Jenny Schretter (00:17):

Today is a big day for us at Finding Proof. We finally are launching on video, so today is our first episode. Be sure to catch us on all of your favorite streaming platforms today. It's also a big day because we're joined by Mr. Bobby Franklin, who is president and CEO of the National Venture Capital Association. We are so happy to have you here today and thank you in advance for your time.

Bobby Franklin (00:39):

Thanks for having me. It's great to be with you.

Jenny Schretter (00:42):

Thank you. So Bobby, just to kick it off, tell us a little bit about the NVCA. What do you guys do?

Bobby Franklin (00:47):

So the NVCA National Venture Capital Association celebrating our 50th anniversary. So we've been around since 1973. I usually describe us as the lobbyist for the entrepreneurial ecosystem and people sort of look at me funny, but essentially that's what we're up here working on in Washington. We look at the intersection of public policy and what's important to startup companies. So as you think about our membership or venture capitalists, and it's not as if we're the lobbyist for the venture capitalists because our policy issues are really about what's important to the portfolio companies. So if it's important to a startup and it's going to be impacted by public policy, we want to be engaged with policy makers to get it right.

Jenny Schretter (01:32):

Absolutely. And so what are some examples of some of those policies? Why should entrepreneurs and VCs care?

Bobby Franklin (01:37):

The list keeps getting longer, so I dunno how much time we have here, but I would say in my 10 years here, it started around immigration issues. It started around the JOBS Act where we were trying to make tweaks to make it easier for companies to get onto the public markets. There are always tax issues, there are always stock option issues and things like that that impact a lot of private companies and certainly employees that go to startups and take equity instead of salaries many times. And it has continued to grow. And if you look at the last Congress, you had bills that were introduced and passed and we worked on for years. They finally got across the goal line that do all sorts of things from block grant money to states that will go into the entrepreneurial ecosystem through the SSBCI to the bipartisan infrastructure package, which was not just roads and bridges. There's a lot of technology programs and then of course the CHIPS and science bill. That's something that started as the Endless Frontier Act and it's almost like a generational investment into technology for our country and for entrepreneurs. And we spend a lot of time on that. So those are some examples.

Jenny Schretter (02:53):

Absolutely. And obviously as the largest trade association for the venture capital industry, talk to us a little bit about how impactful the VC industry is to the broader US economy.

Bobby Franklin (03:07):

Every time there's some new study, it gets us excited because we get to go share information with folks here in Washington. If you go back and look over a 20 or 30 year period, you can see that. And the reason we use that period is because arguably that's sort of when venture, the modern day venture industry got started, it coincides with our 50th anniversary. So you look at the early seventies and you had inflation and you had different sets of rules around ERISA and what pension funds could do, et cetera. And when some early VCs, those that started the National Venture Capital Association, got the capital gains rate reduced so that there was a differential from ordinary income tax and capital gains and they changed the rules. So pension funds could be investors in alternative assets like venture. That's when it really started to explode.

So folks have gone back and looked at all the companies that have started since there was arguably a choice of having venture capital versus not having venture capital. And if you look at that subset of companies, it's by far worth more in terms of market cap. That set of companies is responsible for some 80 something percent of R&D spending by the private sector, which by the way is over half of total R& -to-D spending. So you look at all these statistics and you think the common denominator is venture capital because it's people looking for high growth startups that create jobs at eight times the rate of non VC backed companies. So there's so many good statistics to share with policymakers and we do often. Right,

Thanasis Delistathis (04:46):

And you can really look at the list of top companies in the Dow, right? And if you look 25, 30 years ago, that would be a lot of oil companies and other big industrials and now it's a lot of tech. Right. And that's a testament, a lot of those companies are basically venture funded.

Bobby Franklin (05:04):

Absolutely.

Thanasis Delistathis (05:06):

So a lot of people, when they hear lobbyists, the media makes fun of lobbyists and it's sometimes perceived as kind of a job with derision. What are you really doing? Give us a sense of day-to-day, what do you really do?

