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 determined to find a venture capitalist to fund them. Other entrepreneurs who have gone down this route or may have looked closely don’t intend to sell such a large percentage of the company to the VCs from the start, they don’t find the deal a good one, or in their favour. Well, I’ve been an outspoken critic of venture capitalism, largely because I’ve competed against startups funded by these groups, but they have a distinct advantage.

Most VC firms are highly connected and can literally move mountains. They have friends in high places who are willing to do business and favors for them, and they can literally open doors. They have been known to lobby Congress and local and regional politicians to prevent new regulations from emerging to give the start-up they fund some leeway towards the goal line. Many believe this is good because it allows for more innovation in the marketplace, less regulation, and a better chance for startups to compete against large incumbents.

While that’s all true, what about all the other smaller startup companies that don’t have that advantage? You can’t compete against the well-funded startup funded by VCs who have friends in high places and can block for them. So I want to ask the question that is also the title of this article; Do venture capital firms have too much political clout? I think they do, and I’d also like to point out some of the government-private sector partnerships with companies that have been VC-backed.

VCs tend to exit early as the company becomes widely successful and the additional government funding gives it some market power, making the company look like it’s worth more, which is why VC shares are worth more. We’ve seen a number of big start-ups here that have failed in the alternative energy sector. It turns out that in many cases the taxpayer holds the bag in the hand. Now, many of these startups are failing, but in the meantime, they’re taking significant market share away from large established companies that are actually viable, pay a dividend, and employ tens of thousands of people.

Why don’t we just reduce regulations for all small businesses and new startups, regardless of who they are or who funded them? Why don’t we also reduce regulations for large companies? Then why not just allow everyone to compete in the free market the way it was intended, without any crony capitalism, favoritism or behind-the-scenes shenanigans? Indeed I hope you will consider all of this and if you have a counter view I would be happy to hear it.