Academic journal article Canada-United States Law Journal

The Importance of Entrepreneurship to Economic Growth, Job Creation and Wealth Creation

Academic journal article Canada-United States Law Journal

The Importance of Entrepreneurship to Economic Growth, Job Creation and Wealth Creation

Article excerpt


Dr. Henry T. King, Jr.

DR. KING: Let's start our first session. I will call on David Morgenthaler first. Your remarks I wanted to--you have got all the details on David Morgenthaler, in his bio, and also my Canadian friend, Douglas Barber--it is all in the bio data. But I just want to repeat one or two things. He is the founder of Morgenthaler Ventures, a 39 year-old venture capital mega-fund with $2.3 billion under management. David has served as director, chairman, and president of more than 30 companies, and over the last 39 years, he has developed a national reputation for industry leadership and value added venture capital investment. I don't want to take any of your time. I want to hear what you have to say on our opening subject, David. So the floor is yours.


David T. Morgenthaler *

MR. MORGENTHALER: Thank you very much, Henry. It is very nice to be with you this morning, and thank you for inviting me. Henry assigned me the topic of the relationship of entrepreneurship to economic growth, job creation, and wealth. This is a subject that is relevant to me as I phase down in the venture business.

The formal venture institutional business really started in 1945, fight at the end of World War II. (1) I came back out of the service and became an entrepreneur at that time. So I have been on either side, as both an entrepreneur financed by venture capital and working with venture capitalists. And for the last 39 years I moved across the table. I stopped making an honest living as an entrepreneur and became a venture capitalist.

Question: How does entrepreneurship relate to economic growth, job creation and wealth? Sadly, the answer is that entrepreneurship is nearly everything. This was a very hard thing to get our United States Congress to believe back in the early 1970s when we formed the National Venture Capital Association, (2) of which I was very active in the formation, and in getting a lot of the legislation changed as well as the capital gains tax rolled back. (3) At that time, the view of our leaders in the country, and certainly the view of our Congress, was that the big companies were nearly everything; they were where jobs were created, they were where wealth was created, and the little companies were kind of a nuisance. In a way, when I came out of graduate school in 1941, that was the attitude at the time. As we dug deeply into this we finally pointed out this fallacy to Congress and got many of the changes that were needed made. (4) The differences were that the large companies were not increasing employment. (5) In many cases, they were moving their operations, particularly their manufacturing operations, out of the older areas, out of the high cost areas, moving them to the lesser cost areas and subsequently moving them outside of the country. (6) It became very important to understand this phenomenon, and the country was very slow to understand it.

It is the sad fact that entrepreneurship is nearly everything--and this bodes badly for the economically mature regions of the country, and even of the world--because one of the characteristics of a mature region is that entrepreneurship tends to fall off. (7) Now why is this true? And, why is it so little is understood by the leadership of the successful regions (underscore successful) when they are at their peaks and have the most resources to do something about it? Not only do they lose new companies but, more disturbingly, they show that the regions' industries are mature.

To understand this, it is necessary to think clearly about some practical, realistic, and fundamental factors. The first is that economics drive nearly everything. Go back to the discovery of America. Columbus was an entrepreneur (8) with a very difficult personality (9) history tells us--not untypical of entrepreneurs (10)--whose belief that the world was round (11) gave him an opportunity to reach the riches of the Asian markets by sailing West. …

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