Bobby Franklin (05:21):

Well, first of all, lemme just say I wear the title of lobbyists very proudly. It's enshrined in the constitution that we can petition our government. And I think it's a very important function that we play. So on a day-to-day basis, I would think of it like this Washington, whether it's Capitol Hill, the White House, the administrative agencies, the regulatory bodies, they're making decisions, they're considering new rules, new laws all the time, and they need to be educated about what's important or what is concerning in some of the things that they're considering. And so what we have to do is engage in lots of different playing fields. You have to make relationships, you have to get to know folks, they have to trust you. So you have to think about what you're doing all the time and making sure that it's things I learned growing up in a small town in Arkansas, your reputation is everything.

And so if you are an actor, so to speak in Washington and you're known for not giving totally accurate facts and figures or overstating things, et cetera, you're going to lose your impact and your effectiveness. So you're constantly sharing information that you can back up, you're being helpful to those who are trying to make difficult decisions in understanding and help and explaining how if you do this, it's going to have this sort of impact. And here's why I can say it. Here are the studies that show or prove that. So you're engaged with a number of folks essentially every single day.

Thanasis Delistathis (07:01):

Got it. On that front, there were some recent big developments. It's a little bit inside politics in the private equity sphere, but the SEC came up with some new rules regarding the regulation of private equity managers, which includes as a subset of venture capitalists and it's public, the NVCA decided to join with some other associations to actually sue the SEC. So do you want to tell us a little bit about why that is and why people should care about that?

Bobby Franklin (07:34):

Absolutely. So the SEC proposed a horrible, I dunno how best to say it. It's a horrible set of rules at proposal. Now what they ended up with at the end is different and I think I'd like to say that we were successful in our advocacy and in the comments and in the meetings that we had at the SEC in dialing it back. But just to give people a sense of what was at stake in their proposal, they looked at changing indemnification around liability and so forth to the point where we would make the argument and did make the argument that you're fundamentally changing the way venture capital will operate. If you start to go down this road, you're inviting the trial bar to come in and take legal actions against venture capitalists for making bets on companies that don't work out. So you're going to encourage the entire entrepreneurial ecosystem to get less risky, therefore to have less innovation and actually set our country back. Now fortunately they didn't do that, but there's a whole host of issues where they try to micromanage the relationship between GPs and LPs and we fundamentally think that's not the place for them to be. We don't believe that Congress ever gave them the authority to regulate and micromanage that relationship. And so we and other associations stood up and have now filed litigation against these rules.

Jenny Schretter (09:13):

Is this the first time that whether it be the NVCA or multiple trade associations end up pressing litigation charges on the SEC?

Bobby Franklin (09:20):

I think there's probably been litigation in the past. I just not aware of it personally, but it's certainly the one in the last 10 years I can speak from that perspective. It is also one and some people, even on our, we had a board call to decide whether or not we're going to be part of this, and there were certainly some folks on the board and in the industry that I talked to before we made the decision that said, well, the final rules aren't that bad. I mean, yeah, they're not great and we don't really like it, but maybe we can live with it, that sort of thing. I sort of have a common phrase around here. Sometimes they get tired of me saying it in the office, but there's a reason God created trade associations. And this is one of those reasons which is you've got to take difficult sometimes so that your members don't have to, they don't have to use their name or take on the headache or maybe even the shrapnel that may come in the press or from detractors that don't think you should be taking those strong positions.

I think that's exactly why you belong to a trade association and that's why they exist. So in this case, we view this in the context of all the other rulemakings that are going on at the Security and Exchange Commission. And by the way, there's also a long list of rulemakings that are scheduled to come. And the biggest one for your audience is that there is an item on the schedule that talks about private companies and it won't surprise me knowing the SEC, we know now that they don't come out with a rule on private companies that tries to force private companies to do a lot of things like you do when you're a public company. So forcing more information, forcing them to fill out reports, forcing them to do things in a regulatory way that then you start to question, well wait, there are pros and cons to being a public company, but there are also pros and cons to being a private company and not every company was meant to be a public company. And so now you're starting to make it so bad in the private company space, you're trying to force it that doesn't make any sense from a governmental body to the industry in their country to help them succeed. Doesn't make any sense.

