As policymakers on both sides of the aisle wring their hands over creating new jobs to stimulate our sputtering economy, it’s become commonplace to hear them give lip service to how they want to empower entrepreneurs and small business.
Sadly, invigorating entrepreneurs stops there, and this lack of new business support and funding for startups is holding back our economy.
Ask an entrepreneur how the government can help, and most of the time, the conversation will turn to access to capital. After all, borrowing capital and generating a return is precisely what entrepreneurs do.
The problem is that banks aren’t lending money to startups, and we have no backup system in place for seed funding.
Our financial system doesn’t support startups
The original intention of the stock market was to help established companies grow. Considering the U.S. economy went on to become the largest in the world — fueled largely by that stock market — I’d say it did pretty well. That’s great for established companies, but almost unbelievably, there is not a similar system in place to fund startups.
Venture capitalists and angel investors serve mezzanine funding purposes fairly well, but they’re a rarer species than most believe, and they don’t provide nearly enough seed capital to startups. Nobody does — and that’s a really big problem.
I still haven’t been able secure a loan from a bank for my company, Tower Paddle Boards — even though we closed 2012 with $1.7 million in revenue and have already secured funding from billionaire investor Mark Cuban on ABC’s “Shark Tank.”
As most entrepreneurs can attest, banks won’t touch startups or companies less than two years old, even though my bank proudly touts itself as the top lender to small businesses in America.
Fixing what’s broken in our economy
So, while they are credited with creating most of the country’s new jobs, many new and small businesses don’t have access to startup money. Ones that do are often those luck enough to have wealthy friends and family who are willing to invest.
If we don’t nurture our small businesses and startups, we won’t have much of an economy to speak of. We need to empower entrepreneurs by creating a system to actively nurture the American Dream and facilitate job growth. Here’s how.
Create a financial program that matches and motivates the best entrepreneurs with seed capital; allowing the U.S. government to act as venture capitalist. Budget $3 billion per year to invest in 10,000 startups.
The world’s best and brightest entrepreneurs start working all-nighters innovating, which benefits the entire country. If you believe the promise of the American Dream has had anything to do with invigorating our economy over the past 200 years, just imagine the effect of selectively handing out checks to the brightest entrepreneurs from around the world.
Award investments through a massively scaled, locally distributed business pitch competition, utilizing the nation’s top 200 universities to field entries. Once funded, each entrepreneur has the opportunity to go through a month-long startup boot camp.
He is assigned an account oversight manager for transparency, and he gains access to a low-cost team of resources (patent attorneys, accountants, etc.) during the initial startup. The U.S. government gets an equity position in exchange for its investment (a la venture capitalists).
Cash the government out at harvest, and the winners will make the program self-funded (and likely very profitable) over the long term.
As a country, we have some of the best universities, the most diverse populace, the largest economy, the most collective wealth, a highly evolved free market financial system, and an entrepreneurial attitude. If we leverage these assets, engage and motivate the best and brightest minds, and attract entrepreneurial talent, we would create a sustainable competitive advantage in this new Information Age.
Stephan Aarstol is the cheif executive and founder of Tower Paddle Boards in San Diego, California.