Posts from Government

The Fiscal Mess: Death By A Thousand Cuts

Whomever came up with the term fiscal cliff to describe the expiration of the Bush tax cuts and the simultaneous sequester of across the board spending cuts did not do us any favors. I honestly had hoped we would get both. But that was never going to happen once it was framed as driving over a cliff. Who wants to do that?

Instead we got some small deal that essentially raises taxes on the highest earners and a kick the can approach on everything else. We are going to address our ridiculously high deficit in a series of crisis driven deadlines instead of the rational way, which is to sit down and hammer out a "grand bargain."

I do agree that cutting spending in some sort of brain dead across the board sequester is not ideal. And I also believe that phasing in our bad tasting but necessary fiscal medicine is better for the ecomony and so therefore a more prudent policy.

But here is the deal. We are spending way too much money in our federal goverment and we aren't bringing in enough revenue. The original grand bargain between Boehner and Obama which would have cut spending by $4.5 trillion over ten years and raised about half of that in new revenues over the same time period was the right idea. That would have gotten our annual deficit down to sub $500bn which still seems like a huge amount to me.

Now we are going to do the thing that every CEO tries to avoid, and that is death by a thousand cuts. It is demoralizing to everyone and painful to watch. And because our political system is so polarized and politicized, I can't imagine we will ever get to the $750bn in annual deficit reduction we will need to get our fiscal house in order.

I know that many in this community will point the finger at Obama and cite his ongoing lack of leadership (and his instinct to play politics) on this issue. I think that criticism is fair. But to some degree Obama is being driven to this place by an even worse behavior by the tea party wing of the Republican party who made a silly pledge to avoid raising taxes and now has to live up to it. The elder Bush (who I sure hope is feeling better) made a stupid pledge like that and lost out on a deserved second term as a result. When will the right wing of our government stop making taxes their third rail? And when will the left wing of our government understand that entitlements are a cancer growing inside this country that must be addressed now?

At times like this, I see the value in dictatorships (at least benevolent ones) and parliamentary systems. We need leadership that can address the issue head on and make the hard but necessary decisions to get our fiscal house in order. And we don't have that in this country. In either party. It sucks.

#Politics

Getting Out The Vote

The "net native" generation can be and should be an important political force. These young people grew up with the Internet and they understand how to leverage it in all aspects of their lives. And they understand the importance of protecting the Internet and the concept of Internet Freedom.

But we have to make sure they are registered to vote and that they do indeed go out and vote. That's where The Internet Votes comes in. Over the next week, the folks at Fight For The Future and Personal Democracy Media will be rolling out a series of tools that encourage everyone, but particularly the net natives, to register to vote and then in turn to get out and vote. This effort is non-partisan. There is nothing in this campaign that has anything to do with who you should vote for and why. It's all about voter activation.

The first of these tools, a voter registration widget, is available now (in beta). I am running it on the right sidebar of AVC, under the ad unit. You can get it for your blog here. Please feel free to use it as much as possible so the folks can fix the bugs and get it ready for prime time next week.

As more of these tools launch, I will blog about them, use them, and encourage all of you to do the same. Those who understand the power of the open internet, use it in their lives, and value it as a positive force for society must vote and make their voices heard if they want our elected officials to value these principles as well.

#Politics

M&A Issues: Governmental Approvals

Continuing our discussion of M&A Issues, this week we'll talk about governmental approvals. When two companies combine, the government can sometimes get involved. It mostly happens when two large businesses combine and the most common reason for governmental review is antitrust considerations. It is also possible that foriegn governments can take interest in a business combination.

The most common governmental review process for an M&A transaction is a review by the DOJ/FTC of anti-trust considerations. These reviews are done under provisions laid out in the Hart-Scott-Rodino Act. Wikipedia has a decent description of the provisions of that act. If a transaction is for more than a certain amount of value, the government will review it. From that same Wikipedia article:

The rules are somewhat overlapping to some degree, but the basic requirements are that all transactions of $252.3 million or more require a filing. All transactions worth more than $63.1 million require a filing if one of the parties is worth at least $12.6 million, the other is worth at least $126.3 million and the total amount of assets now owned by the acquirer reaches $252.3 million.

The DOJ and the FTC will look at every transaction over these amounts and try to determine if there are antitrust considerations. If they are concerned, they can negotiate provisions to the deal to remedy the concerns or they could simply not approve the transaction.

A similar process can happen in the EU. The Google Doubleclick transaction, for example, received very close scrutiny in europe.

There are other government agencies that can also be interested in an M&A transaction. They include the SEC, the FCC, and other agencies with specific oversight over certain businesses (EPA for example).