Thanasis Delistathis (11:41):

The average person sitting out there might say, oh please, Boohoo VCs complaining about their job being harder, blah, blah, blah. Obviously the argument on the other side is that we're trying to create more transparency so that VCs are managed properly and there's no bad actors there and so on and so forth, which is an argument, but at the same time, the VC industry relative to the overall private economies, but private equity so small that there's really very little risk on the overall system. That was the argument around regulation after the great financial crisis. But the VC industry in particular has a disproportionate effect on private innovation but is very small. Do you agree with that?

Bobby Franklin (12:28):

I agree with it, but I only to a certain point meaning that, and the reason I'm saying it like that is because I don't want to see the argument that the SEC is trying to make, that it's important for the transparency, et cetera, even if you're applying it to a fact pattern that is some big hedge fund or some big private equity fund. What I would say, which is true for all, is that these are sophisticated investors who do not need the government stepping in between the LP and GP relationship and when the government steps in, you are actually making it more difficult for the private industry to function properly because you're trying to create a one size fits all model. And that doesn't work. To your point, if you're an emerging manager raising your first fund, it might be a few million dollars, you finally got a fund and it doesn't make sense that you should have to do all the same things that some multi-billion dollar hedge fund does just because you're both a private fund. And that's the tragedy of what's going on here. The SEC is trying to look at this wide private funds marketplace that includes all these different players and say, well, it all needs to look like this and that just doesn't make any sense.

Thanasis Delistathis (13:54):

I was going to ask about that because when we were briefed by our general counsel and CFO on what the new rules were, I mean it seemed do that it's really to be able to comply with these, you need a certain level of infrastructure and a certain level of cost. And what you're basically doing, as you said, you're putting smaller funds at a disadvantage relative to huge incumbents that have billions under management and can afford to comply more easily. Is that how you see it?

Bobby Franklin (14:22):

Absolutely. It's how I see it. It's why we have been so involved in this debate and I'm very hopeful because of the way they have done things that we will prevail in litigation. We don't think they have the authority from Congress to do what they're doing. We don't think they follow the Administrative Procedures Act given that it was so draconian and so different at proposal. And then they take all these comments, well, we were commenting about those draconian provisions, they got rid of some of those, they made it a lot less. So in the final, I don't think you should get credit for putting a proposal on the table that is so bad that when you make it a little better, aren't you happy? No. Now you should have started with a proposed comment of where you ended up to let us then focus on what you really tried to do at the end of the day. And we didn't get a chance to do that. And so we don't think they followed the Administrative Procedures Act. We don't think there's any economic analysis which they're supposed to be. So we've added all of these costs in. So a lot of lawyers and accountants are sure happy if this goes into being, but that's not helpful to the economy at large. And particularly when we talk about the statistics we do and how venture capital is so much responsible for economic growth, job growth, and innovation.

Jenny Schretter (15:50):

So what are some of the other key policy issues and or challenges in general, broadly speaking, that face the VC industry?

Bobby Franklin (15:59):

The other big one that comes to mind is the attitude around antitrust and mergers and acquisitions. And we've seen the current Federal Trade Commission lose in court several times. We have seen, in fact, just this week on Monday as we're recording this, we filed comments in the FTC-DOJ merger guideline proceeding. So where they're basically trying to say, this is the new way we're going to look at mergers and acquisitions. And I took board members up to Capitol Hill yesterday and we were meeting with a US senator and we sort of explained to him, look, no one's paying attention to the other side of the merger table. They're all focused on the acquiring company and they're all mad at those big acquiring companies. And so they're trying to make it more difficult, but they're not focused on this side of the table. And this side of the table are entrepreneurs and investors that are part of an ecosystem flywheel that needs to continue to deliver all of the benefits that we have over the years to the US economy.

And you need exits and you need returns back to your limited partners and you need the entrepreneur to have success to go on and do something else. I mean, if you're reading the Elon Musk bio, you realize Elon Musk had that first exit. Yeah, he went out and bought an expensive car, but that gave him a chance to go do other things, query if he weren't able to sell that company, would we have SpaceX? Would we have Tesla? I don't know, probably knowing what I've read about him, but that's an example of how you need this flywheel to keep going and there to be exits and there to be activity, particularly if the IPO window is closed. You've got to have a goal to get to if you're an entrepreneur.

Jenny Schretter (17:55):

Right, exactly. Given the challenges that you just mentioned, where do you personally see venture capital being in the next five to 10 years? What does that look like?

