Data via International Federation of Health Plans (http://ifhp.com/news97.html)

The International Federation of Health Plans (IFHP) recently published a study (link) that parallels the Laugesen/Gleid analysis for a wider range of medical specialties. The chart above summarizes their analysis of physician fees for a sample of important services.* It shows the average commercial fee for a given service paid in the U.S. divided by the average commercial fees paid in France and Germany (averaged together). I chose France and Germany because they are advanced countries with high quality medicine, and the IFHP has complete data for them.

IFHP’s conclusion is much the same: doctors in the U.S. are paid 2x – 3x the fee for a wide range of advanced procedures.** And, the fees for childbirth are almost off the chart. I speculate that this is a result of the highly active U.S. tort system: Obstetricians are more vulnerable to law suits than most specialized doctors. This adversarial environment has driven some doctors out of obstetrics, and the fees for the remaining doctors are pushed up by scarcity, risk, and high costs for insurance and defensive medicine.

I received a thoughtful comment on my last post from a doctor who is CEO of a large group of cardiologists in the northeastern U.S. (see the comment from “William” on this post). He describes the history of specialist fees: twenty years ago they were much higher than they are now. CMS*** has brought fees down and doctors have increased their volume of services to maintain their incomes, creating a self-perpetuating cycle. Another trend has been the establishment of stand alone, doctor-owned centers for high-volume, medium-complexity services like colonoscopy and MRI and CT imaging. This allows the doctors to claim a larger percent of the revenue from each procedure. But it is also credited with driving up hospital costs by attracting the simpler procedures away from hospitals, and leaving the hospitals with a “more acute” (i.e., more seriously ill) mix of patients****.

The bottom line is: U.S. doctors charge 2x-3x the fees received by their peers in France and Germany, and there is broad consensus that medical outcomes in the U.S. are not better in general than France and Germany. I’m glad to know that CMS is chipping away at the cost difference. Bringing costs down is hard, however, because (as the examples above illustrate), when you squeeze a balloon in one place, it tends to expand in another. Reducing the need for specialist services is the best answer. If you eliminate the service, price does not matter, and a big reduction in demand will bring down prices if the market is functioning at all. See a prior post for ways to do this.

Another way to bring down costs is to make the market work better: more transparency and greater buyer choice. I’ll explore these ideas in a future post.

*The IFHP analysis also examines hospital costs and combined physician/hospital costs for common procedures.

**IFHP’s data is limited to commercial rates paid to doctors. Laugesen and Gleid’s data includes both commercial and goverment rates. They found that government rates for both orthopedic surgeons and primary care doctors in the U.S. are about 2x the average of France and Germany.

***Center for Medicare and Medicaid Services, the office within the Department of Health and Human Services which sets federal rates for physician services and is widely perceived to have a strong influence on commercial rates.

****McKinsey Global Institute, Accounting For The Cost Of Health Care In The United States, p. 17.

So I did a little digging. No surprise, academics and other analysts have worked on this. I found comparative analyses of health care costs from the New York Times, HealthAffairs.org, New England Journal of Medicine, McKinsey, and professors at Princeton, Dartmouth, and Columbia. They vary in methodology and perspective; however, they provide a good sense of where the gap is and why.

The U.S. spent about $7,000 per capita in 2008 on health care. Peer countries, like Germany, France, Japan and the U.K., spend about half that amount and achieve equally good results, as measured, for example, by life expectancy at birth. That comparison is captured in the famous Mary Meeker graph, Chart 1. It shows that the gap is about $3,500 per person in the U.S. ($1.1 trillion for the 305 million U.S. residents).

The sources of difference:

1.         U.S. spending annual on physicians per capita is about five times higher than peer countries: $1,600 versus $310 in a sample of peer countries, a difference of $1,290 per capita or $390 billion nationally, 37% of the health care spending gap. These conclusions come from an analysis co-authored by Miriam Laugesen of the Columbia University School of Public Health and Sherry Gleid, an Assistant Secretary in the U.S. Department of Health and Human Services (source)**. The biggest driver of the gap is spending with specialist doctors, which is 3-6 times higher in the U.S. versus peers.  This difference is mainly due to much higher prices in the U.S., which are driven by both higher per-procedure rates paid by both public and private payers, and larger proportion of higher-paying private payers in the U.S. By comparison, public per visit rates for U.S. primary care doctors are at the high end of the range for peer countries and private rates are slightly above the range, and primary care doctor incomes are higher than peer countries, but less than half of the incomes of U.S. specialists. Primary care doctor utilization is comparatively low in the U.S., which keeps overall spending on primary care down. This is not good for overall health care costs, however (more).

