New Ideas to Revive Venture Capital Investing Presented at Industry Conference

A New York Times blog post earlier this week described the four-step plan put forward last week by the National Venture Capital Association to address the drought in acquisitions and IPOs of venture-backed companies. The plan was announced at the association's annual meeting in Boston.

The plan calls for "the return of small investment banks and accounting firms. These helped small tech companies go public until the dot-com bubble burst and then they disappeared. In order for start-ups to start going public again, the big banks and accounting firms must partner will smaller ones to reinvigorate them," the N.V.C.A. said.

Second, the plan deals with new forms of exits, such as SecondMarket and other exchanges where start-ups can sell shares on the private market.

Third, the plan seeks new tax benefits, such as a more competitive capital gains tax rate for IPO investors and tax incentives for-clean tech companies.

Finally, the plan calls for regulations such as Sarbanes-Oxley and financial statement requirements to be eased for very small companies that want to go public.

“It can’t be fixed with a stroke of the pen, but without fixing this problem, literally innovation will be at bay in this country, precisely at the time competition is increasing from abroad,” The Times quoted Paul Maeder, a general partner at Highland Capital Partners.

The blog post also cites Josh Lerner, a Harvard Business School professor of venture capital and entrepreneurship, who recommends that the VC industry focus on three key ideas.

(1) Changes in patent policy. Patent litigation costs so much and takes so long that it is burdening small tech companies, Lerner said. Instead, he suggests a patent policy similar to that in Europe, where inventors can challenge patents before they are approved. By contrast, in the U.S., Lerner said, most patents are granted quickly and protesters have to go to court to fight them.

(2) Lerner recommends using federal funds to support start-ups, rather than just supporting large, struggling companies.

“In our efforts to rescue failing giants, we are spending all this money keeping buggy whips afloat,” he said. “It seems a little crazy to say we’re going to invest all this money in sunset industries, not emerging companies.”

(3) Lerner said the U.S. to do a better job of keeping foreign-born scientists and entrepreneurs who have immigrated here to stay here. These are people we need to advance our business and economy. He predicted tremendous future pressure from China and India -- who will want to hold on to these talented people and provide incentives for them to remain at home rather than emigrat to the U.S.