Bobby Franklin (18:05):

So here's my observation with my front row seat. I see on one level there's always a measurement about how the VC's doing based on how much money's raised, how much money's invested, et cetera. But when you step back and you understand the data, and we use PitchBook and we put out Venture Monitor every quarter in some respects, how much money is raised is dependent on, well, what's the interest rate environment and what's happening in the public markets and what are LPs able to do and is the denominator effect in play or not in play? And so it's not as if you're just looking at one industry, is this the industry getting bigger? Is it getting smaller based on what it's doing? It's getting bigger and smaller based on what's happening somewhere else. And so in that respect, I feel like, well, depending on the markets and depending on capital flows, the industry will continue to be in one size or another. But being around VCs such as yourselves, you're the eternal optimist and you've rubbed off on me. And so I'm excited over the next five or 10 years because I know a lot of things that are happening right now are going to be those vintage years that are amazing. And a lot of the companies that are being built right now are going to have tremendous success. And that's exciting

Thanasis Delistathis (19:24):

Sometimes. I remember a video interview I watched on YouTube. This is an interview from back, I think it was 86 87, and I will not name the person that gave the interview, but he was basically saying, VC is overblown. It's too big right now. All the good ideas have been funded. I see a huge downturn. And of course, every time somebody says that, you're reminded that there's a new wave down the road, there's the internet wave and then the mobile wave and then the AI wave and it always gets bigger. So which is why this industry is so exciting, right?

Bobby Franklin (20:01):

It is. It's so funny because I'll get asked this question from time to time, people that don't understand the industry, not a part of, it's like, how's your industry doing this year? I go, or what's going to make it be successful this year? I go, well, you would've had to look like 10 years ago and what was going on to know the companies that you're going to now know about? But they were started eight or 10 years ago, and our industry has worked with them to get 'em to this point, and now you get to know about 'em. Yeah,

Jenny Schretter (20:28):

For sure. Well, speaking of ai, which I don't think you can go a day without hearing it at least 50 times, what are your thoughts on ai? What do you think is going to be the broader impact on the VC ecosystem? Give us a scoop.

Bobby Franklin (20:45):

So it was part of some of our meetings, obviously on Capitol Hill yesterday, and I think there's this, we're in this time where, okay, it's here. What do we do with it? And the government's like, I dunno what to do with it. What do you think we should do with it? And the players in the industry are like, well, I don't know, but here we should be some principles and here's some ideas. And so there's different sign-ons like in pledges and things like that. Then they're all similar but a little different. And then you can hear people talk about, well, is this industry, does it need to be heavily regulated? Does it not to need to be heavily regulated? If it's heavily regulated, are you favoring incumbents that are already in there? Other industries have succeeded through regulation even though it seems a non-sequitur in that sense. And I think everybody's just trying to figure out what to do with it. If you ask me to predict what will happen, I would think that almost like privacy laws Europe will probably do something first. Maybe some states and then maybe the government will figure out something. And the more the industry can put out principles or self-regulate or self-police itself, the better probably get it right.

Thanasis Delistathis (22:02):

Do you guys track what the members kind of invest in or do you get calls and say, Hey, we're beginning to do a lot of Web3. Can you advocate for X, Y, Z rule? Is that part of kind of the workflow?

Bobby Franklin (22:16):

That's a great question, I mean certainly because we put out Venture Monitor and we put out a yearbook each year and we have data and we help get data out about the industry, we certainly have an idea of where investments are going, but it's not as if we say, okay, this much investments here, therefore we have to spend that same amount of time because not every issue needs a lot of public policy to say support. And it's an area where you hear from your board members, we have working groups in different areas and there are issues out there, but this is the big difference. This is one of the first things that a new board member on the NVCA board learns. I'll have a conversation with them and their advice is always the same. And I always smile when they're saying it because it sounds like, oh, this is what you say to your portfolio companies.

It's focus on three things and get these three things done before we go to these next three things and don't get distracted and all this stuff. And it feels like that's the advice they're giving us. Like let's go get immigration done and then let's finish taxes and then maybe we'll move over to the SEC. And we don't get to set the agenda. The agenda gets set for us. So it depends on what Washington is focused on. It depends on what activities or legislation is moving forward. That's how we get dragged into one issue or another many times. But it sometimes happens. It's a push, it sometimes happens, it's a pull. And sometimes you're playing offense and sometimes you're playing defense.

