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.

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 liked the Friday, August 7 Wall Street Journal editorial, Washington vs. Silicon Valley, but it does not go far enough.  In Silicon Valley, Boston, Austin, and other innovation centers across the country, entrepreneurs and their backers (who are not limited to venture capitalists) are all keenly aware that Washington’s addiction to enacting hasty, one-size-fits–all financial regulation will continue to have far-reaching unintended negative consequences for the U.S. economy:

“… Sarbanes-Oxley compliance costs, Eliot-Spitzer’s stock analyst settlement and the economic downturn have created an historic drought in venture-backed companies going public.  . . .  It boggles the mind that Washington would enact new policies sure to prolong this (IPO) drought and strike at the heart of American innovation.” (from the WSJ editorial)

The U.S. IPO drought testifies to a systemic liquidity crisis for emerging growth companies that is putting at risk an entire generation of innovative American companies.  IPO’s are essential to job growth in America and to maintaining a balanced innovation ecosystem for two important reasons.  First, the National Venture Capital Association has published data revealing that over 90% of the jobs created by venture-backed companies occur AFTER they go public—and this relationship holds over the past 40 years.  Second, emerging growth companies lose negotiating leverage in acquisitions when they have no other viable liquidity alternatives.  Between 2001 and 2008 mergers and acquisitions (M&A) accounted for 87% of venture-backed company exits, up from an average of 44% in between 1992 and 2000.

Large corporations are generally not known for being innovative and even less for creating new jobs after acquiring other companies (merger “synergy” is code for firing people). In the current liquidity starved environment, some acquirers are able to drive draconian acquisition terms, including features such as two-year contingent calls on up to 100% the cash proceeds to selling investors.

Venture capital partnerships are typically ten-year partnerships with historically proven expectations that significant liquidity will be delivered from successful partnerships to investors by year 6. The median age of a venture-backed company at the time of its IPO has increased from 4.5 years in 1998 to 9.6 years as of year-end 2008.  The median company age at the time of an M&A exit has increased from 3 years to 6.5 years over the same time frame.

What makes this combination untenable is that the IPO drought, combined with lengthy “tails” on lower-value merger payouts, pushes liquidity out much closer to the end of life of the partnerships themselves, making it impossible for investors to re-cycle their prior risk capital to fund the next generation of innovative companies based on previously valid asset allocation models.  The massive institutional investor losses incurred from investments in asset classes unrelated to venture capital due to the global financial crisis have only fanned the wildfire fire burning in the American innovation forest.

We must solve the IPO problem, and a review of historic IPO data pre-technology bubble suggests that we need to achieve an average of 130 IPO’s per year to restore equilibrium to the venture-backed company liquidity cycle.   While Sarbanes Oxley compliance costs and the stock analyst settlement are part of the problem, the root causes include the decimalization of stock trading commissions and the death of the sub $50 million IPO.

Investors take risk in order to reap rewards.  Washington needs to recognize, first and foremost, that entrepreneurs, venture capitalists, institutional investors, market markers, and underwriters all seek to be rewarded for committing risk capital (which includes sweat equity) to making these highly risky ventures successful.  If the upside is taken away by regulations that make the risk/reward equation unattractive, risk capital and entrepreneurs will leave the U.S.  That exodus has already begun, and it is evident in many statistics that testify to America’s slipping global competitiveness since 1999.

Sadly, risk aversion is the order of the day in Washington at a time when we need risk takers to lead America to a new cycle of sustainable economic growth through new job creation.  It’s past time for our policymakers to unwind the unintended consequences of a decade of ill-conceived securities regulations that have already weakened our innovation ecosystem.  Let’s start by advocating policies that will bring risk-taking entrepreneurs and technology innovators back to the table before the American cupboard is bare.

The accounting firm KPMG recently issued a public policy alert with respect to new international tax regulations that were introduced in May for Congressional consideration.  According to the report:

Under existing U.S. tax rules, companies may defer paying taxes at rates as high as 35 percent on most types of foreign profits so long as that money remains invested overseas. The administration proposals are intended to reduce incentives to invest overseas so that companies would be more likely to invest in the United States.  The potential consequences ofthese proposals include a significant increase in the financial accounting and cash effective tax rates of affected companies, accompanied by a corresponding reduction in net income and earnings per share.

The three proposals impact the deferral of U.S. deductions allocated to foreign-source income, reform foreign tax credit (FTC) rules through pooling, and modify the “check-the-box” rules, requiring certain foreign entities that were previously ignored for tax purposes to be classified as corporations.

