Brett Palmer, president of the Small Business Investor Alliance, said last week that there is a gap in access to capital and closing that gap is critical to economic growth.
Palmer spoke during the Venture Ecosystem Summit sponsored by U.S. Rep. French Hill, R-Arkansas. The summit was held at the University of Central Arkansas’ events center in downtown Conway.
Palmer told an audience of about 40 that, though he’s seeing a more robust angel investor community across the country, the concentration of venture capital is a national problem.
He said, “75 to 85% of the investments are in northern California and the Boston corridor. That’s not where all the people are. That’s not where all the great opportunities are.”
Palmer argued that this “growth equity gap” needs to be addressed by policymakers, but without tearing down Silicon Valley or Boston.
Palmer also said startups shouldn’t have to go public in order to become a solid business that performs well.
“A number of years ago, I was talking to some really big money guys in New York City, in Chicago, in L.A. And they were talking about how they couldn’t find enough small businesses to invest in, and they couldn’t find the right businesses. Things were too overpriced,” he said. “I said, ‘Well, where are you going?’ and they told me, and I said, ‘Have you ever considered changing planes to get there?’ The answer was ‘no, you know, we don’t do that because that would be a waste of my time.’ [I also asked], ‘Have you ever considered driving 45 minutes from the airport?’”
Those “big money guys” took his advice and, a month later, Palmer said they’d found a good investment deal off the beaten path.
Palmer said he encourages investors to look at more traditional small businesses, not just technology startups that are attracting the most attention.
Bringing in Banks
Palmer said another way to address the equity gap is to get banks involved. Banks can’t do a lot of early-stage investing because startups don’t have the assets needed to secure loans, but what banks can do is direct entrepreneurs to other investors, incubators, accelerators or entrepreneurial support organizations, he said.
Banks can also form small business investment companies and regional funds to invest a limited amount in small businesses, Palmer said.
Hill, a former banker, offered an overview of his congressional work to help small businesses.
The congressman said he was the “initial leader” of task forces on financial technology and artificial intelligence that were created by the House Committee on Financial Services.
Hill said he’s been looking at entrepreneurial support organizations, accelerators and incubators across the country.
“Since I’ve been in Congress — it’ll be five years in January — I have taken that four years of entrepreneurial banking experience and focused on tailoring regulatory policy for business, lowering taxes on capital investment, mitigating barriers for companies that want to go public, and, sadly, that’s sort of reversing in the House right now,” Hill said. “All the policies we’re debating before the House Financial Services Committee in this Congress are about raising the cost of going public, sad to say.
“There are a lot of people advocating for capital formation and entrepreneurship. We are arguing against a very aggressive group of people who are not big fans of capitalism, and so the debates have a lot of interest,” he said.
Hill said he helped form an entrepreneurship caucus in the House and Senate three weeks ago; it’s already introduced a proposal, called “Enhancing Entrepreneurship for the 21st Century,” that would require the U.S. Department of Commerce to conduct an assessment and analysis of the reasons underlying the decreasing rate of formation of new businesses.
Another bill Hill said he’d supported has been introduced three times. That bill would expand the definition of an accredited investor.
The congressman also said he’s proposed an amendment to the Tax Cuts and Jobs Act that would lower capital gains tax for those in the middle brackets from 20% to 15% and is working to reduce the SEC reporting burden on startups by extending regulatory exclusions for them from five to 10 years.
