08/17/2010 01:34 pm ET Updated May 25, 2011

Reinvigorating Innovation in America -- Washington Is Finally Starting to Understand its Role

America's role as an innovator is threatened, and Washington is finally starting to get it. The beliefs from the New Democrat Coalition, a group of pro-growth Members of Congress who believe in the opportunity to advance a common sense policy agenda recently published the following to illustrate their evolving thinking:

"In each of the last two centuries, American innovations have revolutionized the world. We believe that the 21st century should be America's century as well. America's innovative potential remains the foundation of its future prosperity. We believe in the power of new ideas to create unlimited and transformative opportunities for American workers and businesses. . . We also believe that smart government policies are vital for supporting American innovation."

The New Democratic Coalition (NDC) has 68 members of the House of Representatives with a focused commitment to innovation and entrepreneurship. Along with other venture capitalists, I recently met with eight of them and came away extremely heartened.

The NDC understands the crux of America's significant economic challenges, and they're in a position to help resolve them. As America has done numerous times before, we must once again embrace technological innovation with the zest required to surpass, or at least effectively compete, with fast-rising global powers such as China, India and Brazil.

Evidence of our growing problems includes the fact that China in recent years has begun attracting several billion dollars annually in venture capital, compared to almost nothing a decade ago. Capital and talent are highly mobile assets that flow to the markets that best reward them, and we've obviously begun losing this battle.

Another significant problem is that the U.S. remains critically dependent upon foreign-born technological talent, which continues to be educated here but increasingly is returning home to pursue careers. We must implement policies that effectively pin "Green Cards" to advanced engineering, science and mathematics degrees from our leading universities.

I'm a strong fiscal conservative with deeply held conviction as a venture capitalist and former entrepreneur that a healthy and properly functioning free enterprise system is the key to reinventing the US economy. This is the way to create the millions of differentiated new jobs that our nation requires to not only meet its financial obligations, but to sustain and improve our standard of living. The federal government should A) stop hamstringing the nation's natural entrepreneurial process and B) take some proactive steps to enhance it.

Here are five suggestions to help push America further in the right direction:

  • A green card should be stapled to every advanced degree granted in science, engineering and mathematics awarded by leading U.S. universities.
  • The government should not tax multinational corporations that generate profits off-shore on the proceeds that are repatriated for investment in U.S. research and development centers.
  • The government should not increase the tax rate on profits generated in venture capital-backed investments and, in fact, should eliminate the long-term capital gains tax on investments in innovation after five years. Today, by contrast, the government is increasing the risks of innovation and diminishing its rewards on a multiplicity of fronts. Successful innovation will generate wealth (and jobs) - let's accept and encourage this universal. It's time we stop trying to punish success.
  • To encourage heightened technological research, the government should create a Defense Advanced Research Projects Agency (DARPA)-like program in every federally funded research center in the U.S. Concurrently, a clearinghouse should be created to transfer much more government technology to the private sector, which would significantly increase the effort to commercialize government research.
  • To further encourage the "research" that is the seed corn for future innovation, tax credits should be expanded for privately financed research and a select program of matching dollars for University-based research.

Although I did not lay out these five steps during the meeting with the Members of the New Democratic Coalition, I was encouraged that they understood that innovation is the key to the viability and growth of the U.S. economy and that Silicon Valley has been the heart of American innovation for more than three decades.

Another promising step in the right direction of smart policy is the recent formation of a strategic advisory group at SCRA (South Carolina Research Authority) that includes representatives from the Department of Defense and the Department of Homeland Security, as well as the large industry, small business and venture capital communities. SCRA is a tax-exempt applied research and commercialization services company, and, among other things, it helps early-stage entrepreneurial companies commercialize new technologies. This group should quickly form a concrete plan and proceed decisively, not get mired in dissident dead-end politics and ideologies.

During our discussion, one congressman correctly noted that government resources are likely to be severely limited in today's harsh economic environment. While this is a fact of life, the federal government does not (and should not) be the major source of capital to reinvigorate our innovation ecosystem. Instead, government policy should focus on the encouragement and leverage of private market capital and infrastructure. The private sector can and will move faster, more efficiently and with better results than government managed programs. The cost of more intelligent policies should be nominal and will ultimately generate far more revenue for the government as a result of accelerated innovation, economic growth and heightened prosperity. With proper incentives, government policy can re-encourage the healthy flow of capital and talent necessary to resuscitate our innovation economy.

At the end of our discussion, what was crystal clear to everyone in the room is that changes are essential -- the stakes could not be higher for the U.S. economy and our standard of living. It is in the enlightened self-interest of U.S. society to put aside the politics and finger-pointing of populism to work together to find common ground to rebuild our economy. It won't be easy. But an important meeting between venture capitalists and congressmen significantly bolstered my optimism that we can finally cross this bridge and put the America back on the right track.