A potential new rule from the US Securities and Exchange Commission is unsettling the venture capital class.
The change would make it easier to sue investors for negligence, and could make VCs more culpable for failures at the startups they back. The rule, designed to address “lack of transparency, conflicts of interest” and other problems in the private markets, could be particularly impactful in a turbulent market environment. Recent months’ spate of startup scandals includes (but isn’t limited to!) the implosion of the now-disgraced crypto exchange FTX, which drew praise and dollars from some of the top names in venture capital.
Blowback to the proposed rule has been fierce. VCs say it would get in the way of one of their core functions: providing assistance to portfolio companies. According to the industry trade group the National Venture Capital Association, if the change goes through with its current wording, the more involved a VC is in a company, the more culpable that VC could be for problems down the line.
Source: A Proposed SEC Rule is Roiling the VC World – Bloomberg
