IN THE PUBLIC imagination, venture capitalists are often seen as independent wealthy actors seeding early-stage companies with their personal money. But the vast majority of VC capital is from “LPs”—or limited partners—including public pensions, university endowments, hospitals, and wealthy families. In other words, venture capitalists manage large sums of other people’s money. This makes them de facto gatekeepers of innovation, deciding what gets built and who benefits. When this system works, we end up with world-changing companies and technologies. When it fails, as in the case of Silicon Valley Bank, we risk setting ourselves up for stagnation and decline.
Historically, society has given venture capitalists wide latitude to shape and influence the innovation economy. Our laws and policies exempt VC investors from many of the rules and regulations that apply to other money managers. In the midst of SVB’s collapse, however, many people have started to question the wisdom of granting so much leeway to VC leaders.