The growth of the modern venture capital industry can be traced back to the 1970s, when several significant policy changes encouraged long-term risk investment in startups.
These policy changes included reductions in capital gains rates and relaxed standards on where corporate pension funds could invest, allowing them to participate in a wider range of asset classes, including the nascent venture capital industry.
These simple but critical changes in policy made 1978 the first year the venture industry saw a significant fundraising period, raising $750 million to invest in innovative startup companies and beginning the rise of venture capital in the United States.
Since then, the National Venture Capital Association (NVCA) has advocated for a policy agenda that supports venture capital and the entrepreneurial ecosystem. From our industry’s history, we know how small changes in government policy can have a substantial impact on entrepreneurs trying to build companies and the firms and individuals investing in these bold new companies. That is why NVCA is always excited to have the opportunity to speak with members of the U.S. Congress about policy matters that could help to further strengthen the entrepreneurial ecosystem.
We recently had such an opportunity when Scott Kupor, managing partner at Andreessen Horowitz and chair-elect of NVCA, and Ali Behbahani, partner at New Enterprise Associates, were invited to testify before the Senate Small Business Committee at a hearing to examine the role of venture capital in supporting entrepreneurship in America.
On the whole, committee members were very interested in the testimony of Scott and Ali, asking a number of detailed questions regarding the entrepreneurial ecosystem. Naturally, all of the senators were keenly interested in discussing ways to attract more venture investment to their states and exploring which policy changes would be most helpful to spur investment into various states.
“Through public policy and cultural norms, the United States has fostered a strong appetite for risk, and the benefits have been tremendous,” said Kupor, noting the historical support that made venture capital in America so powerful.
“Great companies are built by a team that includes the startup leadership, scientific founders, advisors, industry partners, and venture capitalists. You need all of these key ingredients to build an innovative company,” said Behbahani, discussing the key ingredients to foster entrepreneurial development and attract venture capital investment to a state or region.
Of the many policy ideas discussed, several stood out. There were discussions around big issues, such as tax policy that encourages new company formation, immigration reform for entrepreneurs, reopening the IPO markets to small capitalization companies and patent reform, which could all greatly impact the entrepreneurial ecosystem.
But there were also excellent conversations around smaller, but significant, policy changes that could greatly accelerate the growth of entrepreneurship nationwide. Investing in basic research and improving the technology commercialization process, reducing the regulatory burdens facing startups, investing in STEM education and training, and improving the government’s procurement policy were all innovative and creative policy ideas that were discussed with committee members.
Kupor noted that there was much work to be done for American venture capital to continue to be a powerful force, and that Congress must understand that even though we invented it and continue to lead, innovative entrepreneurship is now a global game. The entrepreneurial ecosystem must be supported and nurtured for it to remain an engine of economic growth in the U.S.
“Much of the success of a country’s entrepreneurial ecosystem is determined by an appetite for risk, which is largely a combination of the policy environment and cultural norms. It must be acceptable both financially and culturally to try and fail. And the rewards for success must be significant enough to make taking such huge risks worthwhile,” urged Kupor.
Behbahani concurred, speaking specifically about his role as a life sciences investor who works with companies to create life-saving drugs and innovative new medical devices. “[T]he regulatory process must be properly balanced because the decision to deploy capital to life science startups is directly impacted by regulatory decisions and the behavior of agencies.”
Both Democrats and Republicans on the committee were deeply interested in finding ways to bring venture capital to their states so that they can strengthen their local ecosystems.
The positive response from senators of both parties from their statements, from their questions to our witnesses and from their general support for the entrepreneurial ecosystem was very encouraging.
By testifying before senators of both parties, we are hopeful Scott and Ali made a strong impact that will translate into legislation that helps to strengthen the entrepreneurial ecosystem nationwide.