Why is Our Government Undermining Investment in Entrepreneurial Ventures?

By SBE Council at 30 August, 2023, 9:21 pm

by Raymond J. Keating –

If serious about improving the policy environment for entrepreneurship and small business growth, then this must include improving the policy environment for investment. After all, in order to startup, innovate and grow a business, then investors are needed.

For example, venture capital ranks as an essential form of investment for a variety of businesses at assorted stages of growth.

The latest PitchBook-NVCA Venture Monitor unfortunately indicated recent stagnation, at best, on the venture capital front. (See the following chart from the report.)

There are a variety of causes coming into play, but the role of governmental intrusion and overreach on the regulatory front cannot be ignored. In the Venture Monitor report, among other factors, it was pointed out that “the threat of dogmatic regulation could stifle development of promising innovation hubs.”

Keep in mind that venture capital investors essentially have two exit strategies – that is, two ways to earn returns on their investments – the firm invested in either is acquired or goes public. It’s either M&A (mergers and acquisitions) or IPOs (initial public offerings).

Unfortunately, elected officials and their appointees seem set on limiting, or even eliminating, M&A options, and restricting potential returns on investments in certain industries. And by doing so, they effectively limit the incentives for investing in entrepreneurial ventures thick with risk and uncertainty.

Look at the Federal Trade Commission and the Department of Justice’s recently released proposed merger guidelines, which, as SBE Council has explained, would “empower regulators to act according to their political whims and preferences, create greater uncertainty in the M&A marketplace, and thereby disincentivize and undermine investment in startups and growing small businesses.” In addition, the Biden administration-led push for price controls on prescription drugs disincentivizes critical investment, again as pointed out by SBE Council.

Entrepreneurship, investment and innovation are vital to the U.S. economy, and our elected officials and their appointees shouldn’t be actively working to undermine these critical undertakings.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist and The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist.