July 20 When staffers at the National Venture Capital Association see a report that refers to U.S. presidential candidate Mitt Romney's investments as venture capital, they grimace -- and then contact the author to explain politely why it's wrong.
The Republican White House hopeful was head of Bain Capital LLC, which does the bulk of its work in private equity and not venture capital, the NVCA would clarify. Venture capital backs companies from their earliest days, and some go on to create thousands of jobs; private equity typically comes in at later stages to turn around underperforming companies, sometimes via job cuts and other unpopular cost-savings moves.
The distinction has become important as the U.S. election shines a harsh spotlight on the private equity industry, with President Barack Obama's campaign accusing Romney of slashing U.S. jobs at Bain-owned companies and outsourcing them abroad.
While Obama does not muddle venture capital and private equity, many journalists and politicians do. Venture capitalists fear those slips could tarnish their public image and lead to unfriendly tax policies and other regulations down the road.
"People care about what they do and their reputation and what their job is," said investor Yanev Suissa of venture industry giant NEA, which has $13 billion in committed capital. "When you're faced with the attitude that what you do is job-destroying, it's problematic."
It is a delicate balancing act for venture capitalists to defend their own industry without disparaging private equity or castigating the career path of the man who might become president next year. Many venture capitalists believe PE firms ultimately help the economy by making lagging companies more competitive, and many PE executives also invest in venture capital funds.
But with Democrats highlighting companies that went bankrupt or shipped jobs overseas under Bain's ownership, the VC industry is concerned that negative associations could harm its ability to move an ambitious legislative agenda through Washington.
That agenda includes preserving preferential tax treatments like the carried-interest tax break, which allows VC and PE investors to pay tax on investment gains at the long-term capital-gains tax rate, which is just 15 percent, compared with a top income-tax rate of 35 percent.
"In tax policy, you can see the concern there," said Mark Heesen, president of the National Venture Capital Association, which represents over 400 VC firms.
Given an increasingly squeezed federal budget, the capital-gains tax break could be drastically scaled back or eliminated altogether, he said.
While stopping short of saying private equity does not deserve the tax break, Heesen makes it clear he thinks venture capitalists merit special treatment because of the risks they take on investing in start-ups. "We create something from nothing," he said. "We have a much better story to tell."
Venture capitalists are split on which party seems more likely to preserve tax breaks for them. While Republicans are considered the party of business, many Democrats supported the JOBS Act, which makes it easier for young companies to raise money. Heesen said Republicans might feel more pressure to balance the budget and close up anything seen as a loophole.
The NVCA does not donate to presidential campaigns but it does give to congressional races - about $624,000 so far in the 2011-2012 cycle. About $358,000, or 57 percent, has gone to Republicans, according to a spokeswoman. Individual venture capitalists have given $453,550 to the Romney campaign, compared with $402,915 to the Obama campaign, according to the Center for Responsive Politics' Opensecrets.org.
GNASHED TEETH, ROLLED EYES
The venture capital industry has enjoyed some successes in Washington in recent months beyond the JOBS Act, which passed in April. Venture capitalists helped to snuff out controversial Internet legislation that would have affected the business prospects of Web startups. They also fought for streamlined regulations on approving new medical devices, an important venture investment area.
In addition to retaining preferential tax policies, venture capitalists want to make it easier for entrepreneurs to secure U.S. visas and to preserve government funding for basic research that could benefit start-ups.
With these issues on their agenda, it's no wonder venture capitalists do not want to be tarred as job-cutting villains -- they prefer to be thought of as the people behind such American success stories as Apple Inc, Facebook Inc and Google Inc.
References to Romney as a venture capitalist rather than a private-equity executive are "really annoying," said Larry Lenihan, managing partner at FirstMark Capital, whose investments include online bulletin board Pinterest. "I can't stand the laziness of the broader press not to differentiate between the two."
Kate Mitchell of Scale Venture Partners agrees. "It does more than make me gnash my teeth and roll my eyes," she said, adding that she is often in Washington talking to lawmakers or engaging with the media to educate them about the difference between PE and VC. Scale's investments include cloud-storage company Box.
The NVCA says its staffers have reached out to reporters about a dozen times this year to clarify media reports that labeled Romney's private equity activities as venture capital.
A Google search for "Romney and venture capital" yields 9.4 million results, compared with 43.3 million for "Romney and private equity."
The situation is complicated by the fact that while the bulk of Bain Capital's work is in buyouts, the firm did make some venture investments while Romney was there, such as in office-supplies company Staples Inc and childcare company Bright Horizons Family Solutions Inc.
Bain Capital, which employs 900 people, has $60 billion in assets under management worldwide, including $2 billion managed by Bain Capital Ventures. Its first dedicated venture fund, a $250 million fund, launched in 2001; before that, it mixed venture investments in with its private equity investments.
The term "growth equity" is increasingly used by PE firms to describe what they say are investments that sit between the venture capital and mature private equity space.
Private equity executives defend their industry by saying it creates stronger, more profitable companies, which then are in better positions to hire. PE firms also often save troubled companies from failing, and eliminating far more jobs.
They also argue that the stereotype of private equity firms as speculators that just saddle companies with debt is dated by virtue of the financial markets having moderated leverage since the 2008 financial crisis.
But the job-slashing stereotype has allowed politicians to disparage Romney's record. Former Republican presidential rival Rick Perry, for example, repeatedly called Romney a "vulture capitalist" while the primary race was still in full swing earlier this year.
Meanwhile, venture capital might have to start battling as hard for its image in Hollywood as in Washington. A recent episode of the HBO cable television show "Girls," titled "Weirdos Need Girlfriends Too," cast a venture capitalist as the villain.