In today’s grim economic environment, we are all looking for positive indicators. So let me share a few.
First, in my 25 years as a venture capitalist, there has never been a better time to conceive of and then test an innovative and potentially disruptive idea.
Entrepreneurs, especially in the United States and western Europe, have access to interconnected and sophisticated research tools, no-walls platforms for sharing and integrating ideas, and a talented pool of human capital and mentors. This means that a business concept can be quickly tested and killed, saving a lot of capital, or tested, refined, and launched—building a lot of capital and jobs. This should be the golden age of innovation and entrepreneurialism.
What can we do to achieve this status? Let me get to that in a moment.
I just returned from the second annual Global Venture Capital Congress, and with the exception of two countries that couldn’t attend, all regions of the world were represented. Also present were all of the major stock exchanges and representatives from large institutional buyers. The exchanges and financial houses shared strong views regarding how we can achieve momentum in the capital markets, unlocking a significant barrier to the cycle of company growth and profitability.
First, the exchanges acknowledged that a number of macro factors—economic uncertainty around the world, the Japanese tsunami, the Arab spring—have made the capital markets quite volatile and have compromised the ability for emerging growth companies to find liquidity through a public offering. But they also stressed that a great deal of capital is sitting on the sidelines, giving hope to IPO seeking businesses. Large institutional buyers agreed, but stressed the need for greater transparency, reality pricing, and for companies to be able to clearly articulate their path to profitability. Seems reasonable.
So what can we do to better pave the pathway for these emerging growth companies?
Let’s look at the efforts of the U.S. IPO Task Force. This initiative was borne out of the U.S. Treasury Department, which pulled together a group of private sector professionals who agreed to come together to examine the challenges with the U.S. IPO market and make recommendations to help re-energize the capital markets system — especially for small, emerging growth companies. The IPO Task Force looked primarily at regulatory fixes and came up with a plan that had four major components:
- Provide regulatory on-ramp for emerging growth companies
- Improve availability of information to investors
- Educate issuers on how better to work with investment banks
- Offer a one-time IPO Tax incentive to buy and hold shares
Capitol Hill is digesting these ideas, but there seems to be a strong interest in the recommendations. It will be good to watch this effort and continue to support its ideals. More than 90 percent of job creation at venture-backed companies occurs after an IPO. If we can better shepherd our emerging growth companies through the capital markets, we might just see light at the end of a long challenging tunnel, representing the golden age of innovation and entrepreneurialism. That is a future that looks very bright indeed.
Terry McGuire is co-founder and managing general partner of Polaris Venture Partners, a venture capital firm.