Obama also proposed clearing a path to public offerings for small companies by loosening regulations for younger companies in their first years after going public.
Creating an environment that allows small companies to proliferate and hire has taken on an increased importance in the national political agenda. Launched last year with former AOL CEO Steve Case at the helm, the Startup America initiative set out to boost high-growth start-ups through improved access to capital, mentors and other business resources.
The interest in high-growth companies reflects recent research from the Kauffman Foundation and others finding that small businesses create most of the nation’s jobs, and fast-growing companies, which make up less than 1 percent of all businesses, generate 10 percent of net new jobs in any given year.
“The data show that job creation is disproportionately concentrated in a small portion of high-growth firms,” said Sean Greene, the associate administrator for investment at the U.S. Small Business Administration and a former venture capitalist and entrepreneur. “In this economic environment, we need to be doing everything we can to help those companies start, scale and grow.”
Tuesday’s so-called “Startup America Legislative Agenda” aims to address many of the hurdles that some venture capital experts and economists say have long been a drag on the start-up economy.
Desperately seeking capital
The lack of funding for early-stage companies in particular is sometimes called a “valley of death” in the start-up world. In clean technology alone, for example, data from the moderate think tank Third Way shows that venture capital funding in late-stage companies was more than double that in early-stage ones in 2010.
What’s more, there are less than half as many venture capitalists now as in 2000, and nearly 70 percent of VC funding is doled out in California, New York and Massachusetts, leaving entrepreneurs in other areas without much-needed cash.
“There’s a lot of start-ups that need capital that are close to getting funded, but can’t,” said Jeffrey Sohl, director of the Center for Venture Research at the University of New Hampshire.
Joshua Konowe, founder of Washington-based texting start-up Uppidy, said he pitched multiple angels in D.C. but had trouble raising a round initially. There are fewer investors in Washington than in other tech hubs, he said, and funders seemed interested in investing either too much or too little money. (He was looking for hundreds of thousands, not millions.)