Fostering Innovation and Entrepreneurship: Shark Tank Shouldn't be the Model

57 Pages Posted: 20 Jun 2019

See all articles by Brian Kingsley Krumm

Brian Kingsley Krumm

University of Tennessee College of Law

Date Written: June 14, 2019

Abstract

For the past half century, innovation has driven the economic growth that has made the American economy the envy of the world. For most of this period, venture capitalists provided not only the capital that new innovative companies needed, but also the management expertise. In the last fifteen years, however, the venture-capital business has changed. Many venture capitalists no longer provide money and mentoring to the proverbial inventor working out of her garage. Instead, they primarily focus their investments on companies that are already established and generating revenue. And even this funding is available only to companies located in a few geographic areas.

This pullback could not have happened at a worse time. Interest in entrepreneurship and innovation is at an all-time high. Nearly a quarter of millennials say they want to be some sort of entrepreneur. State governments are focusing their economic development efforts on stimulating entrepreneurism and redirecting resources they formerly spent attempting to recruit industry from other states. While zeal for entrepreneurialism is growing, a recent Gallup poll suggests that the number of net U.S. Firms has steadily decreased since 1977 to the point where there are more net closures than startups.

Given such glaring contradictions, it seems reasonable to question how best to finance innovation, or rather how to better coordinate a series of financing opportunities. Not surprisingly, the federal government has introduced funding programs to fund new businesses, and several new forms of organizations have developed to assist entrepreneurs in their attempt to commercialize their innovations. These new organizations have helped, but much more needs to be done. This article proposes a new kind of business organization, one that can serve to fill the gap that venture capital currently does not fill.

Part I of this article provides the reader with a perspective on how innovation has been financed over the years and how the roles of the federal government and private equity have evolved in this process. Parts II and III examine the role that private investment plays in the current innovation finance ecosystem, and identifies both the inefficiencies and value enhancing attributes of that source of financing. Part IV describes the major federal policy initiatives implemented in recent years to bolster funding for start-ups and other small businesses. Part V, which is the heart of this article, proposes the creation of a business association specifically designed to help entrepreneurs secure the necessary capital and to assist them in the management of their businesses.

Suggested Citation

Krumm, Brian Kingsley, Fostering Innovation and Entrepreneurship: Shark Tank Shouldn't be the Model (June 14, 2019). Arkansas Law Review, Vol. 70, 2017. Available at SSRN: https://ssrn.com/abstract=3404196

Brian Kingsley Krumm (Contact Author)

University of Tennessee College of Law ( email )

1505 West Cumberland Avenue
Knoxville, TN 37996
United States
865-974-2141 (Phone)
865-974-6782 (Fax)

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