Current Entrepreneurship and Innovation Policies

Abstract

Out of the 7430 bills in total proposed in the 114th Congress of 2015-2017, there were 103 bills either related to entrepreneurship or innovation or containing the specific word, "entrepreneurship". Several of these bills have led to acts and policies that have had a significant impact on the present and future outlook of entrepreneurship and innovation in the United States.

Entrepreneurship

Federal Policy

Several policies affecting small businesses and entrepreneurship have been discussed in Congress. The following is a summary of some acts and policies that have a significant impact of entrepreneurship in the United States. A comprehensive list of policies on entrepreneurship reports by the Senate Committee on Small Business and Entrepreneurship can be found here.

• The Small Business Innovation Research (SBIR) program was introduced by the U.S. Congress in the early 1980's to enhance long term growth among small businesses. It is currently coordinated by the Small Business Administration (SBA). They offer grants to small businesses (typically with 25 or less employees) to financially boost the company's outlook and additionally assign the company's a sign of quality which consequently starts to attract further external investments. Academic research has shown that SBIR awards significantly increases the likelihood of subsequent venture capitalism funding in future years. There additionally has not been many indicators of SBIR grants crowding out private investors because the program targets small businesses with researched potential that informs private investors on the quality of upcoming startups. Research and data analysis of the effects of SBIR are highly in favor of the view that the program enhances entrepreneurship, innovation, and the venture capital industry in the United States.

• The Jumpstart Our Business Startups (JOBS) Act of 2012 was enacted to provide looser security regulations for entrepreneurs and investors to allow for more funding and potential for success for startup businesses. Two specific provisions of the act are especially impactful for small businesses: Title II and Title IV. Title II indicates the increase in the number of potential investor that a company can communicate with in order to acquire funding. Title IV allows investors to put almost 10 times more funds into companies with much less restricted investing requirements.

• The Small Business Administration (SBA) is an independent agency for the Federal Government that grows businesses and creates jobs by acting as the voice of small businesses. It serves to strengthen entrepreneurial ecosystems by providing financial assistance specifically to the many small businesses that do not qualify for bank loans.

• The Helping Angels Lead Our Startups (HALOS) Act simplifies the process by which startup companies can publicly attract investors by allowing these startups to pitch their businesses in areas in which every person in attendance is not necessarily an accredited investor. In addition, the act clarifies the definition of an angel investor group. To be considered as an official angel investor group, an entity must be made of primarily accredited investors that want to invest personal capital into early-stage startup companies, must have a structured meeting and procedural outline, and must not be associated with any other investment advisers or brokers.

State and Local Policy

General Policy

• State governments often match the federal SBIR grants given out to small businesses.

• The Certified Capital Company (CAPCO) program was first introduced in Louisiana in 1983 but has since been put into action in several other states such as Colorado, Florida, Missouri, New York, Texas and Wisconsin. This program was created to encourage venture capital funding at the state level. The CAPCO programs receive insurance tax credits from the state government which they proceed to sell to insurance companies for capital. The CAPCO programs then use this capital as venture capital firms to invest in start-up companies. Insurance companies receive tax credits and then capital at the end of the program to create an overall positive impact for the state's economic and entrepreneurial ecosystem.

• The Fund of Funds program was first introduced in Oklahoma in the mid 1990s before spreading to several other mid-western states like Arkansas, Ohio, Michigan, and Iowa as well as in Utah. This program has the state put funds into venture capital and private equity funds that are committed to both investing in qualified companies as well as in working with small businesses in the state. This fund is financed through methods such a bond markets investments and third-party lenders. Though risks are lessened through the avoidance of directs stock investments, the downfall often involved with these programs lies in the fact that the investment money is given through state tax credits; therefore, if investments fail, taxpayers are victimized.

• Public venture funds are given to several small businesses to promote entrepreneurship and financially back small businesses.

• State and local governments often create a link between new businesses and research universities in the area.

• Tax incentives for investing in startup companies in specific areas of research have been created by several states. Over 20 states have created policies to award tax credits for angel investors. Some other states tax credits for firms investing in specific qualified startup companies.

Specific State Policy

• Florida - The Florida Growth Fund was formed in 2009 to increase innovative development and growth in Florida. Experienced investment professionals manage the $750 million fund through either committing to an investment partnership with private equity funds or co-investing directly into companies alongside another fund manager.

• Maryland - Invest Maryland was a state policy enacted to raise funds for Maryland startup companies. Two-thirds of the funds raised are managed by private venture firms in Maryland that will invest the funds into startup companies. the remaining third of the funds is handled by the state-run Maryland Venture Fund to once again invest in emerging companies.

