This is the third in our series of ten frequently asked questions from investors in venture capital partnerships.

Susan Mangiero, CEO of Investment Governance’s Fiduciary X, asked me the following:

Question: Given recent instances of VC-backed company fraud and questions about the management team, how can institutional investors protect themselves from key person risk?

Answer: You are asking a fundamental question here about trust, which relates to your prior question.  I could restate your question by saying, how do I know that I’ve backed someone as a GP who is trustworthy?  The answer is, you have to do your homework on that person, which means that you have to make a full range of reference calls to people who are not on the person’s reference list.  This takes resources and time.  If you are not equipped with the resources to do the work, then you need to rely on someone else’s process—but again that has to be an independent third party whose due diligence credentials are also trustworthy.

Let me turn the table on you a little bit because I sit in your shoes all the time– as a venture capitalist who bets on entrepreneurs, my greatest challenge is to sit across the table from a very enthusiastic person and judge their credibility—will they actually do what they say they are going to do?  Will they work 24/7 to get the job done?  How will they behave when unforeseen challenges occur—which they always do?  Institutional investors have to do the same thing because they are betting on people, and they need to establish a considerable measure of trust if they are going to sign on to a 10 year commitment to invest in illiquid assets.  This is the toughest part of our jobs—as I look back over my the 14 years I have spent in venture capital as part of my 29 year finance career, the biggest mistakes I have made have always been related to key person risk, as opposed to picking the “wrong” technology.

It’s that time of the year again– time to send out audited financial statements and K-1’s to your limited partners– which means it’s also a great time to address some of the common questions that investors raise about VC partnership governance and disclosure issues.

I recently spent some time answering a series of such questions posed to me by Susan Mangiero, the founder and CEO of Investment Governance, Inc., whose site Fiduciary X, is an emerging “one-stop best practices information portal for investment decision-makers and their service providers.” Fiduciary X, on whose advisory board I serve, combines peer networking, research, productivity tools, proprietary data sets,  and a governance-focused knowledge base with a documents archive to serve fiduciaries and risk managers.

In the interests of sharing this interview with a broad group of interested readers, I am going to be posting one question and my answer each day for ten days, including today.  For access to the full interview, which will be published March 15, please go to the Fiduciary X Ezine registration site.

Question:  How much information are limited partners (pensions, endowments, foundations, etc.) entitled to receive from a VC fund?

Answer: Section 17-305 (b) of the Delaware Revised Uniform Limited Partnership Act, which governs LP information rights according to DE law, specifically allows the GP to withhold from LPs “any information the GP reasonably believes to be in the nature of trade secrets or other information the disclosure of which the GP in good faith believes is not in the best interest of the Fund or could damage the Fund or its business or which the Fund is required by law or by agreement with a third party to keep confidential.”  This would include the GP’s fiduciary duties and confidentiality obligations with respect to not disclosing portfolio company information without the consent of such company.  The Act provides for a specific list of information that LPs are entitled to, and funds historically disclose that same information to their LPs—the top law firms in Silicon Valley model their LP agreement forms to be pretty consistent with Delaware law.

Specifically, Section 17-305 of the Act provides for the following:

(a) Each limited partner has the right, subject to such reasonable standards (including standards governing what information and documents are to be furnished, at what time and location and at whose expense) as may be set forth in the partnership agreement or otherwise established by the general partners, to obtain from the general partners from time to time upon reasonable demand for any purpose reasonably related to the limited partner’s interest as a limited partner:

(1) True and full information regarding the status of the business and financial condition of the limited partnership;

(2) Promptly after becoming available, a copy of the limited partnership’s federal, state and local income tax returns for each year;

(3) A current list of the name and last known business, residence or mailing address of each partner;

(4) A copy of any written partnership agreement and certificate of limited partnership and all amendments thereto, together with executed copies of any written powers of attorney pursuant to which the partnership agreement and any certificate and all amendments thereto have been executed;

(5) True and full information regarding the amount of cash and a description and statement of the agreed value of any other property or services contributed by each partner and which each partner has agreed to contribute in the future and the date on which each became a partner; and

(6) Other information regarding the affairs of the limited partnership as is just and reasonable.