Laugesen and Gleid conclude (in very circumspect language, which I have translated here to plain English) that the physician spending gap exists because mainly because CMMS*, which sets U.S. Medicare and Medicaid rates, pays much more for specialist services relative to primary care services than government authorities in peer countries; private insurers have done a poor job of negotiating rates with specialists; and it may be necessary to pay incomes to specialists at or near the “1 percent” level to attract them from other well-paid occupations. I think the last argument is strained.  Laugesen’s data shows that there is no shortage of specialists in the U.S. (which might necessitate high prices), and there is no evidence that the people who become medical specialists could achieve the same economic status in other walks of life.

2.         The high level of per capita income in the U.S. is a major factor driving U.S. health care spending. The U.S. has higher per capita income than any other large country, and higher income is closely associated with higher health care spending. Analysis done by Princeton professor Uwe Reinhardt suggests that about $1,200 per capital (in 2008 dollars) of the difference between the U.S. and peer countries (34% of the gap) is due to high levels of income in the U.S. (source). This is an explanation, but not a good justification, because, as the Meeker analysis (and other analyses) show, the U.S. appears not to receive value for the higher spending, as measured by medical outcomes.

3.         Dartmouth University has analyzed differences in health care costs between U.S. regions, comparing the highest-cost quintile of U.S. regions to the lowest-cost. Its research shows a spending variation of $2,300 per capita after taking account of differences in health status, income, and ethnicity (source). And health outcomes are no better in the high spending regions than in the low spending regions. Dartmouth attributes the gap to regional differences in discretionary medical decisions driving higher patient referral rates for high-cost advanced care (specialists, hospitalization, CAT and MRI scans, etc.). If the entire country were brought to the spending level of the lowest quintile, the savings would be about $750 per capita: $225 billion or 21% of the gap.

My percentages add up to 92% of the gap, but there are obvious double counts: higher prices for physician services are part of both the national income effect and per capita physician spending. Likewise, over-utilization of specialists is part of both regional differences and higher physician spending. I can’t precisely eliminate the double-counts, however, my sense is that these three factors together account for 50%-75% of the gap.

Professor Reinhardt cites several other factors contributing to higher health care costs: pharmaceutical pricing, higher administrative costs for medical payments relative to single-payer models, and the highly-developed U.S. tort system and resulting defensive medicine. McKinsey Global Institute estimates that the first two items cost $50-$100 billion each, 5%-10% of the gap (source). Interestingly, Reinhardt dismisses the aging of the baby boom generation and better quality or better outcomes as realistic explanations for our higher costs.

In business, bad problems call for plain talk. The data I found says the dominant problem with U.S. health care costs is a labor problem with medical professionals. Wages and work rules (i.e., referral decisions leading to over-utilization, staffing levels in hospitals) have driven costs to a level that is now unbearable (see my earlier post). The situation reminds me of the U.S. airlines in their hey-day: growth and sloppy regulation allowed labor costs to soar; senior pilots were paid about what specialist doctors earn today and had enough free time that many ran side businesses; and high costs would soon gut the air lines financially. Twenty years on, the major air lines of that era have all disappeared or gone through Chapter 11, mainly to restructure their labor costs. Safety has been maintained, however, and there is still an ample supply of pilots.

Dealing with this will be thorny and complex. The first step is to identify the root of the problem and make it transparent. That’s why businesses find benchmarking so useful.

*The Center for Medicare and Medicaid Services, part of the U.S. Department of Human Services.

**The study uses orthopedic surgeons as a proxy for all specialist doctors. This makes the international comparison more precise but is obviously an approximation with respect to the full range of specialist doctors.

Every investment a venture fund makes must have blowout potential.  So your revenue forecast slide needs to convey what could happen if execution is great and luck is on your side.  ”This entrepreneur is unusually sober to the challenges he is facing” does not get anyone writing checks.  You want them to wake up the next morning thinking “this entrepreneur is ambitious, and his company could catch fire in the next 6 months, and if I don’t get in now I will regret it for the rest of my life!”