These governmental approvals are important for a bunch of reasons. First and foremost, they can prevent a transaction from happening. And they can also require significant changes be made to the transaction which may not be acceptable to the buyer. Bottom line, the government can mess with your deal.

For transactions that are large enough to merit review, governmental approvals represent risks to the transaction that need to be considered upfront. From the buyer's perspective, they will want to be confident they can get the deal approved in a reasonable time frame without significant concessions. From the seller's perspective, they do not want to be tied up in a long governmental review process, be in limbo business wise, and risk not getting the transaction closed.

The way that most letters of intent deal with these risks is they establish a breakup fee that the buyer pays the seller if the transaction does not close on substantially similar terms. The breakup fees can be considerable.

From the seller's perspective, a long review followed by a failed transaction is a horrible outcome. And a large breakup fee may be suitable compensation for that kind of damage. But it may not. Imagine having your entire team thinking they are going to be working for someone else, being in limbo for a long time, and then hearing that it is back to business. It is hard to get back the operating mojo once your team has adopted a different mindset.

If your M&A transaction is small, you don't need to worry about this stuff. But if it is a large transaction, you need to focus on the government approvals you will need and you need to consider what should happen if the approvals are not forthcoming. This stuff matters a lot.



#MBA Mondays

Public Policy and Venture Capital

I did a "Room For Debate" on the New York Times yesterday with Ken Auletta and John Markoff. Here's the first part and here's the second part. The topic was Google; are they too powerful and if so, what the government should do about it.

I said this about anti-trust efforts in technology:

I am not big fan of governmental intervention in technology markets.
Technology moves very rapidly and one decade’s dominant monopoly is the
next decade’s fading giant.

I would prefer our government focus on creating the right
environment for innovation and new technology development so that the
next Google can come along and change the game again. Things like
immigration reform (the start-up visa movement), patent reform
(elimination of software patents), net neutrality and open spectrum are
all much more important than filing an antitrust case against Google.

No sooner than when I wrote those words I found out about another public policy issue that impacts the technology startup world.

William Carleton pointed out to me yesterday on this blog, in the comments, that Senator Dodd's financial system reform bill contains two provisions that will be very harmful to startups. If passed as currently drafted, the bill calls for:

(1) increasing the threshold for accredited investors

(2) ending the federal preemption of "all accredited" offerings, so
that states would be permitted to regulate such offerings, even if they
meet federal requirements under Rule 506 of Reg D.

I'm not a security lawyer and I hope we get some discussion of these two points from security lawyers in the comments, but both of these seem wrong headed to me.

The angel funding mechanism is potentially the single most important funding mechanism in startup land. Most entrepreneurs get their first real investments from angels, not VCs. If you lower the amount of angel capital in startup land, you'll end up lowering the number of entrepreneurs who can get their projects off the ground.

So now there's one more thing we all have to start calling Washington about. I'm going to call my representatives about this. You might want to do the same. And while you have them on the phone, tell them we also want their support on the startup visa movement, elimination of software patents, net neutrality, and open spectrum. That seems like a lot to ask, but this stuff is important and getting more so.

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#VC & Technology

Protecting Business

Tumblr_kteysugUmi1qz6yoko1_500 I went down to city hall yesterday to participate in a hearing on net neutrality. I realize the NYC city council has no oversight on this issue but the lobbyists were coming out in force so I figured I might as well show up too.

They were live streaming the event. My testimony is about 26 minutes into that stream.

But this post is not about net neutrality. It's about an issue that came up during the questioning. A councilmember mentioned the idea that we should help infrastructure providers protect their businesses.

I am all in favor of the survival instinct in the marketplace. All companies should be executing strategies that will result in their survival.

But the idea that government should "protect businesses" seems very dangerous to me. Businesses come and go. Jobs come and go. Products and services come and go. That's the way of capitalism.

Our government stepped in and protected a bunch of businesses during the financial crisis. Examples are Citibank, AIG, and General Motors. In a time of financial panic, government does have a role of restoring confidence and we can argue whether those actions were necessary or not to do that.

But the financial panic is long gone. We still have big economic issues in this country and it would be a mistake for our government to continue to protect businesses and jobs now that markets are functioning again.

If the telcos and cable companies can't run profitable businesses without government protections, then I think we should let them go under and allow entrepreneurs to pick up their assets and make them work instead.

I also believe that government should be fostering a lot of competition in the access business. That was the idea of the telcom reform act. But it hasn't played out that way. We have an ever increasing consolidation of power in the access business. Just like we had in the banking and brokerage business. This is not good.

I could go on and on about this issue but I'll stop here and let the discussion start in the comments. I'll be in there with you.

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#Politics#Web/Tech