The current state of the art for Agreements of Limited Partnership in venture capital allows the GP to override the information rights LPs have pursuant to the Delaware Revised Uniform Limited Partnership Act (the “Act”) as permitted pursuant to the Act and allows the GP to “adjust” identifying information given to the LPs in order to protect the identity of the Fund’s portfolio companies, which often is an issue in the case of Freedom of Information Act (FOIA) LPs.  In addition, the partnership agreement allows the GP to restrict / withhold information from LPs if “the General Partner reasonably determines [such LP] cannot or will not adequately protect against the [improper] disclosure of confidential information, the disclosure of such information to a non-Partner likely would have a material adverse effect upon the Partnership, a Partner, or a Portfolio Company.”  Other elements of the well drafted agreement do provide the LP’s with disclosure rights to their advisors, equity holders, etc. and provide remedies and protections to the GP with respect to GP withholding rights and improper LP information disclosure.

First of all, we must say it is a compelling read with some disturbing trends and conclusions that vividly show that the US has experienced serious decline of leadership in the IPO market, and overseas markets have seen rapid growth in IPO listings, especially in Asia, where listings have more than exceeded their strong GDP performance. …

Doubtless, there is a crisis in the US IPO markets, and this issue is getting compounded each year. If action were not taken now, the US could lose the lead it has held for decades in global capital markets. The situation is dire indeed, and all regulators and lawmakers should react to save the US from certain followership.
This report is a must-read for all players in the capital market space, and we trust you will find the results equally astounding.

Clearly, this is a wake up call for America, and the title does full justice to the seriousness of this problem.

For anyone interested in listening to the archived webcast form November 9th, CLICK HERE

Join Grant Thornton for a free Webcast on A Wake-Up Call for America, the greatly anticipated study demonstrating how market structure changes over the past 10 years have had a profound negative effect on the number of publicly listed companies in the United States – ultimately inhibiting economic recovery, worsening the job market and undermining U.S. competitiveness.

Date: Monday, November 9, 2009

Time: 12:30-2:00 EST

Note: Register now,  Company pass code – 710004, Course code – 11738


The Webcast will feature a lively discussion among the study’s contributors and other industry-leading capital markets executives, and will include an in-depth look at the steep decline in U.S. listings, the macroeconomic implications, and recommendations for attainable solutions. A Q&A session will conclude the event, and all participants will receive a copy of the study.

Participants include:

• David Weild – Former vice-chairman and executive vice president of the NASDAQ Stock Market, and current Senior Advisor at Grant Thornton LLP and founder of Capital Markets Advisory Partners.
• Edward Kim - Former head of product development at the NASDAQ Stock Market, and current Senior Advisor at Grant Thornton LLP and Managing Director of Capital Markets Advisory Partners.
• Pascal Levensohn – Founder and Managing Partner of Levensohn Venture Partners, and Director of the National Venture Capital Association (NVCA), where he is chairman of the education committee.
• Barry Silbert – Founder and CEO of SecondMarket, the largest marketplace for illiquid securities.  SecondMarket was named the top start-up in the entire Northeast by AlwaysOn Media and one of the Top Fifty Startups You Should Know by Businessweek.
  

Space is limited. Register today. <http://university.learnlivetech.com/gtt>

Follow the steps below to register. You will receive an email confirmation with instructions for attending the Webcast. If you need assistance with registering, please call 206.812.4700.

• Go to http://university.learnlivetech.com/gtt and choose “New Student Registration” to create your account, then enter company pass code 710004.
• If you have attended a Grant Thornton Webcast within the past year, simply log in to your account.
  

Locate the Webcast in the catalog and sign up for A Wake-up Call for America, course number 11738.

I’ve been speaking publicly for over one year about the disastrous impact of the capital markets crisis in accelerating the demise of small emerging company IPO’s.  To be clear, this process began over eleven years ago and, in my view, it is the single most important issue for the venture capital community because it jeopardizes an entire generation of innovative American companies. In addition to revitalizing America’s slipping global competitiveness, restoring emerging company IPOs in the U.S. will efficiently create new jobs and drive a new, sustainable economic growth cycle in our country.

Grant Thornton LLP’s Capital Markets Group today announced the release of Market Structure is Causing the IPO Crisis, a white paper examining the demise of initial public offerings in the United States, and offering remedies to resurrect the IPO market.  The paper is a follow up to Grant Thornton’s original study, Why are IPOs in the ICU?, which was published in November 2008.

The new white paper provides fresh market data and incorporates additional insight gleaned from discussions with a wide range of key market participants, including former senior staffers at the SEC and senior executives at “bulge bracket” and “major bracket” investment banks.

