"The regulatory monkey on our back"

We strongly believe that entrepreneurial activity is the critical engine that drives healthy economies and that has distinguished the economic prosperity that America has enjoyed during all of its most vital economic periods.

Kudos, therefore, to independent journalist Sarah Lacy for her interview from last Friday in which she uncovers an important aspect of the current entrepreneurial landscape.

The important part of this video is at the very end (beginning at minute 4:13 in the clip), when venture capitalist Pascal Levensohn begins discussing the flip side of the issue that is discussed for the first four minutes of the interview.

At first, the discussion is about the discipline the current economic landscape is imposing and has been imposing on entrepreneurs and those who provide capital to them.

But then Mr. Levensohn introduces a very important point: the discipline side is good, but the increased regulatory burden imposed by the government has serious negative repercussions.

"The fact is," he says, "it costs three times more to take a company public now than it did" (5:42).

The actual dollar costs of the increased regulation (which mandate additional work from attorney firms and accountants, for instance) mean that the payoff formula for funding a start-up company is dramatically different -- so different that some companies will not get funded based on projected revenues.

Companies that it may have made sense to fund before the regulation enacted in the past seven years may never get funding today. The "regulatory monkey on our backs now" (to use the phrase Levensohn employs) thus means that an entrepreneur does not build a company into a successful business that adds value to customers and to the economy. It means that employees do not get hired who would have gotten hired. And it ultimately means, as Levensohn correctly points out, that capital goes other places (such as overseas) in order to find opportunities for funding business formation in a less onerous regulatory environment.

Very revealing.


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