Encouraging Venture Capitalism Key to Economic Growth

Stability, research, and attracting foreign-born entrepreneurs will reinvigorate venture capitalism.

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Dean Garfield is the president and CEO of the Information Technology Industry Council. Dendy Young is the managing partner of McLean Capital, a private equity firm, and the former CEO of GTSI Corp.

America's innovation ecosystem typically knows no kryptonite. With rare exception, even in times of economic peril, investment and innovation continue unabated, helping to power the nation forward. However, there are troubling signs of weakness that could signal real challenges to the nation's future fiscal stability.

Consider the following: Lost in the public reporting on record venture investing in the third quarter is less comforting and more significant data from the National Venture Capital Association that venture capital fundraising dropped to the lowest levels in eight years in the third quarter—firms raised $1.7 billion, which is less than half the $3.5 billion collected in the same period last year and the lowest amount since the third quarter of 2003. U.S. companies canceled or postponed $8.9 billion in IPOs in the third quarter as stocks plunged, hurting returns for venture capitalists and investors in leading funds.

[See a collection of political cartoons on the economy.]

The result is that companies are delaying or calling off eagerly anticipated initial public offerings, forcing venture capital backers to direct more time and money to keeping them afloat. Once highly anticipated as IPOs, Zynga, Facebook, and Groupon were delayed or have yet to go public.

What does this all mean for the country? Is the seed corn that is the sustenance for the nation's future at risk of being whittled away? There are no clear or easy answers, but the data certainly suggest we should be focused on creating an enabling environment for continued investment in our future.

There are clearly several policies that the public and private sectors should partner on if we are to preserve America's reputation as home to the most successful entrepreneurs and innovators in the world.

Our challenge is to provide economic stability and predictability: That is what creates investment. To do that, we must first resolve our debt crisis in a long-term, sustainable way. No sane entity is going to invest with deficits out of control despite unsustainably low interest rates. What will happen to the deficit when interest rates jump, as they surely must?

[See a collection of political cartoons on the budget and deficit.]

Second, maintaining our innovation advantage and attractiveness for capital investment requires continued support for basic research and development. Discoveries in federal labs and universities remain the germination points for the breakthrough ideas that can be commercialized by entrepreneurs and venture investors. We should support policies that fund basic research across high-tech-based industries including life sciences, energy, and physical sciences. Programs such as the NIH grants and Small Business Innovative Research program fill the innovation pipeline and must receive robust federal support if America wants to continue to bring breakthrough technologies to market.

Third, the United States must continue to attract foreign-born scientists and entrepreneurs and must keep them here once established in this country! Continuing, through shortsighted and abusive immigration rules, to make it difficult for someone with a job to stay here is harming job-creation and the country's future. As countries like Brazil, China, and India became wealthier and more competitive, they are developing intellectual institutions and are doing their best to retain their smartest citizens. We need to invest in our human capital in a way that we used to generations ago. Foreign-born visionaries have molded our nation in the last century—Sergey Brin, Albert Einstein, and Jerry Yang are only a few with staggering contributions. Encouraging these entrepreneurs not only to study but to stay in the United States is critical to our future success.

[See a collection of political cartoons on immigration.]