Venture capitalists are not happy with Barack Obama’s new plans to regulate America’s financial system. One line in the President’s proposal has kicked the VC community’s lobbying efforts into overdrive: “Requires hedge funds, private-equity funds and venture capital funds to register with the SEC, allowing the agency to collect data from the firms.”

The National Venture Capital Association (NVCA), a trade group comprised of 460 VC firms, argues that VCs should not be lumped together with private-equity firms and hedge funds for the following reasons:

    * Venture capital firms are not interdependent with the world financial system.
    * The venture capital industry is insignificant in size relative to other alternative asset classes.
    * Venture capital firms do not use long term leverage.
    * Venture capital firms do not generally rely on short-term funding.
    * Households, businesses, and governments do not rely on venture capital firms as a source of credit or liquidity.

“We believe that the entrepreneurial risk associated with the venture capital industry is not relevant to the systemic risks which the Administration is hoping to mitigate with this reform,” said the NVCA’s Jennifer Connell Dowling.  According to the NVCA, VC funds held around $197.3 billion in aggregate assets last year, compared to $1.3 trillion in assets held by US hedge funds.

Yet the NVCA is also lobbying Congress to change the definition of “independently owned,” according to the lobbying group the American Small Business League (ASBL), so that small businesses controlled by VCs can qualify for billions in federal small business contracts.  That could mean the US government becomes a significant stakeholder in VC investments.

Do you think VCs could pose a systemic risk to the economy?