As the industry’s trade association and lobbying arm, the NVCA is responsible for promoting the political interests of VCs. The paper’s target audience is legislators on Capitol Hill who are contemplating various regulations which would impact the VC industry. Believe it or not, your average legislator who isn’t from someplace like California or Massachusetts may have little understanding of tech entrepreneurship or venture capital and the sizable impact of the startup ecosystem on our economy. So nobody should be surprised that the NVCA works to raise the profile of the startup economy (or at least the VC-backed portion of it), and tries to influence public policy in ways that would benefit its members.

I say this to provide context, not necessarily to defend the paper itself. But the NVCA’s lobbying efforts aren’t my primary concern. As someone who has sat on both sides of the entrepreneur / VC divide, what’s far more interesting to me is the deeper question of the role and impact of venture capital within the tech startup world. Let me try to lay out some fundamental beliefs:

1. VC’s don’t start companies or invent stuff. Yes, there are the occasional exceptions where a VC founds or co-founds a company, perhaps the most famous example being Genetech which was started by Bob Swanson (partner at Kleiner Perkins) and Dr. Herb Boyer (scientist at UCSF). A small handful of VCs still do this today (most were former entrepreneurs) but by and large VC’s cannot claim to be company creators.
2. The software, semiconductor, and other industries would all clearly exist today even if a meteor had wiped out the entire VC industry decades ago. It’s impossible to know for certain, but a reasonably convincing argument can be made that VC involvement in conjunction with breakthroughs in raw science, hard work by entrepreneurs, receptive public markets for later stage funding, and other factors helped accelerate the development of certain sectors (e.g. biotech in 70s, cleantech today).
3. It’s entirely possible to launch and grow companies without outside institutional funding, from VCs or other sources. The vast majority of companies don’t raise VC funding; Wadhwa’s research indicated 90% of first time and 75% of repeat entrepreneurs don’t.
4. The best VCs try to add value to the companies they invest in. But they aren’t fundamentally the innovators or the day to day operators of these companies. The help they can provide is very real, but the scope and nature of it certainly has bounds.
5. A disproportionate number of what are the fastest growing and ultimately largest tech companies received venture funding somewhere during their company life cycle.

Items #4 and 5 are longer discussions, probably worthy of separate posts including supporting data. It would be ludicrous to argue that Microsoft, Google, Intel, Amazon, or eBay would not exist without venture capital, but clearly VC (both the dollars and the value-added relationship) played a role in the growth of these companies. What if Benchmark Capital hadn’t worked with Pierre Omidyar and Jeff Skoll to recruit Meg Whitman as CEO? Would eBay have become as big a company as it has? What if Google didn’t have Michael Moritz and John Doerr’s advice? Would they really have shunned their initial strategy of being a co-brand search technology company (powering giant portals like Yahoo! for a license fee) to build a risky, revenue cannibalizing standalone service that’s revolutionized the advertising world? Without Sequoia and Kleiner’s $25M in funding, would the founders have taken one of the various offers to acquire Google in its earlier days rather than trying to build a standalone public company?

Of course it’s impossible to know the “what if” scenario of what would have happened had these companies never raised VC. Would they still be around today in some shape or form? Almost certainly. Would they still be standalone companies? Quite possibly. Would they be among the biggest tech companies in the world? Conceivably. Would they have grown as rapidly without VC’s involved? Probably not.

I’m not suggesting VCs should either take or get credit for the innovation and hard work of entrepreneurs. Neither VCs nor Al Gore invented the internet. And just like any industry, there are individuals in VC who add little or no value to the startups they invest in or act like jerks or might even do unethical things. But VCs probably aren’t the scourge of the earth either. If the VC industry disappeared from the face of the planet tomorrow, I think the startup ecosystem would certainly be worse off and not just for having lost a source of capital.