Private investments kickstart innovation

Investing in R&D is key to America’s economic future as well as America’s ability to forge solutions to our nation’s most pressing needs.  Both our large and small businesses are leading the world in innovative research, and it is vital that Congress keeps the U.S. on the cutting edge of scientific research and discovery.  Supporting small business innovators is critical to this effort.

The Start-up Jobs and Innovation Act, introduced by Sens. Robert Menendez (D-N.J.) and Pat Toomey (R-Pa.), will do just that by reforming the rules governing how private investors can partner with small, research-intensive companies.

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Small, R&D-focused businesses have been hotbeds of innovation for decades.  Their ideas have created not only technologies which improve our everyday lives, but hundreds of thousands of high-quality jobs.  But the U.S. risks falling behind in scientific advancement, and the related economic growth and job creation, if we do not support the work being done by these companies. 

Menendez and Toomey have taken an important step toward supporting this vital sector of the economy with their introduction of the Start-up Jobs and Innovation Act.  This legislation incentivizes private investors to place their faith in innovative small businesses, regardless of industry sector, and it does not increase federal spending.

Many small innovative companies do not yet have product revenue because they are still conducting research, so they depend on private investment to fund their work.  The Start-up Jobs and Innovation Act provides reforms partnership rules to encourage the long-term, patient investment required for innovative businesses to be successful.  The bill will make targeted reforms to the tax code to encourage investment in small businesses conducting innovative R&D.

Specifically, the Start-up Jobs and Innovation Act would allow small R&D-focused companies to partner with their investors on research projects.  These collaborations, called R&D Partnership Structures, would allow the investors to recognize the tax losses and credits generated by the R&D in a project.  This change, only available to small innovators, would give investors more of an incentive to support early-stage R&D.  The bill would also reward patient investors through favorable capital gains tax treatment. 

The Biotechnology Industry Organization (BIO) is a member of the Coalition of Small Business Innovators (CSBI), a group of 18 organizations representing R&D companies that depend on private sector investment to fund the next generation of scientific advancement.  With investors often prioritizing short-term gain over long-term progress by innovative companies, these small businesses can face steep challenges when raising innovation capital.  Young businesses need patient capital to survive, so policies that stimulate investment also help to advance technological breakthroughs. 

The Start-up Jobs and Innovation Act will encourage investment, support research, and create over 150,000 jobs.  If Congress follows the policies set forth by Senators Menendez and Toomey, passing this important legislation will invigorate America’s innovation economy and support the advances being made by small business innovators across the country.   

Greenwood is president & CEO of BIO. he represented pennsylvania's 8th Congressional District from 1993 to 2005.