The conversation will immediately turn to the assumptions driving growth, which is the very best way to understand the risks in your business.  Investment required, sales cycle, CAC, channel performance, margin assumptions, scalability, market size, all of the details in your model that support that top line reveal to the investor the likelihood it will be a blowout or a blowup.  So the fantasy revenue slide starts an important adult conversation.  It needs to be there, and if the assumptions underlying that ramp are outlandish, you probably should not try to raise venture money.

And, MIT professor Jonathon Gruber, the economist who was an architect of both Mass health reform and the ACA, recently announced that the economic analysis underpinning the ACA is wrong. He now expects that private insurance premiums under the ACA will be much higher than previously predicted (more).

Even before the ACA, the U.S. had a huge health care cost problem. The chart above is shows health care spending per capita versus income for the U.S. and peer countries. This chart has been around for a while, but the problem does not go away. Health care cost per capita in the U.S. is about 100% higher than other advanced countries. And, I have seen no data that says the quality of care justifies this.

Forbes contributor Dan Munro in a recent post took a stab at quantifying the cost savings likely to result from the major cost saving elements of the ACA (link). He concludes that the savings potential from these programs is incremental: a few percent. They miss by an order of magnitude the savings needed: reduction by ~40% would bring U.S. health care costs in range of other rich countries.

Politicians usually focus on the art of the possible: what the players will agree to do. Business people think in terms of the art of the practical: what does it take to win? I’m a business person, and I asked myself the question, what could produce the kind of savings that is needed? The good news: there are some potential answers.

1.         Make primary care more intensive and use it to drive down utilization of hospitals and expensive treatments and diagnostic tools. This is not speculation. There are several organizations in the U.S. that employ the “medical home” model: they provide people with access to all the primary care medicine they need for a fixed fee per month. These primary care doctors have no financial interest in the treatments they recommend. They spend more time with each patient, and hence have time to focus on wellness, early intervention, and solving less complex problems in-office, versus referring everything to specialists. Experience with medical homes shows that intensive primary care can reduce the cost of downstream treatment by 30%-50%.

This is a great trade-off because primary care is a very small part of the cost of medicine. U.S. health care spending in 2010 broke-down into $350 billion for primary care, $1,000 billion for trauma and end-of-life, and $1,250 billion for “advanced care”, which is specialists, hospitals, advanced radiology, etc., other than trauma and end-of-life. That’s the left bar in the chart above. And, about 40% of the cost of primary care is overhead added by funding primary care through the insurance system. If you take primary care out of the insurance system, double the actual primary care resource, and use that to drive down the cost of Advanced Care by 40%, you get the right bar, an overall savings over 15%. That’s the kind of savings we need. This won’t be simple, of course, and probably does not apply to all health care, but there is a big idea here that can make a big difference.

2.         Take a Serious Run At Life Style Diseases. We can no longer afford to fund the cost of care for elective diseases from the public purse. Smoking causes chronic disease and premature death. It adds about $160,000 to the lifetime health care costs of the average smoker (source), which adds $140 billion to the annual cost of U. S. health care. That’s over 5% of our health care bill. Everyone pays for it through taxes, insurance rates, and the need to care for the people in our lives who are smokers. It’s tough to eradicate a drug addiction, which is what this is, and the tobacco establishment has political clout. But, we can no longer afford to ignore the chain-smoking rhinoceros in the living room. My suggestion: we buy out the tobacco farmers, put tobacco in a class with heroin and crack cocaine (expensive, hard to get, criminal to deal), and provide help to those who want to wean themselves.

Diabetes is another life style disease that is epidemic in the U.S.; it costs $220 billion per year (source). Not all diabetes is life style related, and it is a more subtle problem than smoking, but we can attack it too: with leadership and public education (as Michelle Obama is doing), earlier and more intensive counseling of people who are at-risk, investment in things that are healthy and steps to raise the cost of things that cause health problems, and by holding individuals more responsible for health costs related to life style choices (i.e., higher insurance premiums for obese people, just like for smokers). Substantial progress against diabetes would drive a several percent reduction in the national health care bill. And then there is alcoholism …

The point is, there are things we can do to take a big bite out of health care costs. They are hard to take on, but they have big potential. We we can no longer afford to kick this can down the road. We have to take the steps that have a practical chance to beat the fiscal cancer that health care has become.

*ACA refers to the 2010 federal Patient Protection and Affordable Care Act, also known as “ObamaCare”.

