New, innovative businesses with potential for high growth routinely struggle for financing to get them through their early years. Tax incentives could be a useful means of easing these growing pains. The Small Business Jobs Act of 2010 currently provides an exemption from capital gains taxes for long-term investments in startups, but it is slated to expire at the beginning of 2012. The exemption ought to be made permanent, or at least extended until fundamental tax reform zeroes out exemptions generally in exchange for lower rates. Another good idea along similar lines is to offer a 100% exclusion on taxable income earned by qualified small businesses in their first year of taxable profitability, followed by a 50% exclusion for the subsequent two years.
Offering publicly traded stock allows growing businesses to tap into vast pools of capital to fund their expansion. And in a startup's early years, the prospect of going public is a major inducement for angel investors and venture capitalists to get on board. Accordingly, regulatory restrictions that reduce the attractions of going public act as an unintended brake on entrepreneurial innovation. And that is precisely what the Sarbanes-Oxley Act, passed in the wake of the Enron and other accounting scandals, has ended up doing. Recognizing this problem, Congress in 2010 exempted public companies valued at under $75 million from the onerous "Sarbox" Section 404 (which requires management to provide annual assessments of internal controls on financial reporting). More, however, needs to be done. Since the purpose of Sarbox is to protect shareholders, why not leave it to the shareholders themselves to determine whether the law's strictures are worth it to them? Specifically, shareholders of smaller public companies (with market capitalizations under $1 billion) should be allowed to opt out of Sarbox requirements; such companies could then bear special designations in their exchange listings so all future potential shareholders are on notice.
America's great research universities are an enormous asset in the quest for innovation, but the process of commercializing academic research -- converting promising new ideas into saleable goods and services -- stands in need of significant improvement. Of particular concern is the bottleneck that currently hinders the licensing of new technology developed in university facilities. Faculty members interested in commercializing their academic research need to obtain licensing rights from the university - either for themselves if they are starting their own company or for some third party that wants to make use of the innovation. At present, however, they are usually bound by contract to use their own university's technology licensing office (TLO).
This arrangement gives each university's TLO a monopoly over deciding whether and how innovations developed at the school should be commercialized. But most TLOs lack the competence and resources to make these calls, and in any event the absence of competition is inevitably stultifying. The federal government could break up these local monopolies by requiring that, on all federal research grants, universities give their faculty the right to use licensing agents of their own choosing - whether attorneys or other agents or even other universities' TLOs. Licensing "free agency" would speed up commercialization and help rescue promising new ideas that are currently languishing in bureaucratic queues.