Thanasis Delistathis (23:51):

Awesome. So I want to switch gears, but before I do that, one last question on the the VC business. So as you go up on the hill, are people generally receptive to your message about VC industry and its impact on the US economy? Or do they look at this and say, why should I care?

Bobby Franklin (24:10):

So two answers to that. First of all, when you talk to folks on the hill that have some idea of what VC is, they just want to know how they can have more of it in their congressional district or in their state. So they're always saying, Hey, can you get some of your members to move to my state? Stuff like that. If they don't really understand VC, then they're not sure what to do with you. But unfortunately what that means is they conflate venture capital, private equity, hedge funds, real estate funds, wall street banks, investment banks. I mean, it is just like it's all, oh, you're money, you're money people. Oh, well, I don't think I like you because of income inequality or because of this or this wrong in the world or something. And so it depends on who you're talking to and what level of understanding they have. Unfortunately, a lot of 'em just have very little understanding. And despite our efforts up there all the time, educating, there's a turnover. You're talking to staff, they're only there a year and then they've got new staff, you're talking to a member of Congress, they're only there two years, four years, and they're out. And so it's very difficult to stay ahead of the educational needs of policymakers.

Thanasis Delistathis (25:27):

For sure. Let's switch gears for a little bit. Let's get to know a little bit about Bobby. So tell us a little bit about your background. Where'd you grow up? How did you kind of get into this business? How does one become CEO of NVCA?

Bobby Franklin (25:43):

Yeah, that's a great question. How does one become CEO? So in 34 years, I'll say you come to Washington for a six week internship and end up staying for 34 years. You work on Capitol Hill on things like agriculture and oversight of the postal service. And then you get off the hill and you become a lobbyist. And I represented land grant colleges and universities. And then I went into telecom and worked for a wireless company, wireline and wireless company, Alltel for oh five or six years. And then got recruited to the trade association for the wireless industry. And I was their head lobbyist and then their number two for eight years. And I got a call from an executive search firm back in 2013, and they said NVCA. I said, I've never heard of it. What's that? And so they described it and the more I learned, the more interested I became and they ended up hiring me. And so I've here 10 years now.

Thanasis Delistathis (26:44):

Got it. And what brought you to the Hill, right? You said it was an internship, right? Were you into interested in policy or what kind of prompted that?

Bobby Franklin (26:56):

So I got a finance degree from the University of Arkansas and wanted to go to Wall Street. That was the first Wall Street movie, Gordon Gecko. I thought that looks fun. And so I didn't have a job in New York. In the meantime, I had a friend whose brother worked for a senator from Arkansas who said, oh, you should meet my brother. I did. He said, oh, you should come do an internship here. I did. And one thing kept leading to another.

Jenny Schretter (27:23):

What's your favorite aspect about venture capital in general and what's been your favorite role in this particular position?

Bobby Franklin (27:31):

So my favorite aspect is to hear the stories about what entrepreneurs are trying to do. They don't always pan out, but hearing the problem they're trying to solve, hearing what is it that they're going to change the world with, that's so inspiring. And being around that eternal optimism is absolutely wonderful. And the second question, what do I like most about the role? I think it's being able to share this incredible industry and what you all do and who you work with and what happens at the end of a successful company, build and exit and all that stuff. I mean, I love sharing that with policymakers and helping them understand just how important this is despite the fact that it's hard to educate 'em despite the fact that they rotate out and you've got new ones coming in. It's still very gratifying to sit down with somebody and explain what this unique industry does and how important it is to the country.

Jenny Schretter (28:39):

What's been the hardest part about the role?

Bobby Franklin (28:42):

Probably you can see so much that needs to be done. In other words, you can think about our membership is investing in everything from AI to blockchain to then you get into healthcare and then you start breaking it down to new drugs, to new medical devices, to new digital health, to new delivery systems, to new ways to help doctors using ai. We heard this example yesterday in meeting ai, helping doctors get to the right diagnosis and have to do less work in, my dad was a doctor. So dictation and stuff, getting information into records and things like that and how that can help with burnout of doctors, how can help with the right diagnosis, how can help with better patient outcomes. And so then you pull out healthcare and then you go over here and you're like, oh, we have global warming. What can we do around climate? What about carbon sequestration? How many startups are doing that stuff? How many startups are working on new battery technologies? And so you start to look at all of those issues and all those issues need policy and regulatory help because there are a lot of people fiddling with them so to speak. And you realize how much need there is and how little bandwidth because we're not a big organization, we're a small nonprofit. And that's the frustrating piece. You wish you could do more to really make a difference in all parts of the economy and ecosystem.

Thanasis Delistathis (30:12):

For a fun question, we always like to ask our guests, if you were not in this business, in this industry and let's say money is not an issue, what career would you have?

Bobby Franklin (30:24):

I don't know if it's a career, but I would love to be the one that got to go play as many golf courses as I could and maybe do a review of them or something. I would love to do that.

Jenny Schretter (30:35):

How long have you been golfing for?

Bobby Franklin (30:37):

I started golfing as a kid my summer when I was young enough to not have to have adult supervision, but not old enough to drive or have to get a job or something. Was going to the Russellville Country Club and Russellville, Arkansas, getting dropped off in the morning with my golf bag and a swimsuit and playing golf and swimming and then going back and playing golf and swimming. That was daycare for me.

Thanasis Delistathis (31:05):

Okay, here's another one. Who is someone you look up to and why?

Bobby Franklin (31:08):

My stepfather is a two-star General, retired from the Army. And when I think about all the sacrifices he went through for a career in the military and all the things that he had learned and all the great achievements and accomplishments, and then he had multiple careers after his 30- plus years in the military, that's somebody I really look up to.

Thanasis Delistathis (31:31):

Okay. And last one of that streak, what's the best piece of advice you've ever received that's important in Washington?

Bobby Franklin (31:43):

It s. It is. And this advice was given to me in Washington. I was at Alltel and there were two things that I would say and two different people that gave and both of 'em worked at Altel. My direct boss, the woman that hired me would often say when things were going crazy and telecom and regulatory and hearings and all this stuff and company or whatever, she would say, sometimes you need to know when it's time to go shopping. Now what that meant is it was not about shopping. It was like sometimes you just don't need to react, you don't need to be here, you need to step away and you need to let the dust settle. And I think that's particularly today with X or Twitter or everybody having thoughts that in my opinion would be best unexpressed. It's sometimes best to just take a pause and just let things settle down a little bit.

I know there's some times when Silicon Valley Bank happened on that weekend, and there are times when the Fearless Fund was sued and there's, we engage in all of those issues that impact it, but I don't feel it necessary to be the first one to comment on it or the first one to react. And I am never disappointed that I'm not the first one to get out there and react to something like absorb it, think about it, make sure. So I think that's the one line. The second line that I got from Scott Ford who was the CEO at Alltel was if an organization, if everybody on the org chart were focused on who reported to them and thought about how do I serve the people that report to me better? And that was their focus instead of how do I make my boss look good or how do I do this? The organization would be so much more impactful, so much more successful, and it would just be a great place to be. And he did that. And I really have tried to take that mantra in what I do here at NVCA.

Jenny Schretter (34:01):

And so for VCs and even entrepreneurs, like how do they get involved with the NVCA and be able to benefit from your resources?

Bobby Franklin (34:10):

Well, if you're venture firm, if you're making investments in the US , we need you to join. We are a nonprofit supported by our members. So that's how we do what we do on your behalf. So it's join NVCA and then once you're a member, it's get involved. We have working groups so that you can be with like-minded investors, those that you co-invest with, and you can meet some from different parts of the country that you may not know and you can help us understand back to how do we prioritize issues. You can help us understand what's most important. And you can be on the receiving end of us looking around the corners here in Washington and saying, Hey, this thing's coming up. You should pay attention to this. Help us understand what we need to do to put you in the right position.

Jenny Schretter (34:56):

So thank you Bobby, so much for all of your contributions to the venture capital industry. We really appreciate all the work that you and the NVCA team has been doing, and thank you again so much for taking the time today to be on Finding Proof.

Bobby Franklin (35:08):

Thanks for having me, Jenny. Great to be with you and Thanasis here, and thank you for the membership at NVCA.