Based on my discussions with KPMG tax partners, the practical impact of these proposed rules is negative in two important ways: First, companies will still be required to deduct expenses from foreign operations for book purposes but will not be able to deduct the majority of them for tax purposes, regardless of whether the income is repatriated or not.  This effectively raises corporate taxes and will reduce corporate earnings and free cashflow for re-investment.
Second, and this is the part that should be of greatest concern to legislators and American business people, I do not believe that this legislation, if enacted, will achieve the intended objective (per KPMG) of reducing incentives to invest overseas.  On the contrary, it will encourage corporations to both accelerate and permanently  increase their investments overseas by divesting themselves of their foreign subsidiaries, selling them to foreign-domiciled intermediary corporations, and paying those corporations a margin for servicing the U.S. corporation’s continuing needs.  In effect, the unintended consequence will be to permanently keep these assets offshore and make U.S. companies pay more to intermediaries for the same service, because it will still cost them less than paying the higher tax burden imposed by the Congress.

The abundance of risk capital during America’s technology bubble in 1999 and 2000 effectively financed the launch of the technology innovation ecosystems that now thrive in China, India, Singapore and other emerging (and increasingly robust) economies.  Are we now going to change our international tax structure to further entrench the dependence of American companies on these emerging giants?  The pursuit of short-term tax revenues as the expense of sound long-term industrial planning is yet another example of tunnel vision among Washington policymakers.

If you are involved with companies that do international business, please do the research, understand the implications, and contact your legislators in Congress and urge them to vote against this ill-conceived regulation.  We must stop damaging America’s global competitiveness.

CLICK HERE to see the original White house document.

There is plenty of ink flowing with speculation on the future of the venture capital industry.  Phil Wickham, CEO of the Kauffman Fellows Program, has a constructive perspective on this topic, which he expressed in his CEO recap in the Kauffman Fellows Program eBulletin that was published on June 2.

Below, I’ve quoted his key observations from the newsletter, with which I agree:

“… I [have] found two camps regarding venture capital: the majority believes venture is the answer to all our needs (mostly entrepreneurs) and the minority seems to think that the entire industry couldn’t fall of the edge of a cliff fast enough (mostly policy and academia). I have to say that the whole thing alarmed me, since we so strongly believe that the answer is nuanced and solidly in the middle of these two extremes. The CVE’s [Center for Venture Education] DNA is that of an “entrepreneur-first” organization, growing out of the culture and values of Mr. K [Ewing Marion Kauffman] and his Marion Labs team that put together and operated the Kauffman Foundation.

Since our full independence from the [Ewing Marion Kauffman]Foundation in 2001, our focus has been to anticipate as much as possible the evolution of the entrepreneur’s needs and opportunities, since we are management’s primary service provider. As a result, we have included the unique expertise of tech transfer funds, angel groups, corporate venture funds, international government seed funds and even foundation investors in the Kauffman Fellows Program as we strive to build a curriculum with maximum value for our customers.

… We’ve concluded a few simple things. First, that entrepreneurial capital is about enabling scale, and the value we deliver as an industry is much the same at any stage or in any environment. Second, that the CVE’s intellectual capital built up over the past 15 years is broadly applicable across all forms of entrepreneurial capital. Third, within that body of knowledge, our evolving expertise in leadership and managing the human dynamic has far more long-term impact than anything else we do. Finally, we are starting to discover that there is a much broader opportunity to spread this leadership know-how to all of the players in the eco-system: university researchers, entrepreneurs, LPs, government policy experts and service providers. We think that if – across the globe – each positional player can come to understand their own and each other’s roles and put their collaborative talents and energies behind the entrepreneur’s imagination, the world will be a better place for our children to inherit.”

I usually try to keep my blog posts short. Today I have failed in this endeavor but urge you to please read through to the end of this important post. The current issue of Foreign Affairs Magazine features an excerpt from Leslie Gelb's new book, Power Rules: How Common Sense Can Rescue American Foreign Policy.  This essay is exceptionally good, and, in my view, Gelb's thesis should be applied to all forms of statecraft and to promote the resolution of both newly emerging and long stagnating public policy debates.

Gelb accurately diagnoses the "weakening fundamentals of the United States.  First among them is that the country's economy, infrastructure, public schools, and political system have been allowed to deteriorate.  The result has been diminished economic strength, a less vital democracy, and a mediocrity of spirit."

Several paragraphs in this powerful essay deserve highlighting:

"The bases of the United States' international power are the country's economic competitiveness and its political cohesion, and there should be little doubt at this point that both are in decline.  Many acknowledge and lament faltering parts here and there, but they avoid a frontal stare at the deteriorating whole.  It is too depressing to do so, too much for most people to bear. … The United States is now the biggest debtor nation in history, and no nation with a massive debt has ever remained a great power.  Its heavy industry has largely disappeared, having moved to foreign competitors, which has cut deeply into its ability to be independent in times of peril.  Its public-school students trail their peers in other industrialized countries in math and science. They cannot compete in the global economy.  Generations of adult Americans, shockingly, read at a grade-school level and know almost no history, not to mention no geography.  They are simply not being educated to become the guardians of a democracy.

