By Sramana Mitra and guest authors Irina Patterson and Candice Arnold
Sramana: What other programs are you thinking about or incubating within your charter that are going to help this ecosystem that we work with and you work with?
Sean: The SBIC program, again, it is a fund of funds. For the most part, it’s later stage capital, still an incredibly important part of high-growth entrepreneurship. As it relates to earlier stage, we’re in the process of launching a targeted program in the clean tech space that would provide matching funds to funds that are focusing on early-stage investment in clean tech.
More broadly, in the administration outside of SBA – and by the way, part of our mission at SBA is to be advocates for small business, even on issues that affect entrepreneurs, even if it’s outside our direct programmatic purview. In the Recovery Act, there was a reduction in capital gains for investments and qualified small businesses. The president has now proposed to make that permanent.
Coming back to what are the different parts of the financial ecosystem that affect entrepreneurs, how we can stimulate and incentivize the angel market is an incredibly important question. There are other tax changes that have already been implemented, including a tax credit for new hires, and so forth.
But more broadly, we’re saying, “What else needs to be done?” because we all believe that more needs to be done.
We’re interested in your perspective, your readers’ perspectives. Where do you think the levers are?
Sramana: I have a very concrete suggestion, which I’ve actually written quite a bit on. What happens in the bootstrap entrepreneurship world, very aggressively, is that people take their own savings and start companies. So, let’s say I’m an aspiring entrepreneur, and I currently have a job and I’m desperately trying to save up so that I can start a company with my own capital. My thought is the government could give me a tax structure with which I could create some sort of a personal entrepreneurship fund. You know, like today we have a 401(k) fund, which is tax free; we can save for retirement. You can save for your children’s education tax free. Is there something in the administration that you’re thinking about where you allow for aspiring entrepreneurs to save up to invest in a company?
Sean: Yes. We are saying, “We understand the importance of high-growth entrepreneurship. Let’s get all the good ideas on the table, including ideas like this, to see what moves the needle.”
Sramana: The reason I’m saying that this is going to move the needle is because the biggest resource we are lacking is cash. If someone takes my cash as income tax, then I don’t have as much cash left to invest and start a company.
Sean: I understand that. That’s a potentially interesting idea. I would love to see what you’ve written about it. I’m obviously not the person responsible for tax policy. But, again, part of the purview is, how can we be advocates for entrepreneurs? I think, more broadly, we’re drilling really down into the capital question because it’s critically important at this time. One of the things that I hear from entrepreneurs all across the country, as well as investors all across the country, is that largely they look at Washington, DC as a black box.
There are grant programs, there are potential government contracting opportunities, and I hear over and over again from entrepreneurs that they don’t know where to start. They feel shut out of this process. One of the things that we need to tackle is how do we make it easier for smaller companies that don’t have the resources of larger companies to navigate the range of things that are out there and to make it easier for them to access.
I think that’s an incredibly important part, not just on accessing capital on the balance sheet side, but also on the P&L side. The government is a customer. How can we make those opportunities easier for small businesses to access as well. That’s incredibly important.
Sramana: What kind of areas can entrepreneurs expect or hope to get the government as a customer?
Sean: Currently $100 billion of government spending does go to small businesses, and there are guidelines set across all agencies that target of 23% of all government spending is supposed to go to small businesses.
We haven’t quite hit that guideline. I’m saying, “Why should we be satisfied with that? Why can’t we do even better?” [There are] lots of different ways to do that. Part of the challenge is the transaction costs for the first time – for a small company – to come into the system is really hard. How can we lower those transaction costs?