It is the great ones, the ones that achieve something special, where we really think carefully.  And for every example of a company that refused a good offer and ended up struggling (Digg comes to mind, but there are so many others I hate to single them out), there is a company that sold too early and left 10x or more in value to the acquirer.  VM Ware comes to mind – sold for $750 million to EMC and is now worth $46 billion.  Hard to say which hurts more.  What would YouTube be worth now if it were independent and going public?  More than what Google paid?  Enough more to justify waiting?  Or would Google have bought a competitor and crushed YouTube?  Hard to say.

So, when I read the criticism of the Instagram founders for “selling out” I cringe.  The “right” course of action is never as obvious as observers will opine.  For insiders, when a good offer comes in, it is up to the board to consider it, and pursue or reject it.  Here is what we consider when having these discussions:

1) Growth prospects.  Do we really have the means and team to scale the business?  Or is our growth heading for some real challenges.  Are competitors looming that will eat our lunch?  Are we really a stand-alone business long term?  Good companies tend to believe they can overcome any obstacle and the world is all figured out.  It is the  job of the board to bring a sober assessment to the companies prospects.  This is why it is so important to have a truly independent director on the board.

2) Price.  Obviously, if the offering price is some high multiple of some yet to be achieved revenue target, you are probably going to sell.  If the price is a low multiple of some already achieved revenue number, then you are probably going to reject the offer.  Usually, with good companies the price is somewhere in between these extremes.  Generally, we tend to hang on to our winners if the offering price is close to the price at which we could raise capital.

3) Management Recommendation.  If management is eager to sell, then that is a big factor.  We try to structure our investments so management keeps a higher percentage of the winners at higher exit values.  Participating preferred with a cap accomplishes this well.

Back to Instagram, would I have sold?  Did the founders sell out or sell smart?  The answer is clear to me – that was a smart sale – as close to a no-brainer as I have encountered.  I wish they were all that obvious, and I hope to be having a similar discussion as the board of Instagram with one of my companies down the road.

U.S. Health Care Expenditure As A Percent of GDP; Data via bea.gov & cms.gov

If the trends of the last 20 years continue, health care spending will eat up U.S. GDP in our children’s lifetimes. See the first chart. The blue line is the federal government’s projection of health care spending. The red line projects spending at the trend growth rate of the last 20 years.

Health care spending will eat up the federal government’s budget even sooner, and that is the root cause of the U.S. sovereign debt problem. The second chart shows projected federal spending on health care as a percent of GDP rising from 5% today to about 18% of GDP, leaving no room for social security, defense, or any of the other federal government roles. In 2012 the entire federal budget is about 24% of GDP, up sharply from 20% before the financial crisis. If this forecast comes to pass, either taxes will rise to French levels, or the U.S. will be a junk-quality sovereign credit like the European “PIGS”.

Graph via Fidelity.com

The Beacon Hill Institute, an affiliate of Boston-based Suffolk University, examined the growth rate of total health care spending in Massachusetts since 2006 compared to the national trend. They included both the spending born by the state budget and other forms of spending: federal health care transfers to the state, direct federal spending (i.e., Medicare), and private insurance. This analysis developed a very different perspective:

1.         Every major category of health care spending in Massachusetts grew significantly faster than the national average in the five years following health care reform: state spending, direct federal spending, and private insurance rates. Emergency room utilization increased, despite greater access to primary care physicians. Massachusetts is now one of the highest health care cost regions in the U.S.

2.         The modest impact on the state budget is mostly due to the federal government’s decision to expand its Medicaid reimbursements in line with the expansion of coverage in Massachusetts; in other words, the federal government paid for almost all of the state’s increased cost. Kudos to the state’s politicians for bringing dollars home from DC. If the federal subsidy were to be reduced, however, the state would be in trouble, and I wonder if the federal government can be so generous on a national scale.

3.         BHI attributes the surge in costs to several factors: more demand for medical services versus concentrated and slow-to-expand supply caused prices to rise; the law mandated additional coverages in private insurance; and the reform act lacked significant cost-containment features. There was significant savings in payments to hospitals for treatment of the uninsured, but this savings is overwhelmed by the other costs.

I’m a Massachusetts resident and I’m proud that every resident of the Commonwealth has access to decent health care at a price s/he can bear, and I’m willing to pay extra to enable this. I’m not proud that we have a huge fiscal problem that the state sweeps under the rug, which the state is only starting to address with a scheme that aims to pay health care providers for “quality of service, not volume of service”. This is a valid concept and it sounds something like the Affordable Care Organization (“ACO”) concepts in the ACA.

