Creating an exchange or market where smaller, entrepreneurial firms (SME’s) may efficiently and effectively see their shares trade in a public and transparent fashion is a good thing. Giving people the opportunity to sell shares in a small company is a method of exit for the holder. Correspondingly individuals may see opportunity in purchasing these same shares as they believe the future of the firm is rather bright. This practical concept is easy to understand but challenging to implement. One symptom of this fact is the growing trend of companies to remain private as long as possible fearing the wrath (and cost) of regulatory overreach.
The discussion on the subject of Venture Markets has been a hot topic on Capitol Hill in recent months. At the SEC and in hearings in both the House and Senate, political types are debating the merits and methods to create a liquid and robust marketplace for equity in small companies.
Recently David Burton, a Senior Fellow on Economic Policy at the Heritage Foundation, testified at the House of Representatives for the Committee on Financial Services. Burton also addressed draft legislation labeled the “Main Street Growth Act” that may create Venture Exchanges.
Burton notes that entrepreneurial capital formation is important for a well functioning economy. In an interesting note, Burton shares a statement from Yale economist William Nordhaus that attests that 98% of economic gains from innovation and entrepreneurship are received by people other than the innovator. In other words do everything you can (policy wise) to engender an innovative, entrepreneurial ecosystem and everyone benefits. A venture exchange is an important variable to this equation.
Burton’s testimony is embedded below.
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