Co-authored by David Weild, Senior Advisor at Grant Thornton, founder of Capital Markets Advisory Partners and former NASDAQ vice-chairman, and Grant Thornton Senior Advisor Edward Kim, the updated study continues to focus on how technological, regulatory and legislative changes have combined to chisel away at the U.S. IPO market.  Although conventional wisdom holds that the U.S. IPO market has been going through a cyclical downturn exacerbated by the recent credit crisis, the paper points out that in reality, the market for underwritten IPOs, given its current structure, is closed to 80% of the companies that need it.

“Despite the recent uptick in IPO activity, over the last several years, initial public offerings in U.S. have nearly disappeared,” noted Mr. Weild.  “Our findings since publication of the original white paper have served to reinforce our thesis that the loss of the IPO market in the United States is due largely to changes in market structure.  By killing the IPO goose that laid the golden egg of U.S. economic growth, the combination of technology, legislation and regulation undermined investment in small cap stocks, drove speculation and killed the best IPO market on earth.”

The white paper proposes  a solution to this crisis – an issuer and investor opt-in capital market that would make use of full SEC oversight and disclosure, and could be run as a separate segment of NYSE or NASDAQ, or as a new market entrant.  It would offer:

• Opt-in/Freedom of Choice – Issuers would have the freedom to choose whether to list in the alternative marketplace or in the traditional marketplace.
• Public – Unlike the 144A market, this market would be open to all investors.
• Regulated – The market would be subject to the same SEC corporate disclosure, oversight and enforcement as existing markets.
• Quote driven – The market would be a telephone market supported by market makers or specialists, much like the markets of a decade ago.
• Minimum quote increments (spreads) at 10 cents and 20 cents and minimum commissions – 10-cent increments for stocks under $5.00 per share, and 20 cents for stocks $5.00 per share and greater, as opposed to today’s penny spread market.  These measures would bring sales support back to stocks and provide economics to support equity research independent of investment banking.
• Broker intermediated – Investors could not execute direct electronic trades in this market; buying stock would require a call or electronic indication to a brokerage firm, thereby discouraging day-traders from this market.
• Research requirement – Firms making markets in these securities would be required to provide equity research coverage that meets minimum standards.

To view the full paper including updates, please visit: www.gt.com/ipo.

This coming Wednesday I will be speaking at the REFF West conference in San Francisco about the capital markets crisis and its impact on American innovation. Given the recent upwelling of popular press articles heralding the return of IPOs, my views, which are supported by newly released long-term statistics,are likely to generate some discussion. An abstract of my remarks follows:

The capital markets crisis has put an entire generation of American emerging growth companies at risk. America’s traditional leadership in entrepreneurial growth and innovation is now visibly faltering. This is the result of decades of government and corporate emphasis on short-term development at the expense of funding long-term, basic breakthrough research. Our nation’s lawmakers do not broadly recognize the public policy agenda implications of the fact that technology innovation has gone global. Recently published comparative international economic data reveals long-term declining rates of growth in U.S. government, corporate, and academic Research & Development (R&D) spending, particularly in Information Technology (IT). Further, a new study of the global capital markets illustrates the steep decline of the U.S. global share of public company listings for over a decade while other global stock exchanges have grown and flourished. All of these signs point to America’s slipping global competitiveness.

The global financial crisis has drained risk capital from the private sector at the worst possible time, compounding the effect of decades of neglect of our nation’s IT R&D infrastructure. Of direct consequence to the emerging Cleantech industry, the continuing IPO drought is a symptom of a deeper systemic liquidity crisis for small capitalization companies.

Predictions that U.S. IPOs are about to come back in a meaningful manner are wishful thinking. The current threshold criteria for liquidity as defined by the dominant underwriters in the U.S. accommodate only a small minority of the viable private companies seeking public growth capital. The severity of this untenable situation is compounded by a lack of awareness among our nation’s policymakers that all of these factors are interrelated (the announcement by the White House of an American Innovation Strategy last Monday notwithstanding).

It is not too late to address these challenges with realistic, achievable solutions that will enable structural capital markets reform. We must take specific actions to reverse the unintended consequences of a series of securities regulations bolted onto a framework that has been eclipsed by electronic trading and increasingly left behind in a fundamentally transformed global competitive environment. We must also recognize that, just as we nurture our startups in the unique environment of Silicon Valley, we must provide a public market structure that nurtures our fledgling IPOs and that allows middle market underwriters to support these companies with sufficient liquidity and with thorough, responsible research coverage.

