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A ray of hope in a time of political gridlock

July 20th, 2016
Comments Off on A ray of hope in a time of political gridlock

The day that the 114th U.S. Congress departed for their summer break, they left behind pending bills to fight the Zika virus, restrict firearms to anyone on the terrorist watch list and a toxic legislative atmosphere worse than one year ago, if that could even be possible.

But on that same day a Senate Committee hearing took place that went against the raw partisanship displayed during the legislative session that could have positive implications for the long-term economic health of the American economy.

The Senate Small Business and Entrepreneurship Committee held a hearing to “examine current trends and strategies in the venture capital ecosystem…options that startup companies have to raise capital throughout different stages of business development” and steps that could be taken by government and the business community to make more investment capital available to startup businesses. Witnesses from leading venture capital firms that finance digital giants like Uber, Airbnb and biotech startups were invited to testify.

Decline in Business Startups in the US.  The background for this discussion is the US economy’s slow and uneven growth since the Great Recession of 2008. The number of business startups declined 2 % in the United States, according to research released this week by Babson College’s Global Entrepreneurship Monitor 2015 U.S. Report, which is discouraging since small businesses are viewed as primary sources of economic growth and job creation.

Another worrying trend is the growing percentage of investment capital that is going to fund high value startups and some valued at $1 billion or more, while funding for smaller high-growth startups has significantly declined.

Competitive pressures from globalization has also played a role. The rancorous debate on foreign trade during the the Presidential primaries has underscored the depth of public concern. Fears that technological innovations could result in the loss of scores of jobs to automation was another factor. According to one witness, a study conducted by Oxford University estimated that nearly half of American workers were at risk of losing their jobs to a machine. Both factors have become key issues in the 2016 US elections for President, the Congress and in states across the country.

Senators from both sides of the aisle spoke of the challenges facing entrepreneurs and startups in states like Michigan, North Dakota, Washington, and Colorado. While all senators would be happy to have the next Facebook open for business in their state, their focus was on local industries. For example, Senators Cory Gardner (R) of-Colorado and Heidi Heitkamp (D) of North Dakota discussed the difficulties that entrepreneurs have to get capital financing to start small high-growth businesses in agriculture, retail, product manufacturing and service industries in rural areas and in economically distressed regions of the United States.

Providing Incentives for Starting & Funding High-Value Small Businesses.   What happened next was extraordinary. There was no partisan skirmishing, only agreement that there is a problem. The lawmakers did not criticize the financial industry but asked the witnesses for ideas on what could be done to increase the availability of investment capital for small high-growth companies throughout the United States.

The witnesses responded with suggestions for revisions to the JOBS Act, which helps to make it easier for startups to raise equity, and to pass the HALO Act, which excludes startup accelerator’s demo days from federal laws on general solicitation requirements that are barriers between startups and angel investors. They also recommended modernizing federal, state and local regulations in order to provide incentives for entrepreneurs to start businesses and financial firms to provide them with investment capital.

They underscored the importance of taking steps to support the growth of innovation eco-systems nationwide, including encouraging STEM and startup business skills training for future entrepreneurs. Other recommendations included more government support for basic research to keep the United States a global leader in biotech and in other critical scientific areas and patent law reforms to reduce risks from “patent trolls”.

One recommendation that stood out was to have accessible retirement plans for self-employed persons. The fall of pension plans and the rise of the “gig economy” has placed a larger burden on workers to plan for retirement. Entrepreneurs will also retire someday and there are no guarantees that the high risk ventures they dedicate their lives to will be financially successful.

There was a real give-and-take conversation between the Committee and the witnesses. I recommend reading the written testimony for more details.

The Congress will reopen for business in early September. Some of the Committee members will be campaigning for reelection or supporting their party’s presidential candidate in one of the most divisive national elections in recent history.

Will the same bi-partisan atmosphere be there when the Committee reconvenes later this year to revisit these issues? I hope so. The country’s future could depend on it.

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