In his State of the Union Address next week, President Obama will shift gears back to job creation after his inauguration speech focused on wider themes. As the debate about how the government can help the economy regain its pre-recession strength enters a new phase, the Kauffman Foundation’s annual “State of Entrepreneurship Address” last week in Washington, DC, focused on how financial constraints have been blocking the success of new and young firms that create most of the net new jobs.
The debate surrounding entrepreneurial finance has begun a new chapter partly because of recent innovations in the field, such as crowdfunding and the success of efforts like AngelList, an online platform to connect startups and investors. The question on the table is how to best leverage these innovations to increase the pool of capital while protecting investors.
Policymakers can and should take credit for passing legislation last April to make it easier for entrepreneurs to tap funding sources, namely the Jumpstart Our Business Startups (JOBS) Act which, in essence, exempts firms with less than $1 billion from Sarbanes-Oxley (SOX). However, the SEC unfortunately missed a year-end deadline to implement its provisions and as a result, investors and entrepreneurs are still anxiously awaiting its implementation. The changes this piece of legislation could bring to the pool of capital could make it a milestone policy achievement to boost new American starts.
Kauffman’s State of Entrepreneurship Address over the past few years has become a source of pro-entrepreneurship “policy roadmaps” offering straightforward solutions to remove roadblocks for startup creation and growth. This year, Kauffman President and CEO Tom McDonnell presented a new set of recommendations focused on financing entrepreneurial growth, which drove an interesting panel discussion of expert investors. He was joined by long-time entrepreneurship expert and SBA Administrator Karen Mills and Senator Jerry Moran (R-Kan.), a strong champion of the JOBS Act in Congress and the co-author of the complementary Startup Act legislation. The discussions focused on the following recommendations:
There are clearly a lot of areas to improve, and our policymakers have no time to waste. All five panelists last week pointed out that there is clearly a new wave of entrepreneurs entering the market and having dormant early-stage capital could prove deadly for many great business ideas. For instance, Ramana Nanda, associate professor of business administration at Harvard Business School noted that there has been a more than 50 percent increase in the number of Harvard graduates who start businesses right out of college. To hear that the tide is changing for entrepreneurs from investors as well, such as Jeff Fagnan, partner at Atlas Venture, was refreshing news.
The fourth edition of this annual Kauffman event came at a time of solid national consensus that entrepreneurship is the key driver of economic growth, reflected in the scores of new programs that have sprung up to help entrepreneurs. And, as with so many of the ideas brought to Washington, DC, by the entrepreneurship community, the discussion was less about being confrontational—for example, around whether the SEC should regulate crowdfunding activity—but rather how to find creative ways to do this without drowning innovation and entrepreneurial enthusiasm and energy. Not only are these ideas worth exploring, but in doing so we can learn a great deal from the wealth of data on entrepreneurial financing now becoming available. The Administration would do well to deepen its tool chest of data and analysis as it hurries to strike the right balance that allows more Americans to help more entrepreneurs create jobs. The data will show this should be far from controversial—in fact, it is quite simple. When I attended the Rose Garden signing ceremony for the JOBS Act last year, creating jobs was the focus of President Obama’s short remarks just as it will be next week in his State of the Union Address. Why delay any longer?
A downloadable video of the Kauffman State of Entrepreneurship Address and subsequent panel discussion is available at kauffman.org/financegrowth.
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