Achieving these goals in the public equity markets does not require the relaxation of Sarbanes Oxley or of other recently implemented measures of corporate governance oversight and director accountability. To respond effectively, however, our legislators and regulators must share a sense of urgency to develop a coherent national innovation agenda that acknowledges new capital formation and new job creation through IPOs as top national priorities.

The cover story of the September 7 issue of Business Week reports on the “Radical Future of R&D“, focusing on the internationalization of research and development led by global corporations such as IBM and Hewlett Packard.  The magazine includes a story written by Adrian Slywotzky, “How Science Can Create Millions of New Jobs.” Mr. Slywotzky  is an “author of several books on profitability and growth” and currently a partner at the management consulting firm Oliver Wyman.  While the article makes important points about the sorry state of the American R&D ecosystem, the author neglects to mention that, in order to achieve the goal of new job creation,  healthy U.S. capital markets are essential and intimately linked to new funding commitments to basic scientific research.

The article cites the extraordinary decline of Bell Labs over several decades as an example of the model that we must seek to restore, and he makes other basic points about the decline in our nation’s R&D efforts.  These valid observations may be drawn from primary research sources such as the work published by the National Academies, whose most recent report, Assessing the Impact of Changes in the Information Technology R&D Ecosystem: Retaining Leadership in an Increasingly Global Environment, was released several months ago.  The article points to America’s innovation crisis along lines that have been articulated in greater detail by thought leaders including Judy Estrin and Norm Augustine.

Unfortunately, Mr. Slywotzky makes an important assertion about venture capital that is incorrect. I believe that, if he understood the reality of the venture capital industry today and its inextricable link to the Initial Public Offering (IPO) drought, his otherwise well-written article would have taken a markedly different direction.  Below, I quote several parts of the article that I found particularly useful, and I point out the error:

First, the positive:

“America needs good jobs, soon.  We need 6.7 million just to replace losses from the current recession, then an additonal 10 million to keep up with population growth and to spark demand over the next decade.  In the 1990s the U.S. economy created a net 22 million jobs, or 2.2 million a year.  But from 2000 to the end of 2007, the rate plunged to 900,000 a year.  The pipeline is dry because the U.S. business model is broken.  Our growth engine has run out of a key fuel– basic research.”

PASCAL’S COMMENT:  Basic research is a key fuel, but, in fact, the part of the U.S. business model that drives job growth in emerging growth companies is IPOs.  More on this below.

“It’s tempting to ascribe current job losses in the U.S. to the deep recessionor to outsourcing, but the root of the problem is the absence of high-value job creation.”

PASCAL’S COMMENT: Correct!

“… in recent years, outsourced software and manufacturing jobs have largely been replaced by millions of low-wage service jobs in fast-food, retail, and the like. . . . Of the roughly 130 million jobs in the U.S., only 20%, or 26 million, pay more than $60,000 a year.  The other 80% pay an average of $33,000.  That ratio is not a good foundation for a strong middle class and a prosperous society.”

PASCAL’S COMMENT:  This is astounding and very bad news indeed.

Now, the mistake:

“Venture capitalists are sitting on plenty of cash and are good at bringing startups to the market.  We just have to rebuild the upstream labs that focus on basic research– the headwaters for the whole innovation ecosystem.”

FULL STOP.  First, the venture capital business is contracting severely:

From the April 18th, 2009 NVCA/PWC Moneytree report: “Venture capitalists invested just $3.0 billion in 549 deals in the first quarter of 2009, according to the MoneyTree™ Report from
PricewaterhouseCoopers (PwC) and the National Venture Capital Association (NVCA), based on data provided by Thomson Reuters.  Quarterly investment activity was down 47 percent in dollars and 37 percent in deals from the fourth quarter of 2008 when $5.7 billion was invested in 866 deals.  The quarter, which saw double digit declines in every major industry sector, marks the lowest venture investment level since 1997.”  for more industry statistics, CLICK HERE

Second, it’s just not that simple.  Mr. Slywotzky is ignoring the fact that over 90% of job growth from venture-backed companies occurs AFTER their IPO, and this has been the case since the 1970’s.  We have an IPO drought that has killed the small IPO, and it is systemic, not cyclical.  I have been speaking to this point publicly since March 2009.

