There’s a great CNN opinion piece out today by Amy M. Wilkinson that argues strongly (and correctly) that the government needs to do more to support entrepreneurship and small businesses. I whole heartedly agree.
Quoting from the piece: “According to the Census Bureau, nearly all net job creation in the U.S. since 1980 has been generated by firms operating less than five years.” This conclusion is backed up by the National Venture Capital Association which tracks the impact of private companies who receive institutional venture financing. You can read the recent NVCA report on the impact of venture capital on the overall economy here (the quick take-away is that this impact is extremely significant).
With that as a backdrop, why is the US taking so many steps to stifle the innovation economy? Here are some thoughts, including and expanding on what Wilkinson proposes in her article.
1) Look to start-ups for job creation. Given the conclusions above, this may seem obvious, but it’s not how the government behaves. The vast majority of stimulus money that has gone to companies in the past 18 months has gone to prop up the nations largest employers (many of whom have continued to shed jobs). Instead of always looking for companies that are “too big to fail,” let’s look at some that are smaller and more likely to drive growth in the economy. With Obama about to endorse using bail-out funds for new job creation, let’s make sure that money actually gets directed to companies most likely to actually create jobs.
2) Stop being so xenophobic. As Wilkinson points out, “We are a country of immigrants, and yet in recent years, we have made it incredibly difficult for immigrants to launch companies in the U.S.”. The absurdity of our immigration policy is mind-blowing to anyone who has lived through the experience of trying to obtain a work permit in the US (or watched a friend or colleague do so). My partner Brad Feld along with Paul Kedrosky wrote a passionate argument in the Wall Street Journal yesterday about one immigration reform idea, the Start-up Visa movement (worth reading the entire piece, see it here). But let’s take this idea further. For example, how could it possibly make sense to deport a recent graduate school graduate (someone with the kind of technical degree that we so badly need here in the US and who received significant federal and state subsidies to study here)? We should be doing everything we can to keep smart, educated, motivated immigrants here – we want them contributing to our society and to our economy.
3) Stop putting up barriers to investment and making it hard for start-up companies to operate. My partner Jason Mendelson wrote about Senator Dodd’s recently proposed changes to the accredited investor regulations, the result of which would be significantly increased costs for companies raising money. This will surely result in fewer companies being able to obtain financing (and as far as I can tell provide no meaningful added investor protections). Fred Wilson wrote about this a few days ago as well. This is bad for investors, bad for companies and bad for the economy.
While we’re talking about administrative and costly burdens, can we please address 409(a)? (here’s a quick explanation of 409(a) for those that want a refresher) As far as I can tell the only ones that benefit from 409(a) are the valuation firms that charge $6k-$8k to provide companies reports that allow them to price the stock options they issue to employees. Collectively, it amounts to a massive tax on private companies – but one where the neither the government, the companies or employees benefit.
4) Stop treating venture capitalists as the enemy. Honestly, we’re really not bad people. And we’re not here to take advantage of the system. Most of us are passionate about entrepreneurship and about helping companies grow and prosper. We don’t need to be regulated more than we already are (it looks like we’ve avoided this for the moment), we don’t need our taxes raised for the long term work that we do and we definitely need to have some clarity on FAS 157 which is a complete mess at the moment and is at best going to introduce significant incremental costs into the system (which will take time and money away from our investing activities). [note: we have more to say on FAS 157 – look for that in an upcoming post]