Investment banks could face more relaxed restrictions on investing in venture capital funds from the Federal Reserve and other watchdogs under proposals expected to be announced by the end of the month.
Banks have increasingly invested directly in startups through their corporate venturing units but their limited partner commitments have been hampered by the Volcker Rule set up after the 2008 financial crisis to limit risks taken on by the Wall Street banks. Rob Toomey, an associate general counsel at the Securities Industry and Financial Markets Association, told newswire Bloomberg: “If the bank can do the same investment outside the fund and not run afoul of the Volcker Rule, it should be able to do it within the fund as well.”
Meanwhile peer US trade group National Venture Capital Association (NVCA) has done similar work to clarify and limit the impact of rule changes affecting how foreign investors access American funds and startups.
The US Treasury Department issued its final rules implementing the Foreign Investment Risk Review Modernization Act (FIRRMA), and they go into effect 13 February to give the Committee on Foreign Investment in the United States (CFIUS) greater powers.
Jeff Farrah at the NVCA said: “CFIUS’s power was demonstrated in recent high-profile cases that forced Chinese investors to divest of holdings in Grindr, PatientsLikeMe, and Musical.ly. The combination of CFIUS interest in data rich companies and [its] expanded authority over non-controlling investments means the [committee] will be a player in the startup ecosystem.”
But as the US tightens its inward investment rules so its largest companies are expanding their venturing units more internationally with Microsoft – the second largest by market capitalisation – setting up a new London, UK, office under Matthew Goldstein, a GCV Rising Stars 2018 winner. For this year’s winners check out www.GlobalCorporateVenturing.com site at 8pm PST today.
