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Seven Innovation Policy Ideas to Spark an Economic Recovery in the U.S.

Xconomy National — 

In San Diego, Connect is the non-profit organization that reaches into most corners of the local innovation community. Connect likes to say that it has assisted in the formation of more than 3,000 technology and life sciences companies in the area, and more than 50 cities around the world have emulated its programs for mentoring entrepreneurs and supporting startups.

Under CEO (and San Diego Xconomist) Duane Roth, Connect began issuing a quarterly report in 2009 to provide a more comprehensive measure of the relative health and wealth of San Diego’s innovation economy. Connect also hired a full-time lobbyist early last year to represent the interests of San Diego’s innovation community before legislators in both Sacramento and Washington, D.C.

These two things have come together in the latest innovation report, under a section in the full report that outlines “Seven Innovation Policy Ideas to Spark an American Recovery.” Roth tells me they encompass recommendations that San Diego’s life sciences and high-tech leaders have pulled together over the past two months as legislative priorities to be pursued over the next year.

Yet as Jessie Womble, Connect’s associate director for public policy, puts it, “We can’t expect to get anything passed that’s just for San Diego, so this is part of a national agenda.” In other words, these ideas should also be good medicine for the health of other U.S. regions with innovation clusters.

I’ve distilled the seven ideas with some background information from Connect below:

—Increase the monetary cap on direct public offerings by small companies to allow new opportunities for emerging companies to raise capital.
The SEC adopted “Regulation A” to provide smaller companies a less burdensome process to raise capital through direct public offerings. The cost of compliance with regulatory burdens, however, makes the $5 million cap unworkable and little-used. Proposed legislation would increase the outdated cap under Regulation A from $5 million to $50 million, allowing emerging companies to raise new capital through “mini-offerings.”

—Create an incentive for U.S. corporations to “repatriate” their foreign earnings from overseas and direct the capital flow into emerging technology research and commercialization.
H.R. 1036—the Job Creation and Innovation Investment Act of 2011—accomplishes this by setting a zero percent tax rate for global companies that return their foreign earnings to fund new technology R&D in America, or by funding proof-of-concept centers, early stage ventures, expansion of facilities, or to create or expand U.S. manufacturing facilities (including contract manufacturing.) U.S. corporations that repatriate their overseas earnings, but decide against such investments would pay a 5.25 percent tax rate (instead of the existing federal tax rate on repatriated foreign earnings, which ranges as high as 35 percent).

—Encourage more angel investment into startups and emerging companies.
S. 256—the American Opportunity Act—encourages investments by angels (also known as accredited investors) by providing a 25 percent federal income tax credit for investing in early stage small businesses. Connect contends that the credit would augment the capital that angels are currently investing in emerging technologies and expand the number of angel investors.

—Reauthorize the Small Business Innovation Research (SBIR) program.
The House and Senate are negotiating an agreement on reauthorizing federal funding for the Small Business Innovation Research and Small Business Technology Transfer programs. Connect supports reauthorization that would expand the number of viable start-up companies that could apply.

—Retain high-level foreign students who are now required to leave the U.S. after obtaining post-graduate degrees.
Connect maintains that H.R. 399—the Stopping Trained in America Ph.D.s from Leaving the Economy Act of 2011 (the STAPLE Act)—would reverse an anti-competitive workforce policy by exempting foreign-born and highly skilled Ph.D.s (with science, technology, engineering, and math degrees) from visa quotas. Enabling them to stay in the U.S. would help American companies and strengthen their ability to compete with companies based in other countries.

—Encourage the growth of start-up companies by immigrant entrepreneurs.
The StartUp Visa Act of 2011 (also known in the Senate as S. 565 and in the House as H.R. 1114) would extend a “temporary entrepreneur visa” to foreign-born entrepreneurs who have secured backing from qualified American investors. H1-B visa holders could also qualify for the entrepreneur visa as well as foreign entrepreneurs that already have a market presence in the U.S.

—Make permanent recently passed provisions of the Small Business Jobs Act of 2010 to provide long-term certainty to small businesses and their investors.
The Small Business Jobs Act of 2010 (P.L. 111-240) included a temporary suspension of the capital gains tax for investments in small businesses that are held for at least five years. Another part of the bill allows small and medium-sized businesses to access various business credits without negative tax consequences. Both of those features were passed on a temporary basis and are set to expire soon.

More details about these recommendations are embedded in Connect’s full report on the San Diego Innovation Economy for Q2 2011 (beginning on page 33).

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  • Another suggestion: Revise the disasterous Hatch-Waxman law of 1984 to allow “perma-patents” on all newly marketed new chemical and biological drug entities, coupled with a program of gradual price declines on all such medicines and older patent-protected drugs. This would incentivize companies to invest more in drug R&D, as well as lead to lower introductory prices on new drugs.