How the feds can help entrepreneurs by Fortune Editors @FortuneMagazine May 9, 2011, 7:36 PM EST E-mail Tweet Facebook Google Plus Linkedin Share icons There are many ways that the public sector can help the private sector’s next great companies. By Brad Feld, contributor This afternoon in Boulder I’ll be on a panel as part of the White House Startup America Roundtable. If you weren’t invited to the event, there is a website called Reducing Barriers to Innovation that you can participate in. When I was reviewing the agenda for the program, the goal was pretty clear: “The Startup America: Reducing Barriers event is a regional platform that allows federal agencies to hear directly, from entrepreneurs and local leaders like you, how we can achieve our goal of reducing the barriers faced by America’s entrepreneurs. Senior Obama administration officials need input on what changes are needed to build a more supportive environment for entrepreneurship. “ On my run yesterday, I mulled over the big activities that I thought the federal government could do to “build a more supportive environment for entrepreneurship.” I came up with five things that I think are relatively easy to measure over the long run. The following are short thoughts on each of these areas with one specific idea (in italics) that I think would materially impact entrepreneurship in America in a positive way. Tax Policy: Incent people to invest in startups. While there are several well-understood tax policies that could be implemented, the simplest is to provide long-term tax breaks for individuals to invest in new startup companies. As with anything tax related, there are endless politics involved and many of the things that actual get rolled out are so obscure that they either never get implemented or are too difficult for investors to understand. Make it simple: Eliminate capital gains if an individual (who is an accredited investor) invests equity (i.e., risk of 100% loss of investment) in a private company with less than 100 employees. Immigration Policy: Make it easy for foreign entrepreneurs to come to the U.S., or for foreign students to stay in the U.S., and start companies. This is the essence of what we’ve been trying to solve with the Startup Visa movement. The new Startup Visa Act of 2011 has plenty of improvements over the 2010 Act — which was introduced but never went anywhere — but which still is stuck in Congress. If the White House wants to make a difference here, it should prioritize the Startup Visa separately from “broad immigration reform” and help get it passed since the Startup Visa is much less about immigration and much more about entrepreneurship, innovation and jobs. Regulatory Policy: Cut as much paperwork and bureaucracy out of the system. While this one is talked about regularly by the people in government that I know, the regulatory environment just seems to get more and more complicated. The solution so far has seemed to be “hire more people to process more paper faster.” This clearly hasn’t worked – how about taking the opposite approach and cut 20% of all jobs within various government agencies responsible for regulatory activity? I don’t care if you pay the fired people for two years – give them healthy severances and incentives to go work in the private sector. Necessity will drive efficiency. Investment: Focus investment in university research. Then open source the results. The federal government has been a historically successful investor in innovation and the creation of new technologies, often through funding university research. If you want a good example of this, read Bright Boys. Unfortunately, this has gotten really messed up recently due to our byzantine patent system and the evolving dynamics of university technology licensing organizations. The government should allocate even more money to university research programs, but the results of this research should not be able to be patented and should be free for anyone to license. This would drastically change the technology licensing game by simplifying it and shifting economic incentives aggressively to companies that actually commercialize (or productize) this research, rather than simply claim ownership to the “intellectual property.” Customer: The federal government is an enormous consumer of products and services. While it claims to want to do business with entrepreneurial companies and so far pays its bills in a predictable manner, it’s a miserable customer to deal with. The procurement process is painful, many entrepreneurial companies have to work through government contractor gatekeepers (who take up to a 30% tax for doing nothing other than being the contracting party), and often the execution and implementation process is a disaster. Unfortunately, I don’t really have a suggestion for how to improve this since there are so many rules and regulations around this – I guess the answer is “see regulatory policy” above. I’m continuing to think through this and refine my thoughts on it, so as always I’m open to any and all feedback, including “Feld – you are such a knucklehead – that’s a stupid idea and will never work, but try this.” Fire away. Brad has been an early stage investor and entrepreneur for over twenty years. Prior to co-founding Foundry Group, he co-founded Mobius Venture Capital and, prior to that, founded Intensity Ventures, a company that helped launch and operate software companies. Brad is also a co-founder of TechStars. Follow him on Twitter @bfeld.