Over at The Next Right, Patrick Ruffini perceives an opportunity to win the denizens of Silicon Valley back to the Republican party. I have to admit that I disagree with him.

I don’t know how closely Patrick has worked with Silicon Valley’s technology and venture capital community. I’ve been tight with them for about 15 years now, and I have to say that Republicanism isn’t a salient feature in the Valley. You see a lot of an aggressive kind of libertarianism (which shows up as a fierce devotion to laissez-faire capitalism). But Republicanism? I must have missed it.

Patrick’s basic thesis is that the VC firms that fund the Valley will rebel at being regulated by Tim Geithner, who is talking about increasing reporting requirements for both private equity and venture capital. Assuming I understand them both correctly, something tells me that neither Geithner nor Ruffini understand deeply what venture capital is all about.

Ruffini does talk about the Reagan tax cuts as a driver of tech-company profits and success, but that just reminds me of Bob Metcalfe, the iconoclastic inventor of Ethernet (that’s the set of electronic standards that control how your computer talks to other computers in its immediate vicinity). The famous story has it that back in the Seventies (pre-Reagan), Metcalfe, an intense and focused guy, was asked tongue-in-cheek to name the President of the United States. His putative response (“It doesn’t matter!”) tells you all you need to know about how technology people think about politics.

When people talk about Silicon Valley venture capital, they’re thinking about a collection of firms mostly headquartered on Sand Hill Road in Menlo Park, a strikingly beautiful place with many different kinds of evergreens. (If you know where the Stanford Linear Accelerator Center is located, that’s the neighborhood.)

The history of Sand Hill Road goes back more than fifty years, and includes some storied names (Dick Kramlich, Eugene Kleiner, Tom Perkins, Don Valentine, Floyd Kvamme, superlawyer Larry Sonsini, to name just a few). I couldn’t tell you much about the politics of the old lions, mostly because when I’ve met them, I was usually pitching to them so I was too busy shaking in my shoes.

But the fortunes of Sand Hill Road (and Silicon Valley) are more tied up with the health of financial markets than with regulation. There’s a stylized investment formula in the Valley, honed over decades, that dictates not only the kinds of investments people make, but also the very structure and personnel of startup companies themselves.

What venture capitalists try to do is to perceive the next several chess moves ahead in the various markets they specialize in. Many perceptive critics charge that they’ve lost a sense for the kind of grand vision that led Tom Perkins to invest in Genentech or John Doerr (a fiercely liberal Democrat and Obama supporter) to fund Google. That’s at least partially true, but again, the formula is to identify the next hot spaces, and invest in them just early enough to make large gains as new firms ramp up, but not early enough to actually fund the much-riskier technology development.

Venture capitalists buy issues of convertible preferred stock in the companies they fund. They make their money by “getting liquid”: selling their stock either to existing public companies or to the public itself. VC depends on the availability of exits. They won’t invest in even the most promising companies if there’s not a credible opportunity to sell the investment out later.

That’s why venture capital is in stasis now. It will come back as soon as the stock market does. And the stock market will be greatly assisted by the new asset-bubbles currently being pumped up by both the Federal Reserve and the Treasury Department.

What Geithner will find when he digs deeper is that venture capital firms pose relatively little systemic risk. The very largest venture capital funds grew up in New York, at places like Goldman Sachs, which saw all the money being made in Silicon Valley ten years ago, and also realized they wanted a vertical-integration path to their underwriting businesses.

These financial funds rarely get bigger than $10 billion, and they’ve tended to focus on less-risky later-stage funding (and later, private equity) anyway. The big Valley VC funds seldom got beyond $1 billion during the boom. They got bigger as more and more money was allocated to them in standard institutional-investing models, but the best Valley firms ended up returning money to investors. There’s only so much you can invest in technology venture capital before you start making stupid mistakes.

And the other element of VC that attenuates its systemic risk, is that VC investments are rarely leveraged. They’re more like supercharged equity, generally with convertibility and liquidation-preference features. Any given VC investment is like a 1-in-10 lottery ticket. No one borrows money to invest in technology startups.

If Geithner decides to force VC firms to open their books to him, he won’t find much to be concerned about (except perhaps the fact that they’re not investing in much these days). To Ruffini’s point that these firms will start supporting Republicans as regulation increases, I don’t think so. Patrick himself says, correctly, that greentech investments will be huge for the Valley. (He also mentions biotech, but biotech has already been a core focus in Menlo Park for many years.)

But continued investments in greentech only make sense to the extent that government is willing to force consumers and businesses to use more expensive forms of energy. Greentech only works if government is the buyer, or coerces the buyers. That means that a greentech investor (as Doerr and another Valley superstar, Vinod Khosla, well understand) needs to be a liberal Democrat.

A final point: Ruffini at one point conflates private equity and venture capital. These are totally different worlds. To explain why is a different post, but I believe that one of the key determinants of success in private equity is to be tightly allied to the world of political power. This isn’t nearly as true in venture capital. As with VC, PE depends on getting the first crack at the best deals. But these are always established firms, and they’re often in other countries. Political allies help a great deal in landing them.

Also, PE firms have historically depended on high levels of bank leverage, so they indeed do pose a danger of systemic risk that VC firms do not. If Geithner is really serious about this, though, I think he’ll find the danger to be greatly overstated. Especially now that PE practitioners are re-evaluating their model, now that high leverage levels are a thing of the past.

Look at the top management ranks of the top PE firms. Where are they? Not in Silicon Valley. Many of them are in Washington, DC. And they’re the same Who’s Who of former CEOs, senior lawmakers and former Administration officials that you’ll find in the top lobbying firms. The PE world isn’t going to be turning Republican any time soon, either.