There is a great article in the New York Times this weekend, titled, To Create Jobs, Nurture Startups.
The article makes the point that it is not small business which creates all net job growth in America–but young businesses.
The key to understanding where jobs come from is not focusing on the size of the businesses–large or small. Apparently, there is no difference between large and small companies in job growth. Rather, it is about age.
“Size plays virtually no role,” says John C. Haltiwanger, a co-author of the study and an economist at the University of Maryland. “It’s all age — start-ups are where the job-creation action really occurs.”
The article then goes on to talk about how hiking the capital gains tax rate could harm startup investing, and the Startup Visa idea as a way to “nurture” startups.
I have a suggestion not raised in the article, or in any article I have read anywhere other than my own:
- Make it easier for startups to raise money by reducing the threshold to qualify as an “accredited investor” down to almost nothing.
Right now, to invest in a startup, in almost all startup company stock offerings, you have to qualify as an “accredited investor.” This means you have to have $1M in net worth (now excluding your primary residence), $200K in income in the last two years or $300K with spouse and the expectation of the same in the current year.
The Dodd-Frank Bill made it harder to qualify as an “accredited investor” by taking the value of an investor’s primary residence out of the net worth standard.
Let’s make this definition of “accredited investor” much easier to meet.
My proposed test–if you can give money to a charity, or a political campaign (!)–you can invest in a startup. Open it up to everyone. No more exclusionary policies allowing only the “wealthy” to qualify. This would really allow startups to take off in America. I know, there are a lot of people out there right now reading this who are recoiling. How do we protect non-wealthy investors? Isn’t this too radical?
First, it is not too radical. Nothing is too radical of a proposal when it comes to job creation. Second, we will still have anti-fraud laws on the books, and defrauded investors can sue in courts just like they can now. As a public policy matter, job creation should be our top priority.
To create jobs–let’s nurture startups. Let’s make it a lot easier for them to raise capital.