Reinvigorating the entrepreneurial spirit in America
This week at the Milstein Symposium, a project of the University of Virginia’s Miller Center and the Batten Institute, members of the Milstein Commission on Entrepreneurship and Middle-Class Jobs, including co-chairs Carly Fiorina and Steve Case, released a new report, Can Startups Save the American Dream?. The report advances five ideas on how to encourage greater entrepreneurial activity in the U.S.:
- Unlock Capital for Main Street Entrepreneurs through improvements to the Community Reinvestment Act and Community Development Financial Institution Fund.
- Accelerate Impact Investing through Program-Related Investments (PRIs) by revising PRI regulations and expanding PRI awareness among foundations and entrepreneurs.
- Build a Regulatory Roadmap to help emerging companies navigate the complex regulatory landscape at the local, state, and federal levels.
- Empower the Next Generation of Entrepreneurial Leaders by enhancing awareness among K-12 students of the opportunities entrepreneurship can provide.
- Equip Civic Leaders to Build Entrepreneurial Ecosystems by implementing an “Ecosystem-in-a-Box” concept – to provide civic leaders with a playbook on how to reinvigorate entrepreneurship in their communities.
The panel presenting the report also included commission members Lenny Mendonca, Entrepreneur and Director Emeritus at McKinsey & Company; Ross Baird, Executive Director at Village Capital; and Brian Meece, CEO of RocketHub.
Key themes emerged from the discussion that influenced the report, including:
There’s No Silver Bullet: The right capital, regulatory environment, leadership, and ecosystem all need to be in place to facilitate entrepreneurship. All five ideas advanced in the report are necessary, with no recommendation outweighing the others. Taken together, the recommendations do not necessarily require legislative action, panelists noted, but may require clarity from relevant government agencies including the Treasury Department.
Entrepreneurial Equality: The ability of entrepreneurs to gain access to capital and support varies widely, depending on the entrepreneur’s type of business and location. Location can hamper entrepreneurs (and the communities they support) who are not in a funding hub or working in a “hot industry”. Panelists noted that entrepreneurial spirit doesn’t just live in Silicon Valley, but across the U.S. in every state and sector. It’s crucial to help investors recognize this and encourage them to invest not only in the next Google, but in the person opening a laundromat across the street, one panelist remarked. Yet a “level playing field” does not exist at the moment. As Case pointed out, in 2014, 76 percent of venture capital investment went to only three states: California, Massachusetts, and New York. And yet 76 percent of Fortune 500 firms are from the other 47 states. In developing the report, the Commission focused on how to create an atmosphere where an innovator with a small business is celebrated just as much as the next tech entrepreneur, according to Fiorina.
Capital Desert: Participants discussed the difficulty of securing financing, with entrepreneurs having to focus significantly on fundraising throughout the startup process. The good news, as explained by Baird, is that huge pools of capital already exist that can help fund startups, provided that certain regulations are tweaked. The report calls for changes to the Community Reinvestment Act (CRA), specifically calling for the Federal Reserve to adopt a more uniform process for determining which investments meet CRA requirements. The report also recommends revision to the definition of “assessment area.” In addition, revisions to regulations regarding program-related investments (PRIs) would provide foundations with additional tax clarity when providing capital to startups. At present, only one percent of foundations make such investments.
Regulatory Quagmire: For the first time in a long time, more businesses are failing than are being created – to Fiorina, a deeply troubling fact that calls for fundamental reform to the complexity and size of government that is “weighing on the entrepreneurial spirit.”
She added, “when was the last time we did an inventory of all regulations on the books? It’s like geologic sediment – we have eons of rules and regulations at the fed, state, and local level.” Fiorina added that big government works “very well” for big businesses, which can deal with the added complexity, but Main Street cannot.
Case pointed out that there has and will continue to be an ongoing battle between the attackers (entrepreneurs) and the defenders (existing companies that support the status quo). The key question is, “how do you make sure regulations that were put in place for the right reason aren’t unintentionally protecting the incumbent versus enabling disruptors?”
Panelists pointed out that a regulatory roadmap, as detailed in the report, could provide enough clarity to new and emerging businesses looking to navigate the complex local, state, and federal regulatory structure currently in place.