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Steven Davidoff Solomon, a.k.a. “The Deal Professor,” is the faculty director at the Berkeley Center for Law, Business and the Economy

In the competition for a federal bailout, venture capital won the first round. Now, private equity is fighting back — and winning.

The first round was the $350 billion Paycheck Protection Program, which provides forgivable loans of up to 2.5 times companies’ monthly payroll. The program is limited to businesses with no more than 500 employees, and it specifically excludes financial firms.

Businesses are flocking to the program, but the Small Business Administration initially barred most companies that are funded by venture and P.E. firms. The administration’s affiliate rule lumps together businesses with common controlling shareholders, so all of a firm’s majority-owned businesses count toward the employee limit. Private equity has lobbied vociferously for a waiver, but the government has not granted one.

For most venture-backed companies, the problem is not majority ownership, but that the affiliate rule covers companies where an investor has “negative control” rights, like the ability to veto board decisions. Faced with forgoing a potential government grant or losing control rights, venture firms have rushed to eliminate these rights. Their extensive banking relationships also make them more attractive to lenders than unfamiliar mom and pop businesses.

This only remaining issue for venture firms is a moral one: Do they really need these loans? After all, V.C. and P.E. funds have nearly $1.5 trillion in uncalled capital, otherwise known as dry powder. The number of venture-backed companies that refused to participate in the program is unknown, but anecdotally there are some.

I would expect the next round of stimulus to be even more friendly to private equity. Unlike venture funds, P.E. financiers do not have the same moral misgivings about lobbying aggressively for federal assistance.

As the Trump administration pushes back against reports about perceived delays in its initial response to the coronavirus outbreak, it is also suggesting that it will soon lift restrictions on the economy. “We’re very close to completing a plan to open our country. Hopefully, even ahead of schedule,” President Trump said yesterday.

Who’s on the council to reopen America? A task force has been established for the lifting of restrictions, but its membership remains a mystery. Input will also come from existing committees and unnamed business leaders, administration officials suggest.

• The U.S. Chamber of Commerce sent a letter to members detailing the (many) questions that must be answered before all businesses reopen. “We don’t have all the answers today — or even all the questions,” it said.

• Peter Navarro, the White House trade adviser, told Alan Rappeport of The Times that medical experts and others pushing for a prolonged shutdown were “tone deaf” to the dangers:

“They piously preen on their soap boxes speaking only half of the medical truth without reference or regard for the other half of the equation, which is the very real mortal dangers associated with the closure of the economy for an extended period.”

Whose call is it, anyway? Regional groups of governors are coordinating a timeline for reopening their states. President Trump, however, insists only he has “total” authority to reopen the economy. Expect a clash between advice from federal and state officials.





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