The Role of Law
Elgar Law and Entrepreneurship series
Edited by Megan M. Carpenter
Chapter 2: State Legislative Efforts to Improve Access to Venture Capital
Brian Krumm1 The 1983 cover article in TIME magazine entitled “The New Economy” was one of the first to discuss the transition from heavy industry to a new, technology-based economy in the United States. That article described a massive complex of aged, red-brick buildings, the former home of a wool mill which was reborn as the new corporate headquarters of Digital Equipment Corporation, the second largest computer manufacturer in the world at the time. The development and growth of Digital Equipment was made possible through financing obtained through venture capital. Venture capital has played an integral part in the evolution from the old to the new economy, yet not all areas of the country have fully participated in this renaissance. This chapter will discuss the role that law, in the form of legislation that creates state-sponsored venture capital programs, can play in providing the capital necessary for states to create an environment that supports entrepreneurs in commercializing their intellectual property. Access to capital is critical for business startups and expansions and, more importantly, to the health of state and local economies. Despite the need for startup capital, many small businesses find that obtaining such funding is a difficult, or sometimes an even impossible, challenge. The difficulty of small businesses to raise capital is primarily because banks are reluctant to provide conventional debt financing to companies with little to no track record. In the recent economic downturn, this practice has only intensified, with reports suggesting that small business lending has declined...
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