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A VC Goes To Washington: What’s Happening in DC and Why You Need to Pay Attention

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There is something incredibly humbling about Washington DC. Yes, the monuments and Capitol Hill are awe-inspiring, but it’s more than that. It’s the energy. It’s the way that people hustle from building to building in their awkward suits, clutching their piles of documents to their chests. It’s the hushed conversations that seem to be happening on every corner, in every restaurant, in every room. It’s the eager, young interns who shadow every meeting, quietly opening doors and taking notes for their superiors. It’s the simultaneous accessibility and inaccessibility of it all. It’s the sense that the world is changing right here and right now, and everyone is trying to figure out what the hell they can do about it. In fact, that is exactly why I was there myself.

I recently returned from two, fascinating days in Washington DC at the VCs-to-DC conference with the National Venture Capital Association (NVCA), where I met with federal regulators and members of Congress to discuss how potential regulations could impact venture capital and tech startups. Since moving back to the United States from Asia, it has been fascinating to sit at the intersection of technology, globalization, and early stage companies.

Two major themes have emerged in the last few months:

Consequently, legislators are feeling a palpable sense of urgency for legislators to demonstrate that they are taking action to protect American jobs, intellectual property, and data — especially from China. This has prompted the Trump administration, with the support of Congress, to push for an expansion of scope and power of CFIUS (Committee for Foreign Investment in the US), a previously obscure interagency committee in charge of reviewing mergers and large transactions by foreign entities.

Why does CFIUS matter and what changed?

In the past, companies were required to file with CFIUS and were subject to certain export controls, only if:

As of last November, in response to the escalating trade war with China, the administration dramatically broadened the scope and reach of CFIUS review. The new rules are currently in a “pilot program” stage, and permanent rules are being drafted for enactment next February. The new rules are impactful in the following ways:

This means that even the smallest of startups may need to file with CFIUS, and could be subject to control/regulation by both the Treasury Department and the Department of Commerce if they:

So fine…if you have to file with CFIUS, what’s the big deal?

Under the pilot program, if you fall into any of the above categories, you or your investor will be required to file with CFIUS 45 days before the transaction is completed. This is a big deal because:

Unless we get the final rules in a better spot than the pilot rules, both investors and founders will take on more risk, and America’s role as a global innovation powerhouse could be compromised. We need to speak up and educate Washington on what these rules could really mean for us. If you are worried about how it could affect your business going forward, you absolutely should be!

What can you do?

Here are some ways you can get involved and make a difference:

It’s easy to sit on the sidelines and assume that this will all get sorted out. After all, these regulations are not targeted at small venture funds and early stage companies. That’s what I thought, too, until I sat across from the people drafting this regulation and realized they have likely never met an early stage startup founder. Why would they? Startup founders are hustling day and night to make ends meet and don’t have the time or resources to head to DC to explain what they do. Big tech companies do, however, and are able to be a part of the regulatory process. This leaves Washington regulators totally unaware about the impact their proposed legislation could have on everyday entrepreneurs and our broader innovation economy. They won’t know unless we tell them. The time to engage is now.

Written by

Venture investor in the future of work

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