What can lawmakers do to make the US more competitive globally and encourage investment in groundbreaking R&D companies? Earlier today, the Coalition of Small Business Innovators held a forum at the National Press Club to discuss proposals that would do just that.
Moderated by Paul Stimers, a partner with K&L Gates, the panel included Doug Doerfler, president and CEO of MaxCyte, Ed Mathers, a partner with venture capital firm New Enterprise Associates, Katherine Hamilton, policy director at the Electricity Storage Association, and Darrell West, founding director at the Brookings Institution’s Center for Technology Innovation. The full discussion is available for viewing:
The Start-up Jobs and Innovation Act, introduced by Senators Robert Menendez (D-NJ) and Pat Toomey (R-PA), has several provisions that would make our tax code more hospitable to R&D-intensive start-up companies and potential investors. One of the largest hurdles facing innovative small businesses looking to raise funds is that they currently have no taxable income that would allow them to take advantage of existing tax incentives like the R&D tax credit, a point underscored by MaxCyte’s Doug Doerfler:
“The existing tax credit is helpful if you’re paying taxes, which means you have to be making money. Innovative companies early in their cycle are not making money, and so there’s no benefit of having a tax credit. So [the R&D tax credit] doesn’t help pre-revenue companies, to my mind.”
The Start-up Jobs & Innovation Act would allow small companies to partner with their investors on an R&D project, allowing the investors to claim the losses and tax credits generated by the project to offset other income.
“The real big companies in the biotech sector, the name brands – Amgen, Genentech, Genzyme – all of these companies financed their projects through these R&D tax partnerships. So this is something that isn’t an unproven idea. This is something that actually worked, and it worked very well. It was really the catalyst for our industry. What we’re trying to do is figure out a way of bringing it back, since it worked so well , and it was taken away during the tax reforms back in the mid-80’s,” said Doerfler.
Venture capitalist Ed Mathers argued that Congress needs to act to maintain U.S. leadership in innovation:
“It’s a really simple decision. If we want to maintain being a world leader in innovation and technology development and continue to lead the world in cutting-edge therapies – as Doug was talking about here, he mentioned HIV back in the ‘80s. Nobody thought HIV would be a treatable disease like diabetes. It is now treatable. You’re starting to see certain cancer therapies – melanoma, for instance, not too long ago was a death sentence. Now there are at least four drugs approved or in the development and approval process to treat melanoma. It’s these types of things that if people are not innovating, we would not be able to see. If Congress doesn’t step in and address the tax situation, I think it’s not good for the long term.”
Darrell West with Brookings believes that current tax policy focuses too much on revenue generating companies:
“What Members of Congress don’t realize is that there is a lot of innovation occurring in this pre-revenue space. As others mentioned, sometimes it’s a ten, twelve, fifteen year time horizon where these companies are finding their innovations, getting their ideas together – not making money, but they’re actually producing stuff that is going to make money down the road, and so we need some public policies for those types of companies, because that is where the real creativity is emerging from.”
The panelists had a great discussion, and I encourage you to watch the entire video.