A new study is going to be released in the next several weeks which will bring to light very important data about the long-term secular trend of declining public company listings in the U.S. Not only does this add tothe mountain of data showing America’s slipping global competitiveness, most importantly, the study develops a model establishing a direct relationship between this trend and American job losses.  Publicly traded emerging growth companies are the most rapid job creation engine in America, and successfully harvesting the long-term economic growth fruits from basic scientific research is tethered to this post-IPO job creation engine.

To be clear, IPOs, particularly IPOs raising less than $50 million, have become largely extinct due to unintended consequences resulting from a series of securities regulations that followed the rise of electronic trading networks in 1996.  The new capital markets study, which this blog will point to as soon as it is released, is written by David Weild and Edward Kim of CMA Partners.  Weild and Kim are also the authors of the important white paper published last November by Grant Thornton, ‘Why Are IPOS in the ICU?’.

Yes, we need to restore the U.S. Government’s commitment to funding breakthrough innovation in basic scientific research.  But we also need to take aggressive actions to protect critical elements of our nation’s innovation ecosystem and stop treating it as a series of loosely connected elements.  Government research centers, university centers of research excellence, corporations, and venture capitalists are commonly bound to the most important element of this ecosystem, the entrepreneur.  It is naive to believe that just promoting basic research will magically ripple though the innovation landscape and restore America’s lost greatness.  Understanding the complexity of this issue requires interdisciplinary and unconventional thinking. It also requires an understanding of how capital markets actually work and applying real world solutions to resolve an urgent problem– the death of the small cap IPO.

On Monday, August 10, Barron’s ran a story “Does the IPO Market Shun Smaller Companies?”, written by Mark Veverka, asserting that “venture capitalists want to widen the playing field for the underwriters.” The story includes quotes from former National Venture Capital Association (NVCA) chairman Dixon Doll of DCM and investment banker Paul Deninger, who is the vice-chairman of Jefferies & Co. It accurately points out that, when it comes to IPOs, many venture capitalists have mistakenly defaulted to choosing the large investment banks (such as Goldman Sachs, Morgan Stanley, and Credit Suisse) as lead underwriters for their portfolio companies.  This practice has created “a near oligopolistic hold on tech IPOs” by these large investment banks.  Such market power allows bankers to shapes the profile of those companies worthy of going public to favor the natural demand from their largest clients: short-term trading focused hedge funds and large institutional investors that demand highly liquid public securities.

The collateral effect of this market reality is that the vast majority of emerging VC-backed companies are effectively barred from going public.  To be clear, there are plenty of strong venture-backed companies today that should be public but that do not meet the valuation or liquidity criteria of the three large remaining investment banks (more on this below).  Unfortunately, outside of the IPO-syndicate-bias and the much-maligned Sarbanes Oxley, the article does not address far more serious systemic regulatory consequences that further exacerbate the problem– such as the combined impact of decimalization and the Spitzer decree (taking trading commissions down from $0.125 per share to $0.01 or $0.02 per share and requiring that equity research be paid for by commissions ) which have effectively gutted both the after-market trading and research support that emerging company IPO’s need.

While the article notes that “the objective is to get back to late-80s, mid-90s practices, allowing more start-ups access to capital so they can remain indepenedne tand create more opportunities for venture capitalists to cash out”, the emphasis on who is cashing out is misplaced.  More accurately stated, the institutional investors who fund the venture capital partnerships need more opportunities to cash out– and these institutions are largely public pension plans, college endowments, and other true long-term investing financial institutions.  Why do they need to cash out?  Because they are also the main players who have historically reinvested in the next generation of innovation.

Sadly, the article completely ignores the implications of this systemic liquidity crisis.  If we look at the historic record, the most important point overlooked by this story is that smaller companies need to go public because they are the engines of growth that drive the U.S. economy– both in terms of job creation and GDP growth.  The IPO chasm that exists today is the result of the death of the sub $50 million IPO.  For a clear example, see the following list of 17 companies that went public and raised $50 million or less between 1971 and 1996:

These companies only raised $367 million in the public markets and they account for 470, 000 U.S. jobs today. Adjusted for inflation andmeasured in 2009 dollars, the $367mm in total dollars raised by this group equals$670mm, and only 2 of these 17 companies’ IPOs (EMC $80mm; and Oracle $70mm) exceed $55mm in 2009 dollars.  While today these companies are household names, when they went publicthey were largely unknown. How many companies are unable to go public today  because they aren’t big enough to merit the attention of the large investment banks who cater to short-term traders?  How many future engines of U.S. GDP growth and job creation will be still-born and be forced in to a merger?  Should they be starved of liquidity because they need to cash out investors, build working capital, but it is unavailable to them because they need less than $50 million?

