Are America's High-Growth Companies Running Out Of Fuel?

A recent report indicates financial challenges that high-growth businesses face.
CEO, Small Business Trends LLC
July 21, 2011

While there’s general agreement that improving small business’s access to capital and spurring hiring are key to improving our economy, there’s less consensus as to how to accomplish those goals. The National Advisory Council on Innovation and Entrepreneurship offers some recommendations in its recent report Improving Access to Capital for High-Growth Companies.

Late last year, Chamber of Commerce Secretary Gary Locke requested the council make recommendations to deal with the most pressing issues confronting entrepreneurs and high-growth companies. The report found that while these companies generate some 40 percent of new jobs each year—since the recession hit—more than 70 percent of high-growth firms have suffered from financial problems.

Coming on the heels of the dotcom bubble bursting in early 2000, the housing and credit crises cut off traditional sources of bootstrapping funds, such as credit cards and home equity. Both early- and later-stage investment from outside sources such as angels and VCs have been hit as well.

The report identified four key challenges high-growth companies face in accessing capital:

  1. Gaps in early-stage investments
  2. Constrained startup operating capital
  3. Lack of access to later-stage IPO markets
  4. Restrictive or inefficient federal government processes

Working with input from entrepreneurs, business angels, venture capitalists and other key stakeholders, the council came up with eight policy recommendations:

  • Provide greater support to angel investors by offering refundable tax credits for angel group investments.
  • Extend the capital gains tax exclusion and rollover periods to encourage early-stage investment.
  • Offer a 100 percent exclusion on corporate income tax for qualified small businesses on their first taxable year of profit and a 50 percent exclusion on the following two years of profit.
  • Reduce standard SBIR and STTR approval timelines from a 6-12 month process to a 3-month timeframe to ensure better matching to early-stage business cycle and capital needs.
  • Amend the SBIC program to better address startup capital needs through the SBA’s proposed Early-Stage Innovation Fund; reducing lead SBIC-license approvals and interest rate burdens.
  • Maintain current capital gains tax rates or provide exclusions for investments in businesses to encourage later-stage investment.
  • Decrease regulatory burdens associated with the Spitzer Decree.
  • Amending the Sarbanes-Oxley Act to ease compliance burdens on small firms.

What do you think of these recommendations? Will they truly help high-growth companies access the capital they need? Where are you getting the financing you need to grow?