Tom Perkins Tells Off Washington (Today, for Some Reason)
In recent years, almost everything but venture capital has garnered Tom Perkins attention: the marriage to romance novelist Danielle Steel; the memoir afterward; Perkins’ role in having Carly Fiorina sacked as HP’s CEO and later elbowing the company’s chairman, Patricia Dunn, out the door. And of course, there’s the media’s fascination with Perkins’ lifestyle: from his estates to his yachts to his car collections.
Yet every once in a while, Perkins — who cofounded today’s Kleiner Perkins Caufield & Byers with Eugene Kleiner 38 years ago – gets so pissed about something relating to VC that he steps back into the limelight to say so. Today, that issue is the carried interest legislation in President Obama’s 2011 budget proposal.
Why today? I’m not sure. The country seems fairly focused on the President’s bipartisan health session today, along with why Greece is on the brink of financial ruin. More, not even National Venture Capital Association president Mark Heesen thinks the carried interest issue is going to be a problem again until the economy recovers, and that then, Democrats might be too skittish to touch it.
Still, when Perkins takes the time to speaks he does in an Op-Ed piece in today’s Wall Street Journal, it makes some sense to listen. Certainly, the column, which seems patronizing by design, will be a big hit with nervous VCs who wish Washington would just leave them alone already.
Too often, there is confusion between investment banking and venture capital. This isn’t helped by investment bankers’ occasional assertions that they too do venture capital. They don’t. In light of the attention both of these activities have lately received in Washington, it seems a perfect time to explain what makes them so very different.
Venture capitalists work with entrepreneurs to start new companies from the ground up. We earn our reward only when companies become successful.
Investment bankers are deal makers. They’re in charge of bringing companies public and advising on acquisitions. Their money is earned by the transaction, and in the fraction of the time it takes a venture capitalist to realize a profit.
For the rest of his piece, click here. (Subscription required.)
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JG said on February 26, 2010
Yes – we get it. VC’s are noble, nurturing Gods.
It’s still not clear what his point is. Carried interest doesn’t apply to investment banks and he never mentions it anyway. His only concern is that he wants “the Beltway to leave us alone and let us do our jobs.” If that’s a shot at carried interest, it’s pretty veiled and does nothing to explain why CI is not fee-for-service.
Sounds like an angry rant from my grandfather.
MW said on February 26, 2010
Tom Perkins is reminiscing about a venture industry of long ago. According the data from the NVCA, the last year when VC’s returned more capital to LP’s than they took down in capital calls was 1997. Every single year since then, VC’s have called more capital than they have distributed to LP’s. In the past 12 years, over $400 billion in VC capital has been called from LP’s, but only about $250 billion distributed. There can only be two conclusions from this: i) either VC’s are trapping that capital in private companies and exchanging short-term liquidity for long-term gain; or ii) the industry as a whole is systematically destroying value for institutional investors. There is a whole generation of venture capitalists who should thank Tom Perkins for posting excellent returns on the small KPCB funds of the ’70′s and ’80′s – allowing the current generation of venture capitalists to raise over $400 billion citing the industry’s historical big IRR’s on small funds. Unfortunately, the industry which Tom remembers has no semblance to the VC industry of today.