Editors Note: Liz Sara, chair of the Board of Advisors for the Dingman Center for Entrepreneurship at the University of Maryland's Robert H. Smith School of Business, is looking ahead as President-elect Donald Trump prepares to take office. She offers these insights.
By LIZ SARA
SMITH BRAIN TRUST — Much has already been written about what steps Donald Trump should take to help small businesses (e.g. cut the corporate tax rate, reduce onerous federal regulations, make health care actually affordable), but little has addressed what the president-elect could do to foster and support startups. As a former software company entrepreneur and the chair of the Dingman Center for Entrepreneurship, I can tell you: The No. 1 challenge for startups is not the above issues, but rather something more fundamental — raising capital.
The Kauffman Index for 2016 put the Washington, D.C., metro area at the top of the list for entrepreneurship growth. Yet there are still too many startups that fail because of undercapitalization. Founders bootstrap their ideas with a combination of sweat equity, savings and credit cards. Then they turn to Mom, Dad, friends and family for the next tranche. After that, it gets really hard to access needed funds to complete their products or get them to market.
Here are four things President Trump could do to improve the business environment for U.S. startups.
1. Provide federal dollars to state economic development organizations whose mission is to support entrepreneurism. Maryland's TEDCO and Virginia's CIT invest $100,000 in local tech startups. These organizations already have the infrastructure, personnel and processes in place at the local level to identify the companies with the best chances of success and to award them much-needed capital infusions. Bigger wallets containing federal dollars will mean more startups get more money — increasing the overall startup community's chances of success.
2. Reward women entrepreneurs selling to the federal market by putting government set-asides in place for all women-owned businesses — not just those that meet special conditions. Between 2007 and 2016, an American Express survey reports that the number of women-owned firms increased by 45 percent, compared to just a 9 percent increase among all businesses. Let's lift those restrictions on women-owned companies and level that playing field.
3. Make it easier for all entrepreneurs to tap the vast funds, loans and grants available to small businesses through the Small Business Administration. The bureaucracy and red tape deter the very people the SBA was intended to help. Many startup founders who would be eligible don't even bother to apply or give up during the process. Let's simplify and put more of those funds to work faster.
4. Prevent any further SEC regulations that would tighten the definition of who qualifies as an "angel" or "accredited investor." Such investors can legally provide early-stage seed capital to startups, which are obviously high-risk investments given the failure rate. Today, that pool of accredited investors is about 10 percent of U.S. households. Diminishing that pool would seriously disadvantage the startup ecosystem.
As an angel investor, participating in the Dingman Center Angel network, I know that we (and those like us around the country) fill an important gap by making equity investments in startups. Last year alone, the Dingman Center Angels invested $1.4 million in local tech startups. Let's keep government from breaking what is working in this area.
Liz Sara, the founder of Best Marketing LLC, teaches business-to-business marketing to MBA students at the University of Maryland's Robert H. Smith School of Business. She is an angel investor, a member of the Dingman Center Angels, and the first female chair of the Board of Advisors for the Dingman Center for Entrepreneurship.
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