Michael Brown Named NVCA Chair, Outlines Agenda

Michael Brown Appointed Chairman of the National Venture Capital Association

Michael Brown, a veteran general partner at Battery Ventures, has recently been elected chairman of the National Venture Capital Association (NVCA). This appointment follows three years of service on the organization’s board of directors. We recently had the opportunity to speak with Brown regarding his new, year-long position within the 48-year-old trade association and the key issues currently facing American venture capitalists.

Tax Treatments and the Biden Administration’s Proposals

TC: Tax considerations are consistently a concern for VCs, but the current proposals, particularly Joe Biden’s plan to increase the top rate on long-term capital gains to 39.6% from 20%, are especially prominent. What are your thoughts on this proposal?

MB: Let’s address the tax issue directly, as you’ve presented it. The NVCA’s stance, my personal view, and the consensus among most venture capitalists is as follows: we are supportive of the goals of the Build Back Better Plan and are actively collaborating with the administration and Congress to achieve them.

Venture capital is essential for funding entrepreneurs who will develop solutions for critical infrastructure needs – physical infrastructure like roads and bridges, digital infrastructure such as broadband internet and cybersecurity, and climate infrastructure to facilitate a transition to a sustainable economy. This alignment of interests makes our collaboration natural; the necessary funding won’t originate from established corporate entities.

Finding a Comfortable Capital Gains Rate

TC: Recognizing that funding must come from somewhere, is there a specific rate that would be more agreeable?

MB: I won’t speak for the NVCA regarding a specific target rate. However, discussions among policymakers and analysts often center around a revenue-maximizing rate between 25% and 28%, which many consider a reasonable level. Our core belief is that long-term investment should be encouraged, not discouraged, by the tax structure.

The extension of the timeframe for long-term capital gains treatment under the Trump administration – from one to three years – was acceptable to us. We invest with a long-term perspective, and a time component to define “long-term” investment proved effective.

The IPO Market and Access to Capital

TC: The IPO market appears robust currently. Do you foresee any recommendations for the current administration regarding companies going public?

MB: We strongly support the functioning of the capital markets. However, the number of public companies today is roughly half that of 20 years ago – a trend not limited to technology firms. This is attributable to factors such as the mechanics of capital markets, regulatory issues, and the burdens associated with public company status compared to private companies.

Recent rules have also impacted access to capital markets for private companies, leading them to raise more capital and remain private for longer periods, which isn’t universally beneficial.

Updating the JOBS Act

TC: What specific reform would you prioritize?

MB: The 2012 JOBS Act was instrumental in opening up public markets by addressing the risks, costs, and regulatory burdens associated with going public. This legislation requires updating to remain relevant and facilitate access to public markets for smaller companies.

SPACs and Regulatory Oversight

TC: What is your assessment of SPACs – special purpose acquisition companies – used to take companies public, often involving earlier investors?

MB: Providing more alternatives for companies to access capital markets is positive. However, these vehicles require appropriate regulation, and SPACs represent an area where regulation hasn’t kept pace with market realities. Both Chairman Gensler and previous administrations have acknowledged the need for better controls within the stock market.

SPACs offer the benefit of forward guidance, unavailable in traditional IPOs or direct listings. The SEC may revise guidance or restrict forward guidance altogether. Furthermore, the market is self-correcting, with reduced sponsor promotes and warrant coverage, and the emergence of SPACs resembling venture funds with success fees instead of traditional promotes.

Immigration and Entrepreneurship

TC: The NVCA has consistently advocated for pro-immigration policies. What proposals do you have in this area?

MB: We took a firm stance against the Trump administration’s International Entrepreneur Rule, even successfully suing to enforce its implementation. This rule allows entrepreneurs to come to the U.S. with sufficient funding to establish their businesses.

The U.S. faces increasing global competition for venture capital. Historically, 85% of invested dollars went to U.S. companies, many founded by immigrant entrepreneurs. Today, that figure is just over 50%, as founders are increasingly establishing companies in their home countries after receiving education in the U.S.

We aim to attract founders to start and grow their companies in the U.S., creating jobs and economic opportunity. The International Entrepreneur Rule is a temporary solution, with the ultimate goal being the enactment of a Startup Visa, providing entrepreneurs with certainty regarding their ability to remain in the U.S. Congresswoman Zoe Lofgren is expected to reintroduce this bill, potentially incorporating it into the Build Back Better Plan.

Consider the technologies that aided us during the COVID-19 pandemic – Zoom, Moderna, and Pfizer – all founded by immigrant entrepreneurs who chose to build their businesses in the United States.

Taking on the Role of Chairman

TC: Was this a role you actively sought, or is it a position passed around among the NVCA’s board members?

MB: [Laughs.] It wasn’t simply a “hot potato.” NVCA President and CEO Bobby Franklin and the outgoing chair jointly identify individuals based on their engagement in board meetings, their involvement in NVCA initiatives, and their ability to advocate for the industry and the entrepreneurial ecosystem.

This is a particularly important and intellectually stimulating time to hold this position. These are significant policy initiatives, and the venture capital industry plays a crucial role in finding solutions. Ensuring this is understood by the administration and Congress is our primary mission.