• Massachusetts - Mass Ventures is the state-initiated capital program formed by the state of Massachusetts and run by venture capitalists to provide early-stage assistance to small businesses and startup companies with potential for high growth. All of the program's investment money remains in the state.

• North Carolina - The Research Triangle of North Carolina was formed to take advantage of three of the state's big universities, UNC Chapel Hill, NC State, and Duke, to create a zone in North Carolina where startups, research, and innovation all thrive. This triangle allows for startups to be immediately put in an area with the resources and support to succeed as well as the opportunities for research needed to thrive.

• New York - The Entrepreneurial Assistance Program (EAP) establishes centers in local communities in New York to provide structure, technical assistance and support for entrepreneurs with innovative ideas.

• Ohio - The Ohio Third Frontier is a stage-government funded economic development program that put its $2.3 Billion initiative fund into new startup companies with innovative technology-based products. The fund provides entrepreneurial assistance, business expertise, mentorship, talent, and mostly significantly, capital, to accelerate the process of turning innovative ideas into successful companies.

- The Edison Technology Program of Ohio was established in order to transfer technology and innovation from universities and state-government run research institutes to emerging startup companies to allow innovation and entrepreneurship to converge in a way that allowed both to thrive.

• Texas - CAPCO is a private, state-government sponsored venture capital company created to increase availability of funds for small businesses with a primary workforce and set-up location in Texas.

- Texas Emerging Technology Fund (TETF) was formed in 2005 to give Texas an opportunity to fund companies with high-tech research and development of emerging technologies. The fund target companies with the innovation and commercialization to have a profound and long-lasting impact on Texas that would enhance economic benefits and inspire scientific breakthroughs.

- Texas Enterprise Fund (TEF) was formed in 2003 increase employment and investment in Texas. The fund invested in companies with potential for a significant rate of return. It attracted new businesses and entrepreneurs to Texas in order to generate jobs and capital investment.

• Wisconsin - The Qualified New Business Venture program (Angel Investment Program) was formed by the Wisconsin state government in 2003. The program works by designating startup businesses in Wisconsin in the early stages of innovative development as QNVBs. When qualified venture capital firms and angel investors give funds to these startups, the QNVBs would receive a 25 percent tax credit on the amount of the investment.

Regional Cluster Policy

Regional cluster policy targets startups to encourage and assist the formation and growth of the companies. These policies do this by typically instigating the transfer of knowledge across numerous organizational boundaries. Often these boundaries are organized in a manner where opportunities for startup companies, universities, and firms overall are optimized.

• Silicon Valley - Several computer technology companies emerged in this part of California in the late 1990s. This led to an abundance of opportunities for entrepreneurs to form their own startup companies. This exponential increase in startups subsequently led to numerous venture capital firms moving to Silicon Valley. More and more startups and VC firms continued to move into Silicon Valley, creating the innovative "cluster" in the area. With the help of nearby research institutions and universities, particularly Stanford University and the University of California at Berkeley, Silicon Valley blossomed into one of the premiere innovative concentrations in the world.

• Route 128 - Influenced by academia, industry, and government, Boston's Route 128 has become a prime geographical area for entrepreneurship and innovation. With the resources available at nearby institutions like Harvard College and The Massachusetts Institute of Technology, as well as through the federal funding given to encourage innovation and research, Route 128 has become one of the most prolific clusters for innovation and policy in the country.

• Research Triangle Park - The Research Triangle of North Carolina was formed to take advantage of three of the state's big universities, UNC Chapel Hill, NC State, and Duke, to create a zone in North Carolina where startups, research, and innovation all thrive. This triangle allows for startups to be immediately put in an area with the resources and support to succeed as well as the opportunities for research needed to thrive.

• Confluence Water Technology Innovation Cluster - Ohio, Northern Kentucky, and Southeast Indiana have obtained support from the EPA and SBA to collaborate to establish the Ohio River Valley region as a global leader in innovation by attracting the best entrepreneurs and innovators and by creating and attracting jobs and investment.

Innovation

• Under the The Innovation Promotion Act of 2015, companies will be allowed up to a 71% deduction of the lessor of either their taxable income or their 'innovation box profit' (a calculation subject to tentative innovative profit and 5-year total research and development costs). In other words, income derived from intellectual property would be taxed at a lower tax rate. Qualified intellectual property would include patents, inventions, formulas, processes, computer software, and possible other innovations. There has also been extensive feedback on the act.