Entrepreneurs have the courage and ability to seek out, identify and capitalize on opportunities.
At the same time, of course, entrepreneurship is not easy. It comes with assorted challenges, like staying focused on the customer, finding the right employees, keeping costs under control, innovating, gaining access to necessary credit and capital, and dealing with government.
While elected officials and their appointees always talk nice about entrepreneurs and small business, once you get beyond core duties such as protecting life and property, enforcing contracts, and the fulfillment of other essential duties, government policies usually present obstacles and costs for businesses, such as tax, regulatory, red tape and paperwork burdens.
Some of the deepest divisions between the two major political parties are about how public policy relates to entrepreneurs and businesses. On the one hand, business are viewed as a political tool or punching bag, and a cash cow from which resources can be drained to pay for political endeavors, with little, if any, consideration given to how business might be affected. On the other hand, the central role entrepreneurs, businesses and investors play in terms of economic, employment and income growth are recognized, and serious consideration therefore given to how policy impacts the business community.
While a deep political divide exists when it comes to such economic policies, productive, bipartisanship moments remain possible.
A striking example was found recently in the U.S. House of Representatives on an issue affected how small businesses raise capital. Finding the capital or credit needed to start up and/or grow a business stands as a formidable test for entrepreneurs.
Unfortunately, much has been done and talked about in policy circles that makes it even more difficult for entrepreneurs to get funding. For example, a higher capital gains tax, as supported by President Barack Obama, would only mean reducing the incentives and resources available for entrepreneurship and investment. In terms of credit, while the Dodd-Frank financial regulation law, which was signed into law in July 2010 by Mr. Obama, does nothing to solve the problems that brought about the credit/economic meltdown of 2008, it will raise costs, and limit banks’ abilities to enhance returns and value for both shareholders and customers. That, quite simply, means reduced credit availability.
But on November 3, 2011, the House voted by an overwhelming bipartisan vote for the Entrepreneur Access to Capital Act (H.R. 2930). The measure passed 407-17, with 238 Republicans and 169 Democrats voting in favor. (This was included in the larger Jumpstart Our Business Startups (JOBS) Act, which passed the House by 390-23 on March 8, 2012.)
The bill would legalize crowdfunding. That is, entrepreneurs would be able to raise limited amounts of capital from small investors using the Internet and social media, with the “crowd” evaluating the value of the opportunity.
Currently, some businesses can use online services like KickStarter.com to raise funds. But KickStarter is mainly for creative endeavors, such as music, film and publishing, and it is not an investment vehicle. As KickStarter explains, “This is not about investment or lending. Project creators keep 100% ownership and control over their work. Instead, they offer products and experiences that are unique to each project.”
The Entrepreneur Access to Capital Act would allow a crowdfunding exemption from SEC registration regulations when the total amount of capital to be raised is $2 million or less, with investments by individuals limited to $10,000, or 10 percent of an investor’s income, whichever is less. It also lifts limits on the number of crowdfunding investors.
Not only do Democrats and Republicans in the House support crowdfunding legislation, but so does President Obama. In a “Statement of Administration” policy, it was noted, “This bill will make it easier for entrepreneurs to raise capital and create jobs.”
After the bill passed the House, Congressman Patrick McHenry, a North Carolina Republican who sponsored the crowdfunding legislation in the House, said, “It’s clear that we need new ways to help small businesses and entrepreneurs take their ideas from the dinner table to the production line. The first step is to modernize outdated regulations that stand as barriers to American innovation. This legislation will ensure that our small businesses are not left behind. Crowdfunding can help give them the means to create jobs for hard-working individuals here at home.”
But the crowdfunding measure must still be acted on in the U.S. Senate. At the end of last month, leaders of key business groups, including the National Black Chamber of Commerce, The Latino Coalition, and the Small Business & Entrepreneurship Council (for whom I serve as chief economist), sent a letter to Senate Majority Leader Harry Reid (D-NV) and Minority leader Mitch McConnell (R-KY) urging passage of H.R. 2930.
In the letter, the groups explained that H.R. 2930 would “update antiquated securities laws to enable crowdfund investing platforms. On these platforms, investors will dynamically engage with other investors to vet business ideas and fund those businesses that have significant promise. Crowdfund investing will allow entrepreneurs who lack access to funding networks the opportunity to bring their business ideas directly to investors.”
Let’s hope that the Senate does not botch this rare and important bipartisan opportunity to make a real difference for small businesses and our economy.
Raymond J. Keating is the chief economist for the Small Business & Entrepreneurship Council. His new book is “Chuck” vs. the Business World: Business Tips on TV.