How Venture Might Ride the Obama WaveFebruary 10, 2009
As the Obama administration settles in, SVB considered some of the changes that may be in store for venture capital investors and entrepreneurs in the next four years. SVB asked Mark Heesen, president of the National Venture Capital Association and champion of the venture capital industry, to comment on policy changes that will affect venture capital, technology, life sciences, small business, energy and education. Here's what he told us: SVB: What are the top issues the NVCA is working to bring to light under the Obama administration?
Heesen: For the first time the United States has a President who understands the importance of innovation and technology to productivity, as evidenced by his campaign, his work habits and the vision which he has set forth in his first few days of office. Further, President Obama's cabinet choices are comprised of many individuals who have operated in and around the venture capital ecosystem. Therefore, the NVCA is in the enviable position of not having to educate as to the contribution of venture capital and entrepreneurship but rather, we are making our industry accessible to help the Obama administration accomplish its goals. We will be very active on promoting public policies that promote innovation and entrepreneurship in the areas of information technology, life sciences and clean technology. For example, tax policy that is conducive to entrepreneurs and capital formation as well as increased funding for basic research are two examples of issues that speak directly to job creation. The NVCA intends to stay the course and work closely with both the Administration and Congress to help drive the economic recovery in the short term and ensure US competitiveness and sustainability over the long run. SVB: Do you see President Obama's push for healthcare efficiencies and cost-saving (i.e., electronic medical records) as a significant boon for healthcare technologies? Will we see a surge in innovation from companies engaged in stem cell research now that the new administration is in office?
Heesen: Clearly the need for more efficient and less costly healthcare technologies is strong. The promise of portable medical records has been apparent for some time. Yet, venture capitalists have largely stayed away from this type of investing as the business model remains unclear. There are many questions around who is the ultimate customer. The patient? The doctors? Insurers? That said there are venture capitalists engaged in this space and often the most successful companies emerge from areas that are counter intuitive to most. President Obama's support of moving these efforts forward may begin to eliminate existing uncertainties and draw more investors. SVB: How great an impact will President Obama's support of energy initiatives have on cleantech? Specifically, which cleantech industries might benefit (clean coal, solar, wind...)?
The NVCA is also very encouraged by President Obama's support for basic research in general and, with that, support for stem cell research. The question is: Can the US regain our position as an innovator in this area? During the Bush ban, research and development in the stem cell area continued in earnest - just not on US soil. There are certainly bright US scientists who are capable of moving innovation forward and lifting the restrictions will help. However, we expect it will take some time for company activity to ramp up to where it once was - and should be.
Heesen: When the President of the United States is the biggest cheerleader for dramatic change in energy consumption, progress will indeed be made. The President's motives for heavy investment in clean technologies are broad - homeland security, environmental and economic. Congress has every reason to be supportive of these efforts. SVB: What does the NVCA believe are the biggest needs in education? What will President Obama need to effect true change to our educational system?
But it is important to remember that the clean tech industry is still very young. It remains unclear which technologies will be the most effective and efficient at the end of the day. The NVCA strongly supports investment into a multitude of sub-sectors - solar, wind, clean coal, water, and biofuels - to determine the final winners. We caution against the government picking and choosing these winners too soon as it is still too early to do so. Let the free market work and have a thousand flowers bloom so that we can have the flexibility and choice that is needed in the beginning of this important revolution. We believe President Obama is supportive of this approach.
Heesen: America's challenges in education are broad and fraught with competing agendas and viewpoints. From a venture capital perspective, we want to ensure that America is nurturing the next crop of scientists, technologists and mathematicians who will pioneer discoveries - and hopefully bring these breakthroughs to the US market. Therefore, we strongly support policies that promote science, math and technology in the classrooms from the earliest grades through advanced graduate programs. We also believe that President Obama's interest in community colleges is well placed as it is here that Americans working in outdated industries can be re-trained and up and coming professionals can learn the latest skills to operate in our rapidly changing economy. Lastly, we continue to support expanding the green card and H1-B visa program to allow more foreign born graduates with advanced degrees from US universities to stay and build businesses here in the US. We need the best and brightest on our shores to continue our global leadership in innovation. SVB: If you could find a silver lining in this cloudy environment, what would it be? Do you see any of the positive outcomes of the last downturn, such as a renewed focus on building capital-efficient business models, repeating during this downturn?
Heesen: There is no doubt that the economic crisis that we have faced in the last year and will continue to address in 2009 will be challenging for participants in the venture capital ecosystem - entrepreneurs, venture capitalists and limited partners. However, we view this time as a Darwinian moment where the top firms and companies will emerge stronger and in better competitive positions than before the crisis began. We continue to assert that there is no recession on innovation and some of the most successful venture backed companies received their first round of funding in troubled economic times. Lastly, there continues to be a great deal of energy and excitement in the clean technology sector, and area that is ripe for paradigm shifting breakthroughs - which is what venture investment is all about. The venture capital industry has been through many cycles, each the same in some ways and different in others. But the lessons learned from previous downturns will serve our industry well today as venture capitalists are quick to adjust their strategies and operate in the best interest of their respective portfolios. And the best will surely survive - and thrive into the future. The views expressed in this column are solely those of the author and do not reflect the views of SVB Financial Group, or Silicon Valley Bank, or any of its affiliates. This material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that we believe to be reliable, but which has not been independently verified by us and, as such, we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decisions. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation or offer, or recommendation, to acquire or dispose of any investment or to engage in any other transaction.
SVB Capital is a non-bank affiliate of Silicon Valley Bank and a member of SVB Financial Group.