These signals of decline have not inspired politicians to put the national good above partisan interests or problem solving above scoring points.  Republicans act like rabid attack dogs in and out of power and treat facts like trash.  Democrats seem to lack the decisiveness, clarity of vision, and toughness necessary to govern.  This tableau of domestic political stalemate begs for new leadership.  The nation that not so long ago outproduced the rest of the world in arms and consumer goods, the nation lionized and envied for its innovation, can-do spirit, and capacity to accomplish economic miracles, has become overwhelmed by the tasks it once performed competently and with relative ease."

This is the most succinct and gut-wrenching summary of our national predicament that I have read.  Gelb puts his finger directly on the jugular vein of America's innovation ecosystem and diagnoses the multiple layers of dysfunction that have launched our country into such a deep crisis.  I share his fear of a new global reality developing along the following lines:

"The real danger in this universe of primitivism and plenty is not new wars or explosions among major states, or a world war, or even a nuclear war.  It is the specter of nations drowning in a flood of terrorism, tribal and religious hatred, lawlessness, poverty, disease, environmental calamities, and governmental incompetence.  Many nations are going under because they are simply unable to cope, and they will drag others down with them."

Gelb closes this essay with an impassioned plea for action, and most important, he retains a strong sense of hope and pride in our country:

"Every great nation or empire ultimately rots from within.  One can already see the United States, that precious guarantor of liberty and security, beginning to decline in its leadership, institutions, and physical and human infrastructure, heading on the path to becoming just another great power, a nation barely worth fearing or following.  It is time to send up flares signaling that the United States is losing its way and its power, that it is in trouble. But it is even more important to reaffirm the belief that the United States is worth fighting for both across the oceans and at home.  There should be no doubt that the United States, alone among nations, can provide the leadership to solve the problems that will otherwise engulf the world.  And for all the country's faults, there should be no doubt that it remains the last best chance to create equal opportunity, hope, and freedom.  But to restore all that is good and special about the United States, to rescue its power to solve problems, will require something that has not happened in a long time: that pragmatists, realists, and moderates unite and fight for their country."

I've been sending out flares to other realistic moderate pragmatists on this and other topics that demand a "common sense" approach for years.  Through groups such as the Council on Foreign Relations, the Aspen Institute's Socrates Society, the Working Group on Director Accountability and Board Effectiveness, and, most recently, the Security Innovation Network, I have joined and helped forge communities of interest bound together by empowered individuals who are thoughtful and constructive agents of change.  As Gelb points out, we have a lot of wood to cut, but I remain energized and, most importantly, hopeful that we can make a difference because we have to.  Given where America stands today, fomenting pragmatic and realistic change is not an option, it is a requirement.

The media is full of negative reactions related to
the announcement of Treasury Secretary Geithner’s extensive regulatory reform plan for the oversight of the capital markets. I can't imagine that an announcement of this nature wasn’t widely
expected.  On November 28^th,
2008 I posted a warning on this specific issue:

A Case
Study in the Unintended Consequences of Financial Market Regulation: The Death
of the Small Cap U.S. IPO?:

"The first 100 days of the Obama administration
are widely expected to usher in a new era of U.S. capital markets regulation
designed to restore the public’s trust in the decimated institutions that
provide much of the liquidity infrastructure for the global capitalist
system.  It is imperative that improved financial oversight be achieved
swiftly through the enactment of effective regulation so that the markets can
re-equilibrate and resume their normal function.  Without these necessary
changes, global economic growth will continue to falter.  At the
same time, we must recognize that regulations enacted in haste can have severe,
negative unintended consequences." 

Pui-Wing Tam of the Wall Street Journal interviewed me this past Friday
and asked how I felt about increased regulation of venture capitalists as part
of the Geithner plan.  Her article
is published in WSJ Blogs in the Digits Blog and is titled Views From VC-Land
on Regulation.

My quote was given in the context of whether
becoming a Registered Investment Advisor presents an undue burden for venture
capitalists, which, based on my previous professional experience as a
Registered Investment Advisor, I believe that it does not.  

More important is my first point, which
is that we have experienced a massive failure of oversight in this country. 

Both the Government and the private
sector agree that we clearly have a regulatory process problem and that it must
be resolved.  We should not forget
that convicted felons such as Bernie Madoff were not only Registered Investment
Advisors, they actually passed inspections by the Securities Exchange
Commission.  The colossal systemic
failure of this country’s regulatory oversight of the capital markets has been
exposed by the SEC’s own inspector general, David Kotz, in an extensive report on the
SEC’s failure to enforce a whole body of regulation governing the now largely
defunct investment banks.

A series of unintended consequences stemming
from over a decade of misguided federal securities regulations is also at the
root of the structural problems that currently prevent liquidity from coming
back to the public equity markets for emerging growth companies, and this has
been exposed succinctly in the white paper “Why are IPOs in the ICU”.

I think it is unrealistic for investment
managers in any sector to anticipate less regulatory oversight in the US going
forward—but it is incumbent upon Secretary Geithner, President Obama, and the
Congress to recognize the proclivity of regulation to fail to accomplish its
intended goals.  We are already
living with those consequences right now.