Financing Reform is not the Cure

There is a discussion going on regarding how to fix the so-called venture capital "crisis."

The National Venture Capital Association (NVCA) is advocating a four pillar approach:

1. The VC industry should support the use of smaller investment banks and accounting firms as partners with the traditional players in the equity distribution system to facilitate smaller IPOs that are now not being adequately served.
2. Create a new market for exits through public offerings for small companies seeking IPOs.
3. Lower capital gains taxes for small IPO investors and certain technologies.
4. Ease Sarbanes-Oxley requirements as they relate to smaller IPOs.
   

You can find their full report through a link at their website). 

Claire Miller at the New York Times summarizes additional recommendtions from a couple of Harvard professors who advocate reform of patent and immigration law and giving bail-out money to certain start-ups to stimulate venture capital markets.

While some of these ideas may offer some limited help, we need to stop thinking about this economic crisis as being one that can be cured simply by financing reform, or worse, financing stimulation. 

VC financing is in a mess because the economy is in a mess.  Fix the entrepreneurial economy and deals will again begin to look attractive enough to secure venture capital financing.  We do not have a supply of capital problem, we have a supply of attractive deals problem.