With billions of dollars flooding into the venture capital market, you might assume that entrepreneurship is stronger than ever in this country.

But that's not the case, says Dane Stangler, vice president of research and policy at the Kauffman Foundation.

Venture capital funds raised $32.97 billion last year, a 62 percent gain over 2013 and the highest total since 2007.

"This may sound odd, but the United States needs a revival in entrepreneurship," Stangler writes in an article for Real Clear Markets.

Formation rates for new companies are falling, while the closing rate of young companies is rising, research shows. And these trends began before the 2008 financial crisis, Stangler notes.

"What is needed is economic renewal driven by an increase in entrepreneurial dynamism," Stangler writes.

"Many markets have become either entrepreneurially stagnant, or are experiencing massive efforts by incumbent businesses to use their political and economic power to protect themselves from new competition."

Even the technology sector is largely dominated by big companies, such as Google and Amazon.com, Stangler maintains.

"Everywhere you look . . . the economy is getting less entrepreneurial, less dynamic and thus less productive."

So what can we do?

Policymakers need to open up more pathways for immigrant entrepreneurs, as data show that foreign entrepreneurs, who previously would have come to the United States to start and grow their companies, are now migrating elsewhere, Stangler contends.

In addition, "policymakers should approach regulation not merely as something to be increased or decreased in the aggregate, but as a tool for promoting competitive markets and new entry," he argues. "Too often, regulation is used as a tool for protecting incumbents."

As for the onslaught of investment in venture capital, many experts worry that it's overdone. "Overall there's a valuation bubble" for young technology companies, Hany Nada, founder of venture capital firm GGV Capital, tells CNBC.

"The average valuation is already two times higher than it should be." But there is a bright side, he notes.

"Within that there are some unicorns that are actually undervalued. Take a look at companies that are truly disruptive, companies that are outperforming expectations. I think they're still undervalued. It's hard to find the wheat from the chaff."

Related Stories:

• Entrepreneur Ortner: Neither Party on the Ball When it Comes to Small Biz
• Buffett: Teach Kids Financial Literacy to Spark Entrepreneurship