The Kaufman Foundation released yesterday its fourth annual State of Entrepreneurship Address, in which a panel of scholars, policymakers, and practitioners came together to discuss current obstacles and also policy recommendations.

Despite the positive outlook for equity crowdfunding under JOBS Act and the recent uptick in new businesses, the panel, which featured Small Business Administrator Karen Mills, U.S. Senator Jerry Moran, and Kauffman President Thomas McDonnell (to name a few), said that financing is still a major hurdle for start-ups. The investment performance of the venture capital industry has drawn increasing criticism, while bank finance remains challenging after the recession.

Here are a few recommendations that came from the report:

  • Allow sophisticated investors with fewer assets to access crowdfunding--and make those policy changes fast. The report proposes that private equity markets should include knowledgeable investors with fewer assets, as long as they pass a knowledge certification test and a limit is imposed on the size of their investment. Currently, only those with enough wealth to protect themselves from losses can invest in private equity markets. But the Task Force argues that the overall level of risk will not increase if the private equity market gives access to investors who successfully complete an investment knowledge test. 
  • Improve data collection and analysis on small business lending. The report recommends federal agencies - including the Small Business Administration, the Consumer Financial Protection Bureau, and the Federal Deposit and Insurance Corporation - should improve data collection on small business lending, such as bank lending, SBA-backed loans, and other programs aimed at assisting small businesses. The Task Force argues that transparent policy-making process has been difficult due to the insufficient data on small business financing and the lack of SBA program evaluations.
  • Change the economics of the venture capital industry. The report proposes that investors should make changes to monitor and improve the performance of VC, such as establishing a standardized metric to measure VC’s return compared with that from the public market. According to a Kauffman report in May 2012, the current compensation structure often allows VCs to “lock in high levels of fee-based personal income regardless of fund performance.” The report recommends investors to adopt a Public Market Equivalent to compare different VC funds as well as the private versus public performance.