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A Bridge Over the Valley of Death

Thom Ruhe, Director of Entrepreneurship, The Kauffman Foundation

A new Kauffman Foundation report points to what might be a long-term bridge over the most difficult funding stage for startups—the ‘Valley of Death.’ In that timeframe, after entrepreneurs have exhausted friends, family, and personal credit and before they’re ready for external funding, some startups struggle to raise enough capital to stay alive.

But Robert Litan and Alicia Robb, the authors behind “A Market-Based Approach for Crossing the Valley of Death: The Benefits of a Capital Gains Exemption for Investments in Startups” say that startup activity and investment would be increased by a tax exemption on capital gains on investments in startups held for at least five years. According to the math, permanent exemption could spur $750 million in annual seed investment each year, supporting the high-growth startups that create our nation’s jobs.

The idea isn’t new. In fact, it was already put in place in some form in 2009. But at the end of 2011 these exemptions expired and haven’t been extended. We’re hoping that with the release of this report, an idea that’s part of the Startup Act Kauffman Foundation proposed back in July 2011, Startup legislation proposed by the Administration, the Startup Act legislation recently introduced in the Senate by Senators Moran and Warner, in a Small Business Tax Extenders Bill introduced this week by Senators Snowe and Landrieu, it will be extended.

Read the report to see how a proposed extension could impact entrepreneurs’ ability to raise capital and in turn, create jobs.

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