Do Venture Capital Firms Have Too Much Political Clout?

There are quite a few entrepreneurs who write business plans and come up with great new inventions and innovations and are dead set on finding a venture capitalist to fund them. Other entrepreneurs who have been down that path, or perhaps have looked at it closely don’t have any intention on giving up such a large percentage of the company from the get-go to the VCs, they don’t find the deal to be a good one, or in their favor. Now then, I’ve been an outspoken critic of venture capitalism, mostly because I’ve competed against such startups funded by these groups, but they do have a distinct advantage.

Most VC firms are highly connected, and they can literally move mountains. They have friends in high places who are willing to do them deals and favors, and can literally open doors. They’ve been known to lobby Congress, as well as local and regional politicians to prevent new regulations from forming to allow the start-up they funded some running room towards the goal line. Many believe this is good, because it allows for more innovation in the marketplace, fewer regulations, and a better chance for startups to compete against large corporate incumbents.

Indeed, all of that is true, but what about all the other smaller startup companies that don’t have that advantage? They can’t compete against the well-funded start-up company funded by VCs who have friends in high places and can run block for them. So I’d like to ask the question which is also the title of this article; do venture capitalist firms have too much political clout? I believe they do, and I would also like to point out to some of the government/private sector partnerships with companies that were VC funded.

The VCs tend to get out early, as the company becomes widely successful and gets some market clout from the additional government funding, therefore making the company look like it is worth more therefore the VC shares are worth more. We’ve seen a number of large startups in this venue that have failed in the alternative energy sector. It turns out that it is the taxpayer left holding the bag in many cases. Meanwhile, many of these start-ups fail, but in that interim they take a significant amount of market share away from large established corporations that are actually viable, paying a dividend, and employee tens of thousands of people.

Why don’t we just reduce the regulations for all small businesses and new start-ups regardless of who they are, or who funded them? In fact, why don’t we reduce the regulations for large corporations as well? And then why don’t we just allow everyone to compete in the free market the way it was intended to be without any crony capitalism, favoritism, or gameplaying behind the scenes. Indeed I hope you will think about all this, and if you have a counter point of view, I’d be glad to hear it.