Special Report--ENTERPRISE: Roundtable: Issues & Trends
WHO SAYS WASHINGTON IGNORES SMALL BUSINESS?
As the overseer of $2 billion in venture-capital investments, Alan J. Patricof didn't need anything else to do. But for the past two years, he has spent his downtime organizing the White House Conference on Small Business, a process that drew together more than 20,000 small-business people, culminating in a Washington meeting in June. The result: 60 proposals that have been forwarded to Congress for consideration. Here's what Patricof told Assistant Managing Editor Sarah Bartlett and Department Editor Amey Stone about the conference and the state of small business:
Q: Now that you've recovered a bit, was it all worth it?
A: Everyone told me that the 1986 White House Conference on Small Business was a very big disappointment, because the President and the Vice-President were both out of town. In fact, it was held during the summer recess, so Congress wasn't even there. Everybody remembered the fact that there had been no real participation by the government. And small business really was very negative and skeptical....I think the fact that the process worked this time [both the President and Vice-President attended] was a major accomplishment. I think a lot of people became more comfortable with the whole Washington process and found out that it's more user-friendly than they realized and that a lot of things are possible.
Q: What in particular do you think has gotten better?
A: I think there have been improvements--dramatic improvements--in regulation and paperwork. You know, it's very hard when you're a small business used to complaining and wanting to impact change, to recognize that some of the changes have already taken place, or that legislation may have passed already. For example, the President passed the targeted capital-gains bill, which reduced the capital-gains tax by 50% on investments in small companies. Well, people were complaining all through the conference--not complaining, recommending lowering the tax for investing in small companies. But they have it already! Now, whether they're using it, that's another matter....The same thing with regulation. There has been a lot of reduction, I mean a lot! The most significant reduction has been in the banking area. At the direction of the President and also on his own initiative, the Comptroller of the Currency has been reducing paperwork for getting loans, so you don't have to go through three different agencies and you don't have to get an appraisal on your house. Things like that.
Q: What is your sense of how competitive America's small-business sector is, compared with Europe's or Asia's?
A: Oh, I think we're way ahead. The vitality of the entrepreneurial motivation in this country is far beyond what it is anywhere else in the world--because failure is more acceptable here. You can fail and start again here much more easily than you can in Europe--although it's better there than it was 20 years ago. Today, you start up, you raise money, and if the company fails, you end up owing the bank money, and nobody likes to do that. But you can get backing again and start again, whereas in Europe, if you fail, it's very hard to do it a second time.
Q: Given how much time you've spent chairing the White House conference, how's your own business doing?
A: My business [Patricof & Co. Ventures] hasn't suffered. We have over $2 billion, of which $700 million is in the U.S. Our portfolio here tends to be more broadly diversified. In Europe, for instance, our funds invest much less in the type of entrepreneurial startups that we do here. Here we're investing in health care, technology, and retail concepts. And we invest not just in early-stage situations; we do early-to-later-stage. In Europe our investments are more in later-stage, consumer-type industries. It's really almost restructuring the middle-size, family-size companies that are taking in outside capital and expanding.
Q: How have the returns on your funds been?
A: We have an annual 35% net internal rate of return, which is very unusual in the U.S. And that's a fund that's now almost seven years old. We've had several successes in that fund, but high tech has been part of it and so has retail. In Europe, our return has been closer to 18% to 20% net a year.