The big question: are “pay for quality”/ACOs and other current cost containment efforts strong enough medicine to tackle the problem? In fact, is there anything out there that can credibly promise to contain health care costs? I’ll try to shed some light on this in my next post.

Sources:

Fidelity analysis: https://news.fidelity.com/news/article.jhtml?guid=/FidelityNewsPage/pages/viewpoints-healthcare-economy&topic=saving-for-retirement;

Beacon Hill Institute study: http://www.scribd.com/doc/59235411/BHI-Mass-Healthcare-Reform2-011-0627

Public dissection of Mitt Romney’s tax returns has put “carried interest” in the spotlight, but many people don’t know what carried interest is or why it’s there. A segment on the Marketplace radio program last week (link) brought this home for me. [IMHO, Marketplace is about the best business program on the radio.] I was troubled by Nancy Marshall Genzer’s piece that boiled down to 1) carried interest is a kind of consulting fee that private equity managers receive and 2) it should be highly taxed because rich private equity managers like Mitt Romney receive most of it. I will leave the question of tax policy alone: I’m not good at politics. But I’d like to correct the facts in this story

There were two bloopers. First Ms. Genzer used the song “The Little Old Lady From Pasadena” in her report and attributed it to The Beach Boys. This got a lot of listener comments and an immediate correction, giving due credit to Jan and Dean.

The bigger error: carried interest is profoundly different from a consulting fee. I’m going to describe carried interest from the perspective of a venture investor, which is what I do. Venture capitalists have been using the carried interest concept since the modern VC industry arose in the 1960s. Private equity and hedge funds adopted the idea later.

Most venture investing occurs via a partnership, a legal vehicle through which people do business together and share the economics. If my brother and I run a lemonade stand and share everything equally, that’s a partnership. In a VC partnership, a group of investors (many of them are pension funds, endowments, etc.) come together and create a pool of capital (i.e., money). The capital is invested in about 25 start-up companies over 4-5 years. These investments take 5-10 years to pay off. The partners receive a share of the proceeds when the start-ups are sold or turn into publicly traded companies (called “liquidity events”). When all of the companies are gone, the partnership winds up.

Venture investors use a sophisticated form of partnership called a “limited partnership” in which there are two kinds of partners: limited partners and general partners. The limited partners provide most of the money, but they take no role in management and they can’t be sued for the debts of the partnership. The general partners (“GPs”) find the investors and organize the partnership, they put up the remaining 1%-10% of the capital, they manage the business (usually a full time job), and they can be sued. This makes sense: some partners want to be passive investors, and some want to be active managers.

For managing the partnership and taking risk, the General Partners receive compensation: a quarterly “management fee” and a profit share that is larger than the share of the capital they contribute. This extra share of profits is the “carried interest”, a name only a lawyer could love. The management fee is paid quarterly; it covers operating expenses and provides the GPs a salary that is usually about 1/3 of what the GPs hope to receive. The carried interest is paid when companies become liquid, only after the limited partners have been paid back all of their investment.

Here is my point. Consultants have a very different deal (I know because I was one for a long time). They get paid for their time, immediately, and they take little risk: their fee is not linked to business success.

Carried interest is a profit share: it is 100% at-risk depending on performance, and it is paid only when companies are sold or go public, which typically occurs 5-10 years from the start of the partnership. If the GPs take profit from early successes and then later failures erode profitability, they have to pay money back when the partnership winds up [this is called "claw back", if only it worked this way on Wall Street …]. And carried interest is a share of each kind of profit: it can be long-term gain, dividends, short-term gain, or interest (the last two are taxed the same way as wage income). However, since VC partnerships mostly make long-term equity investments, most of their profit is long-term capital gain.

What do general partners do to earn their carried interest? It’s an intensely entrepreneurial business. They invest about $1 million of personal money and work for a year to organize a partnership. Then they put millions more into the partnership’s capital and work for 4-5 years to find talented entrepreneurs with promising ideas and close investments with them. They work alongside the entrepreneurs as partners (investors, board members, and mentors) for 5-10 years to help their companies become successful. Many VC funds are never profitable and only 25% are strong performers. If and when all this works out the GPs get paid carried interest.

Those are the facts. My goal here is to lay out what carried interest is, how it works, and the business logic behind it. Now, let the politicking begin.

As a blogger, I appreciate the need to say something that gets attention. But this prediction is a big stretch. It overlooks the huge importance of apps, media content, and consumer cloud services in the smart phones market: areas where Nokia and Microsoft are far behind. Reported by ZDNet in the link above, the forecast comes from IHS iSuppli, a respected analyst of the electronics market (link).

