Feb 5, 2013 · 4 minutes

Entrepreneurship might be going nuts all across the country, but there are too many imitative startups in the tech sector, and important areas such as energy, biotech, and manufacturing face neglect, or so an audience of hundreds was told at the Kauffman Foundation's State of Entrepreneurship Address in Washington DC today.

A panel of investors, startup advocates, and business experts at the event – which marked the launch of a new Kauffman report on financing entrepreneurial growth – were initially full of optimism about the state of entrepreneurship in the US.

"In my opinion, the entrepreneurial bug has hit the country," said Alan Patricof, the founder and managing director of venture capital firm Greycroft Partners. He's been in the business for 44 years, he said, and the enthusiasm for entrepreneurship has never been this good. “I have never seen activity like I’ve seen in the last 24 to 36 months.”

Los Angeles is "burning hot," and New York is thriving even though "five years ago you couldn't get anyone [in startups] to go to New York," Patricof said. He attributed the momentum to initiatives such as Startup America, as well as new funding platforms such as AngelList and Kickstarter. Angel investors, too, have emerged as a major force, he noted.

Patricof's follow panelists echoed his sentiments. "Entrepreneurship is back on a roll," said Jeff Fagnan, a partner at Atlas Ventures. "Mark Zuckerberg's greatest contribution is that he is engendering a whole new generation of people who want to be entrepreneurs."

Donna Harris, managing director for the Startup America Partnership, said she has spent the last year and a half visiting startup communities all over the country. "People don’t realize there are startups everywhere,” she said.

Harvard Business School professor Ramana Nanda was the first to inject an element of skepticism into proceedings. While acknowledging a larger-than-50-percent increase in the number of graduates who start a business straight out of Harvard Business School, he also pointed to "dark clouds" that tend to get overlooked. While consumer Web companies have been seeing an increase in investment backing over the last couple of years, he said, funding for biotech and energy companies has continued to fall.

Greycroft's Patricof was quick to a agree. He urged the Kauffman Foundation and other entrepreneur-oriented organizations to focus their efforts on capital-intensive sectors such as manufacturing, energy, and biotech. He said there need to be new techniques to finance companies in those areas and bemoaned the lack of clearly differentiated startups in the tech sector. "We almost have too many startups in the technology world now and a lot of them are imitative," he said.

Patricof also bemoaned the glacial pace at which the federal government is moving to implement regulations to allow for the initiation of crowdfunding, a major component of the JOBS Act, which was passed last April. "There's so much concern about the harm they're going to do that they're losing out on the good they can do." Earlier Chance Barnett, co-founder and CEO of Crowdfunder.com, said a recent change in the chairmanship of the Securities and Exchange Commission bodes well for JOBS Act progress, and that "non-accredited crowdfunding" – the part that would let everyday folks take equity in startups – should be possible by the third or fourth quarter of this year.

Prior to the panel, the lunch-time audience heard US Senator Jerry Moran extol the importance of immigrants to the country's economy. He is pushing hard for tech-friendly measures in the current debate over immigration reform, including a provision that would allow foreigners who have some investment and want to start a company in the US to come here on a special "startup visa." In the three years since he joined the Senate, seven other countries have taken legislative action to attract entrepreneurs, he said, and Congress hasn't been doing anything about it. "We need to make certain that the American Dream is lived in America," he said.

Meanwhile, Karen Mills, head of the Small Business Administration, hailed startups as the key to America's economic wellbeing. " She said small businesses remain vital to the Administration, "but the real drivers of growth, particularly in job creation, are a much smaller set of high-growth startups that punch above their weight."

The SBA has been working to encourage the development of startup clusters and accelerators while woking to improve supply chains and direct growth capital to parts of the country that are most in need, she said.

The Kauffman Foundation's report makes several recommendations to increase financing for entrepreneurial ventures. According to the Foundation's press statement, the chief recommendations are:

  • Crowdfunding: The SEC should approve rules under the JOBS Act that encourage experimentation without excessive regulation
  • IPOs: Greater use of auctions, such as the Dutch auction used by Google, rather than the more common practice of setting a specific price for new stock offerings
  • Bank Debt: Introduce more flexibility into the regulatory process – such as providing the Federal Reserve, Comptroller of the Currency, and Federal Deposit Insurance Corporation the authority to make judgment calls at the local level
  • Regulation: Allow shareholders of companies the right to vote whether Sarbanes-Oxley accounting rules are necessary
  • Venture Capital: Create longer-term venture funds that include significant "skin-in-the-game" investment from General Partners, so their interests are aligned with Limited Partner investors over a reasonable time horizon