Congress Slowly Coming to Recognize Distinction Between Small Business and Entrepreneurship –

In late June of this year, the Senate Committee on Small Business passed a measure to rename itself the Committee on Small Business and Entrepreneurship. Aside from forcing the committee staff to order new stationery and business cards, this gesture is indication that Congress is beginning to get it. That is, by changing its name, the committee is acknowledging that there is a vital distinction between small businesses and entrepreneurial concerns and that, although they are similar, each have different characteristics and needs.

For too long, members of Congress and other policy makers have taken the view that all companies below certain revenue and employment levels meet a standard definition of small business, and that they face the same general set of challenges. Aside from those Senators who sought to change the committee’s name and a handful of others in the House and Senate, relatively few have moved beyond that notion.

The importance of engendering within Congress a more sophisticated understanding of this distinction should not be discounted. It will help frame and advance the policy issues that are critical not only to our portfolio companies, but to the entire venture capital community.

An organization doing yeoman’s work in this area is the non-profit National Commission on Entrepreneurship (NCOE). Funded by the Kauffman Center for Entrepreneurial Leadership at the Ewing Marion Kauffman Foundation and collaborating frequently with the National Venture Capital Association, NCOE is working with policy makers at all levels of government to provide a roadmap on how to sustain and expand a flourishing entrepreneurial economy. NCOE reports, programs and their testimony before congressional committees are helping to define a policy agenda that is more attuned to the needs of entrepreneurs.

Recent NCOE reports have taken up a number of important topics and have redefined them in terms of their application and significance to the entrepreneurial community. This work will help Congress take a more careful and seasoned approach to issues that heretofore had been lumped under the broad heading of small business.

For example, for traditional small businesses, issues surrounding workforce and management relations usually boil down to the minimum wage. For entrepreneurs, worker-management issues instead focus on stock options, employee stock purchase plans, H-1B visas and other matters pertaining to the company’s ability to attract, motivate and retain talented employees.

Access to capital is recognized by small businesses and entrepreneurs alike as a key to their growth and success. Again, the traditional small business approach to this issue differs from that of the entrepreneur. As a recent NCOE report points out, “Perhaps the most significant policy contribution over the last 30 years to U.S. entrepreneurship has been the creation of a vibrant capital market to finance entrepreneurial growth companies.” At the same time traditional small businesses are looking for policies leading to lower interest rates, emerging growth companies and the venture capital community are looking for better capital gains tax rates and more vibrant public offering and acquisition markets.

Still other issues are emerging that are of great significance to entrepreneurs while being of little or no importance to traditional small businesses. The recently resolved proposal by the Financial Accounting Standards Board (FASB) to eliminate pooling of interests accounting for business combinations was a top policy priority for the NVCA and the entrepreneurial community. At the same time, it barely registered with traditional small business advocates. The crux of the pooling controversy revolved around the importance of writing accounting standards for mergers and acquisitions that adequately express and appropriately treat the value of intangible assets and goodwill. Unlike traditional small businesses, the value of high growth, entrepreneurial companies has increasingly been weighted toward intangible assets versus bricks and mortar.

Certainly, there are other committees in Congress that take up the issues mentioned above and address many of our particular concerns. But the growth in venture capital and the concurrent explosion of entrepreneurial activity in the U.S. make an airtight case for closer, more dedicated attention to the unique needs of our industry and high growth companies. The most appropriate forums are the Small Business Committees in the House and Senate.

Getting Congress to change an institutionalized view on any subject is not unlike getting an ocean tanker to take a new direction. The NVCA and NCOE are helping to steer a new course. Individuals in our community can help, too, by delivering the message to policy makers that what we are doing is much different from building small businesses. What we aspire to do is the opposite; we seek to build large companies from small bases.

Patricia Cloherty is a Commissioner for the National Commission on Entrepreneurship. She is also a past president of the National Venture Capital Association Board of Directors.