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By Che Odom
July 14 — Congress must take steps to broaden access to capital markets for startups and emerging growth companies, including re-energizing initial public offerings, venture capitalists told lawmakers July 14.
Joseph Schocken, president and founder of Broadmark Capital LLC, told the Senate Committee on Small Business and Entrepreneurship that the U.S. must address the lack of regional banks that back many startups and finance their efforts to sell shares publicly.
Small IPOs of $25 million “would be what's needed” for many small companies around the country, not the $100 million or more that dominate the market, Schocken said at a committee hearing.
The number of large and small U.S. companies debuting stock to the public continues to lag compared to recent years. A total of 56 initial public offerings began trading in the first half of this year, which is the lowest number of IPOs priced in a first half of the year since 2009, according to Bloomberg Law Corporate Transactions data (130 CARE, 7/7/16).
As banks consolidate, fewer show interest in small startups, Schocken said.
Some parts of the country, such as the San Francisco and Boston areas, may benefit from this regional concentration of capital, but “good ideas and entrepreneurial energy in other regions aren't getting the attention and funding they deserve,” Schocken said.
Innovative entrepreneurship is a “global game,” Scott Kupor, managing partner of venture capital firm Andreessen Horowitz, told committee members.
“The U.S. must take steps to be more competitive,” Kupor said. This includes revising the tax code, encouraging investments in science and technology, and reinvigorating the IPO market, he said.
A dearth of startups is an important factor behind a decade-long productivity slump in the U.S.
The number of employees at companies that have been around for less than five years declined to a record-low 9.1 percent of the workforce in 2013, the latest data available, or about half the share during the peak in 1987, according to research by University of Maryland economist John Haltiwanger.
Young companies and entrepreneurs should be encouraged with greater access to capital because they are a significant source of job creation and help the U.S. become more competitive globally through innovation, Jeffrey Sohl, director of the University of New Hampshire's Center for Venture Research, told committee members.
Sohl suggested that the federal government provide “monetary incentives” that encourage entrepreneurs and investors.
Such public policy might help bridge a capital gap, as well as alleviate the information gap facing investors in startups, Sohl said.
“The investor is faced with asymmetric information in that the information they need to make an informed decision is held by the individual entrepreneur,” who stands to gain most from the investment, Sohl told the senators.
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