Photo via nokialumia900review.com

You can get to IHS’ conclusion if you take a device-centric view of the market. Nokia has deep device skills, sees smartphones success as a strategic imperative, and has made a big commitment to the Windows Mobile platform. Microsoft is a software juggernaut with some key market franchises. Together they have a new strategy that makes sense: they are designing for the U.S. as the lead market and cutting deals with U.S. carriers. The flagship product, the Lumia 900, has competitive hardware specs (e.g., 4.3″ AMOLED screen, 8 Mpixel camera, LTE) and some “hot” features that received favorable notice at CES. This is all good, and to me it says that the next gen efforts of Nokia smartphones will fare better than those in the past.

But all of the above is just table stakes to get into the game with Apple, Google, Samsung, and other Google hardware partners. The mobile device business is no longer about the device alone; it’s about content and the way the device works with a suite of network and cloud based services. First, there are the apps. Apple and Google each have over 1/2 million apps available for their platform. Windows Mobile has about 70k, and a mobile version of MS Office, while attractive, does not fill the gap. Apps have been the thrust of Apple’s iPhone marketing from the start: “There’s an app for that …”. App weakness is part of why BlackBerry shriveled. Absence of a competitive app portfolio is sufficient reason for NokiSoft to lag behind Apple.

Moreover, the Apple/Google competition has largely moved on from apps to cloud services. With iOS 5.x Apple offers synchronization between your iPhone or iPad, your Mac or Windows PC, and a cloud archive of personal data, photos, and media (music, TV shows, and now movies). It offers a vast array of music, TV, and movies via the iTunes store. It has well-developed apps for managing your content and photo libraries on the desktop. And it offers a complete Exchange-like mail/calendar/contacts sync. Google is charging down the same path: it offers music sync, photo sync, Exchange-like sync, cloud storage, remote device back-up and updates. Google has special strength in key mobile apps: its impressive Maps/Nav app for Android and Gmail. Google has long pushed the envelope on voice search on mobile devices, and Apple has made a strong move here with Siri.

Finally, Apple and Google are working hard and keeping each other honest; they will keep raising the bar. Many think that Facebook may launch a mobile device business, and Amazon has already, with the Kindle. Then then there is brand strength: the Apple brand is surely one of the top five global consumer brands today. The Google brand is not half bad …

Where is Microsoft on cloud services? I’m sure they will do a good Exchange-based mail/contacts/calendar service. The rest of their products in this set are sometimes impressive, but not at the level of Apple and Google. And Microsoft needs to develop the media company deals and relationships that underpin compelling content offering.

Nokia and Microsoft are great companies and I have friends there; I wish them well. The competitive intensity and stakes in the mobile device and software business are as high as any situation I can recall, however, and Apple and Microsoft are the two best digital companies in the world. So it will be a long battle, and interesting to watch.

But I favor the layer on top of payments for startups.  That is, value added applications that can sit atop the dongle wars caring not for who wins.  Because the dongle fight is going to be ugly!  PayPal vs Intuit vs Verizon vs Google vs Mastercard vs American Express vs Apple?  My advice to Square, the leading dongle startup, is to build a ton of value around that dongle of yours.  A year ago it was novel, and today it is a commodity with powerful new entrants to come.

For entrepreneurs, I cannot overstate my view that electronic payment everywhere is enormously disruptive, and ready to be exploited starting right now.

Why should we care? The Kauffman Foundation noted in a study of job creation during the 1980-2005 period that ALL net new private sector jobs were created by young companies – those five years or younger. 40M jobs created by startups during that 25-year period. None created, on a net basis, by older companies. Wow.

The House has acted and passed the bill by an amazing bipartisan vote of 390-23. Why is the Senate stalling on this issue? We sit at an unemployment rate of 8.3% and a Labor Force Participation rate below 64% – the lowest on record in recent memory. It will be a major embarrassment to the Senate if they fail to pass this bill. It doesn’t solve all of the problems facing startup companies (like Sarbanes Oxley, H1-B visas, and others) but it is a good idea and a step in the right direction.

This act will encourage the creation and growth of these young companies by providing them with new sources of capital. Angel investors helped start 61,900 companies in 2010, by investing $20.1B according to the University of NH Center for Venture Research. The JOBS act has the potential to increase that number substantially. Why not help more people invest in American startups?