Figure out and adapt a fundamentally different legal structure and this issue goes away. The cost of writing a law full of loopholes that allows hedge and PE funds to "look" like VC funds is higher than the added costs to firms like Atlas. (Let's be honest: this ain't gonna drive Atlas out of business, nor will it affect angel investors. It would only kill the crappy $20-50MM funds.)
And if anyone thinks I'm crazy, I want to point out that Mitt Romney has always described himself as a "venture capitalist," as far back as his 1994 Senate run, although everyone knows that Bain Capital is a PE shop.
Disclaimer: I did my time on the dark side at a healthcare VC firm, and now I'm on the entrepreneur side.
Ok, so you want to force existing VC's to adopt a different legal structure (probably a less efficient one) and kill the smaller players in the market (the "crappy $20-50MM funds").
What's the benefit of all of this? Getting a bunch of legalese reports from surviving VC's that say "we have no leverage?"
You can have leverage without debt through the use of options and other derivatives. The leverage is the systemic structural issue, not the notional amount of debt.
True, leverage comes in many forms. But what form of leverage could a VC firm engage in that they could not easily be restricted from in order to qualify for less onerous regulation?
Restrictions on the use of derivatives is as easy to restrict as debt instruments.
And if anyone thinks I'm crazy, I want to point out that Mitt Romney has always described himself as a "venture capitalist," as far back as his 1994 Senate run, although everyone knows that Bain Capital is a PE shop.
Disclaimer: I did my time on the dark side at a healthcare VC firm, and now I'm on the entrepreneur side.