would you like to hear speak about it?

Oh, well, I like I said, I love hearing from folks in the industry and the next big challenges they’re trying to tackle. So find practitioners and find entrepreneurs and tell the story of what they’re trying to improve for all of us. Very

good. That’s what we do. And then just to wrap up, Bobby, what’s the best way for listeners to connect with you.

So our website is nvca.org. And we have contact information there. That’s probably the best way to get all the information. Most people probably know it for the nzca model legal documents and term sheets. But there’s a lot of other information on the website as well.

Fantastic organization really great, cause you know, you do a service to all of us, all of us that work in this industry and and listen to the show, and it was a real pleasure to finally meet you in person last month. So Bobby, thanks so much for joining us today.

Nick, thanks so much for having me.

That we’ll wrap up today’s episode. Thanks for joining us here on the show. And if you’d like to get involved further, you can join our investment group for free on AngelList. Head over to angel.co and search for new stack ventures. There you can back the syndicate to see our deal flow. See how we choose startups to invest in and read our thesis on investment in each startup we choose. As always show notes and links for the interview are at full ratchet.net And until next time, remember to over prepare, choose carefully and invest confidently thanks for joining us