Congress is debating whether to allow government money to flow into firms backed by venture capitalists. Some argue start-ups can't make it without VC money, but that shouldn't cut them off from government funds. Mitchell Hartman reports.

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Bill Radke: Congress faces a deadline next week to keep government R&D money flowing to small businesses. And there is a battle brewing over whether any of that funding should go to firms backed by venture capitalists -- those powerful wheeler-dealers of the high-tech economy. From the Entrepreneurship Desk at Oregon Public Broadcasting, Mitchell Hartman reports.

In his speech to the nation last night, President Barack Obama said the country would pull through this economic downturn, and that entrepreneurs will be a major factor in a turnaround.

"The answers to our problems don't lie beyond our reach," he said. "They exist in our laboratories and our universities, in our fields and our factories, in the imaginations of our entrepreneurs and the pride of the hardest-working people on Earth." Obama touted his economic stimulus plan as a way to get credit flowing to those very business owners that can jump-start the economy. " ... We are creating a new lending fund that represents the largest effort ever to help provide auto loans, college loans, and small-business loans to the consumers and entrepreneurs who keep this economy running."

The president argued that the federal government has, throughout history, taken a central role priming the pump of industrial and entrepreneurial growth. " ... Government didn't supplant private enterprise," he said, "it catalyzed private enterprise. It created the conditions for thousands of entrepreneurs and new businesses to adapt and to thrive."

He said one way out of this low-acheiving economy is to encourage green technology as a business: " ... We need to ultimately make clean, renewable energy the profitable kind of energy."

Lloyd Chapman, president of the American Small Business League, wasn't impressed with the speech. He echoed his ongoing concerns about the direction of the U.S. Small Business Administration and criticized the president for not targeting more stimulus money directly at entrepreneurs. "If you want to stimulate the economy and create new jobs, you have to direct federal infrastructure spending to the small businesses that create 97 percent of new jobs," Chapman stated.

Perhaps doing what he does best, the president sought to inspire Americans as much as throw stimulus money their way. "We will rebuild, we will recover," he said, "and the United States of America will emerge stronger than before."

"What is required now is for this country to pull together, confront boldly the challenges we face, and take responsibility for our future once more," he said.

His speech didn't go without finger pointing, and Obama appeared to blame the last administration for some of today's economic malaise that includes a bottom-dwelling stock market, unprecedented home foreclosures and record job losses:

" ... We have lived through an era where too often short-term gains were prized over long-term prosperity, where we failed to look beyond the next payment, the next quarter, or the next election. A surplus became an excuse to transfer wealth to the wealthy instead of an opportunity to invest in our future."

"... That day of reckoning has arrived, and the time to take charge of our future is here," Obama said. "Now is the time to act boldly and wisely, to not only revive this economy, but to build a new foundation for lasting prosperity. Now is the time to jump-start job creation ... "

Obama quoted Ty'Sheoma Bethea, a girl who attends a delapidated school in South Carolina. She sent the president a letter that states, "We are not quitters."

Source:  http://blog.entrepreneur.com/2009/02/obama-entrepreneurs-key-to-turnaround.php

A report on National Public Radio last Saturday laid out a debate that may soon reach Congress: how big can a business be to still qualify for the government's small business programs? Most of the time, the argument for increasing the Small Business Administration's size standards revolves around qualifying for federal contracts. That's a distressing proposition, since large businesses already find their way to competing for contracts intended for small firms, as organizations like the American Small Business League have demonstrated time and time again.

This story focused on the Small Business Innovation Research, or SIBR, program, which requires government agencies funding a lot of research to direct some of that money to small firms with fewer than 500 people. However, the SBA excludes firms where venture capitalists hold a majority stake. As NPR's Jeff Brady reports, this poses a dilemma for companies like Inviragen, which plans on venture financing to test a vaccine. At that point, it will lose SBIR grants on other vaccine projects—no doubt worthy projects all—which it may then have to drop. Says Inviragen CEO Dan Stinchcomb: "This means that promising vaccines that could improve public health in the U.S. and around the world essentially will not be developed." Damn! No wonder venture capitalists are lobbying change the law! They want to protect public health!

I've criticized the ASBL, and its founder, Lloyd Chapman, for their hyperbolic and shrill efforts at publicity, but they're usually on the right side of the issue, and that's true here, too. Venture-funded companies have access to resources that truly small companies simply don't have, and letting them compete for the same grants with that advantage will crowd out the businesses the SIBR program was meant to fund. And frankly, venture funding, which substitutes the financier's demand for a seven-fold return in five years for the entrepreneur's desire to patiently build a company over the long term, is a needlessly corrosive influence on small firms. We should be trying to find ways to encourage firms to remain independent; excluding the VC-backed from federal largesse is a good way to start.

As it stands, the rules are already pretty generous for VCs: the SBA recently allowed them to take a majority stake in an SBIR company if the fund is majority owned by U.S. individuals, and if the fund and its portfolio have in total less than 500 employees. Finally, if Stinchcomb is really worried about the loss of those vaccines to the general good, there's an easy enough fix: he could simply sell the vaccine to a separate company established by his would-be financiers. He and the other principals of Inviragen could even own a stake in the newer company, as long as they didn't control it.

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It must be Small Business Week on NPR, because this morning health care reporter Joanne Silberner charts the dizzying increase in small group health insurance premiums over the years, and how small firms have responded—mainly by whittling away at policies before eliminating it altogether. Silberner interviews a Baltimore employer who lost a valued employee when he decided to cancel his insurance. Small firms, she points out, have to compete for employees with big firms that can afford coverage, but in the current insurance market, it's a losing battle.

Source:  http://blog.inc.com/the-entrepreneurial-agenda/2009/02/what_is_small_business_and_can.html