Welcome to the first blog in our VC Policy Pulse series, where we speak with a VC investor on a policy issue that is having a major impact on the VC and startup ecosystem. Today, we’re hearing from Mark Kvamme, Co-Founder & Partner at Drive Capital and former NVCA Board Member, about the effects of the Volcker Rule on the startup ecosystem in the Midwest and how recent reform to the rule will increase VC investment and startup activity in the middle of the country.
As a quick background on the issue, the Volcker Rule prohibited financial institutions from investing in covered funds to protect against systemically risky trading. However, despite the fact that barring bank investment in venture capital (VC) funds does nothing to accomplish the underlying objectives of reducing systemic risk in the financial system, venture capital was inadvertently swept into the definition of prohibited investments under the Volcker Rule. This prohibition does nothing to improve the health of the banking system, and created an unnecessary roadblock for capital formation, particularly in underserved areas where raising capital for venture capital investment tends to be more difficult.
NVCA has long advocated for reforms to the Volcker Rule to exclude venture capital funds from the covered funds prohibition. After many years of advocacy to lawmakers and regulators, NVCA was thrilled to see that several agencies have finalized a rule that will remove this needless regulatory barrier and encourage capital formation and greater entrepreneurial activity throughout the U.S. To gain more perspective on how this reform to the Volcker Rule will help emerging startup ecosystems across the country, we spoke to Mark Kvamme, who has been a leading advocate on this issue.