If entrepreneurs are to drive job growth, they need more ways to get financing. Speaking Tuesday to the National Press Club in Washington, Tom McDonnell, the new chief executive of the Ewing Marion Kauffman Foundation, said financing innovations were helping startups gain access to capital, but regulatory reforms are needed to smooth the path.
McDonnell used the national platform to summarize recommendations in the
Kansas City foundation's annual State of Entrepreneurship report.
The 2013 report calls for building on the Jumpstart Our Businesses Act of
2012, known as the JOBS Act, which included provisions about equity
"crowdfunding."
That source of startup capital allows a large number of investors to get
relatively small shares of equity, often through Internet purchases. Such
pooled investments can help a new venture get off the ground even if larger
angel investors aren't interested.
The report said the growth of crowdfunding sites is necessary because of
a 10-year "drought" in initial public offerings and an "erosion in the venture
capital model."
But, Kauffman experts said, the Securities and Exchange Commission must
clarify crowdfunding rules without "pre-emptively (strangling) crowdfunding
through onerous regulations."
One Kauffman recommendation about equity funding is the use of AngelList,
a matching service for entrepreneurs and investors that is financed in part by
the foundation.
Other key recommendations:
•Encourage wider use of Dutch auctions, as recently used by Google,
rather than setting a specific initial public offering price for stock.
•Allow bank examiners more judgment calls in small local banks to
remove some of the banks' regulatory costs and risk aversion.
•Create longer-term venture capital funds to better align general
partners' interests with those of limited partners.
•Allow shareholders to vote on whether Sarbanes-Oxley accounting rules
apply to their company, building on the JOBS exemption to the requirements for
firms with less than $1 billion in revenue.
The foundation has posted a video of McDonnell's speech and a panel
discussion at www.kauffman.org/financegrowth.
