Wealth Finance

– Jeff Bussgang is a general partner at Flybridge Capital Partners and an Entrepreneur-in-Residence at Harvard Business School. He is the author of “Mastering the VC Game” and writes the blog “Seeing Both Sides”. The following is an abridged version of a blog that originally appeared on PE Hub. The views expressed are his own. –

I love Jackson Hole, Wyoming. It’s one of the most extraordinarily beautiful settings in the world. One cannot help being in a good mood when observing the breathtaking wildlife, open sky and the awe-inspiring Grand Tetons.

Thus, reading the reports from last weekend’s annual economist confab in Jackson Hole could not have been more depressing. If the practitioners of the dismal science sound this pessimistic amidst such an uplifting setting, what will their attitude be when they trade in their cowboy boots for green shades and return to their drab offices to stare at spreadsheets? A usually staid Allen Sinai sounded positively hyperbolic, yet apparently spoke for many at the conference, when he told the New York Times, “I’m more worried than I have ever been about the future of the U.S. economy. The challenge is unique: poor and diminishing growth, a sticky unemployment rate, sky-high deficits and a sovereign debt that makes us one of the most fiscally irresponsible countries in the world.”

In his Oval Office speech on Iraq, President Obama acknowledged his concerns about the economy and declared, “Our most urgent task is to restore our economy and put the millions of Americans who have lost their jobs back to work… we must unleash… innovation… and nurture the ideas the spring from our entrepreneurs.”

So here’s what I don’t understand: If everyone, including the president, believes that supporting innovation and entrepreneurship is the best path forward, why aren’t the policy leaders taking action? Thomas Friedman of the NY Times has been hammering on this issue for the last year, calling on the president to “launch his own moon shot” and make innovation and supporting the start-up economy his top priority.

First, let’s review the data. The Kauffman Foundation did a comprehensive study of historical job creation and, not surprisingly, found that small businesses are the main source. “Without startups,” writes Senior Fellow Tim Kane, there would be no net job growth in the U.S. economy. This fact is true on average, but also true for all but seven years for which the U.S. has data going back to 1977.” See the following chart:

But despite the obvious data and the presidential rhetoric, we are not seeing any action from policy leaders on either side of the aisle. It’s almost as if the policy makers think speeches exhorting innovation are more important than doing the hard work of pushing forward legislation that will actually positively impact the innovation economy.

I’m no policy expert, but it strikes me that there is a clear innovation agenda that has been put forward by those who are the most knowledgeable about the issues. A few of the ideas being proposed seem obvious, but are stagnating due to a lack of leadership. For example:

• We need to make it easier for immigrants to start companies in the U.S. The Start-Up Visa movement addresses this issue squarely in the head and yet the bill proposed by Senators Kerry and Lugar six months ago appears to be caught up in the more partisan immigration debate.
• Sarbanes-Oxley needs to be reformed. We may have had too little regulation of complex financial instruments like credit default swaps and other derivatives, but we clearly have too much regulation being imposed on the public selling of the securities of $100 million companies that are very simple for investors to understand. Why haven’t Facebook, LinkedIn, Zynga and many others gone public? It’s just too onerous and expensive. You want to unleash innovation? Make it one-third as expensive for small companies to comply with public regulations. There have been numerous proposals in the past to rethink Sarbanes-Oxley, we need to see some form of them come to light.
• Other important policy ideas have been put forward by the National Venture Capital Association (NVCA) and others – such as patent reform, increased investment in broadband, increased investment in NIH funding, reforming the FDA approval process.

The amazing thing to me is that none of these ideas – and many others floating around the entrepreneurial community – require big dollars. Instead, they require big leadership. Where is that leadership going to come from? Who will be our champion for entrepreneurship? Ted Kennedy played this role in health care. John McCain played this role in campaign finance reform. Who will step up and be the champion for entrepreneurs?

If only we could get our policy leaders to take big actions to match their big rhetoric. Then next year’s Jackson Hole conference might be a lot more fun for everyone.

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