Deninger points out in the article that “In recent years, VC firms have become too dependent on mergers and acquisitions as the exit strategy of choice. . .. In fact, most tech-start-ups are ‘built for acquisition’, as opposed to being built to become the next publicly held Microsoft or Oracle.” An addendum to his quote should be that merger synergy is code for firing people.  Mergers trigger job losses; IPO’s create jobs.

In my view, it is wholly inconsistent with the Obama administration’s economic growth objectives for the current systemic liquidity crisis in our equity capital markets to be strangling our emerging technology growth companies while they are still in their venture capital cribs.  We need to raise awareness of this severe problem because it threatens an entire generation of American innovation.  Venture capitalists only make money if their investors make money, and many of their investors are the stewards of America’s pension plans.  VC’s need to build companies that are cash flow positive as private companies, not only so that they can improve their negotiating leverage in the event of an acquisition but, more importantly, so that they can wait to go public until the regulatory constraints that have killed the sub $50 million IPO are lifted.

In closing, the article incorrectly asserts that “ironically, the tech IPO market is re-awakeining just as the NVCA prepares to roll out its initiative.“  The few IPOs so far this year are drops of water in the desert, and those that are in the queue, while they represent outstanding companies, do not represent a sufficient number of companies to make a material difference for the institutional investors and the many entrepreneurs who have the most at stake.  Let’s not misinterpret false positives at the expense of the future of the American economy.

I will be the keynote speaker at the America Midwest Regional Final competition of the Global Security Challenge (GSC) on September 22nd in Chicago.  This event is part of a global competition to deliver innovative solutions to pressing cybersecurity problems.  The GSC Security Summit 2009, which will be held November 13 in London, will see the culmination of the six regional finals held around the world in September and October.  The Summit will include the final pitches from each regional finalist in the SME and Start-up categories, as well as the ‘Dragon’s Den’ style closed-door Q&A with the expert Judging Committees. The award categories are:

• Best Security SME
• Most Promising Security Start-up
• Most Promising Security Idea

Top contenders from previous Global Security Challenge competitions have subsequently raised over $55 million in new capital.  The current open competition is for the “Most Promising Security Idea”:

The GSC committee recognizes that there are many potentially disruptive innovations that have yet to reach commercialization. Through the Most Promising Security Idea category, the GSC encourages innovators to continue to pursue their ideas and efforts. The award is designed to support and promote researchers, infant companies (with no revenue), and any other inventors who just have an idea for a security solution.

The winners of this category will receive:

• $10,000 cash grant, sponsored by Accenture.
• Mentorship from Mark Shaheen, managing director of Civitas Group.
• Unparalleled networking opportunity with government officials and industry leaders.
• Invaluable publicity.
• Examples of our areas of interest are (but are not limited to): biometrics, detection sensors, cyber security, video surveillance, RFID, personnel protection, encryption software, data-mining, biotechnologies, and explosive trace detection. Who can Apply?: Eligible entrants must be a company, or one or more individuals, whose idea did not generate revenue in 2008.Deadline for Submissions: September 1, 2009 at 11.59 GMT.

For more information on the GSC CLICK HERE.  I am proud to be involved with this competition as it represents the type of innovation challenge that drives entrepreneurs to develop breakthrough ideas into real companies.

The Wall Street Journal published a combined version of  my letter to the editor in response to the Washington vs. Silicon Valley editorial of August 7 with letters from Harry Edelson (another First Boston alumnus from the ’80’s), and Ryan Phillips (whom I do not know).  My blog post of yesterday is a longer version of the letter that I sent to the editor.  Scott Austin has written a lively column today on this topic in Venture Capital Dispatch.  The opinion piece elicited 60 comments as of the date of this post covering a wide range of opinions on this important topic.

I think it’s very important that readers separate their personal feelings about venture capitalists from the capital markets issue.  Small cap IPO’s are necessary to restore job growth in America, regardless of whether they are venture backed or not.  If we don’t restore a robust market for initial public offerings of companies raising less than $50 million, America loses, and that has everything to do with promoting entrepreneurs.