[Senate Hearing 112-429]
[From the U.S. Government Publishing Office]
S. Hrg. 112-429
DEVELOPING AND STRENGTHENING HIGH-GROWTH ENTREPRENEURSHIP
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ROUNDTABLE
BEFORE THE
COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
FEBRUARY 1, 2012
__________
Printed for the Committee on Small Business and Entrepreneurship
Available via the World Wide Web: http://www.fdsys.gov
COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
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73-268 WASHINGTON : 2012
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ONE HUNDRED TWELFTH CONGRESS
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MARY L. LANDRIEU, Louisiana, Chair
OLYMPIA J. SNOWE, Maine, Ranking Member
CARL LEVIN, Michigan DAVID VITTER, Louisiana
TOM HARKIN, Iowa JAMES E. RISCH, Idaho
JOHN F. KERRY, Massachusetts MARCO RUBIO, Florida
JOSEPH I. LIEBERMAN, Connecticut RAND PAUL, Kentucky
MARIA CANTWELL, Washington KELLY AYOTTE, New Hampshire
MARK L. PRYOR, Arkansas MICHAEL B. ENZI, Wyoming
BENJAMIN L. CARDIN, Maryland SCOTT P. BROWN, Massachusetts
JEANNE SHAHEEN, New Hampshire JERRY MORAN, Kansas
KAY R. HAGAN, North Carolina
Donald R. Cravins, Jr., Democratic Staff Director and Chief Counsel
Wallace K. Hsueh, Republican Staff Director
C O N T E N T S
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Opening Statements
Page
Landrieu, Hon. Mary L., Chair, and a U.S. Senator from Louisiana. 1
Brown, Hon. Scott P., a U.S. Senator from Massachusetts.......... 3
Moran, Jerry, a U.S. Senator from Kansas......................... 38
Witnesses
Rowe, Tim, Founder and CEO, Cambridge Innovation Center.......... 5
Crews, Wayne, Vice President for Policy, Competitive Enterprise
Institute...................................................... 9
Kessler, Jim, Vice President for Policy, Third Way............... 12
Greene, Sean, Associate Administrator for Investment, U.S. Small
Business Administration........................................ 16
Holtz-Eakin, Dr. Doug, President, American Action Forum.......... 16
Farmer, Michael, Founder and CEO, Leap2.......................... 16
Ezell, Stephen, Senior Analyst, Information Technology and
Innovation Foundation.......................................... 17
Tomb, Diane, President and CEO, National Association of Women
Business Owners................................................ 24
Evans, Barry, CEO, Calxeda....................................... 24
Sumption, Madeleine, Policy Analyst, Migration Policy Institute.. 27
Evers, Ridgely, Managing Partner, Tapit Partners LLC............. 31
Finney, Michael, President and CEO, Michigan Economic Development
Corporation.................................................... 31
Lindsey, Brink, Research and Policy Associate, Ewing Marion
Kauffman Foundation............................................ 37
Ortmans, Jonathan, Senior Fellow, Ewing Marion Kauffman
Foundation..................................................... 37
Alphabetical Listing and Appendix Material Submitted
Austin's Entrepreneurial Ecosystem
Diagram...................................................... 90
Brown, Hon. Scott P.
Testimony.................................................... 3
Computer & Communications Industry Association (CCIA)
Letter....................................................... 88
Crews, Wayne
Testimony.................................................... 9
Evans, Barry
Testimony.................................................... 24
Prepared statement........................................... 25
Evers, Ridgely
Testimony.................................................... 31
Ezell, Stephen
Testimony.................................................... 17
Prepared statement........................................... 19
Farmer, Michael
Testimony.................................................... 16
Finney, Mike
Testimony.................................................... 31
Prepared statement........................................... 33
Greene, Sean
Testimony.................................................... 16
Holtz-Eakin, Doug
Testimony.................................................... 16
Information Technology and Innovation Foundation (ITIF)
Letter....................................................... 89
Kessler, Jim
Testimony.................................................... 12
Prepared statement........................................... 13
Landrieu, Hon. Mary L.
Testimony.................................................... 1
Lindsey, Brink...................................................
Testimony.................................................... 37
Moran, Hon. Jerry
Testimony.................................................... 38
Ortmans, Jonathan
Testimony.................................................... 37
Rowe, Tim
Testimony.................................................... 5
Prepared statement........................................... 7
Slide presentation........................................... 47
Sumption, Madeleine
Testimony.................................................... 27
Prepared statement........................................... 28
Tomb, Diane
Testimony.................................................... 24
The White House Office of the Press Secretary
Remarks by the President before Cabinet Meeting.............. 11
DEVELOPING AND STRENGTHENING HIGH-GROWTH ENTREPRENEURSHIP
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WEDNESDAY, FEBRUARY 1, 2012
United States Senate,
Committee on Small Business
and Entrepreneurship,
Washington, DC.
The Committee met, pursuant to notice, at 10:04 a.m., in
Room 428-A, Russell Senate Office Building, Hon. Mary L.
Landrieu, Chair of the Committee, presiding.
Present: Senators Landrieu, Brown, and Moran.
OPENING STATEMENT OF HON. MARY L. LANDRIEU, CHAIR, AND A U.S.
SENATOR FROM LOUISIANA
Chair Landrieu. Good morning, everyone. I would like to
call the Small Business roundtable on entrepreneurship
together, and I thank all of you for making the special trip
and effort.
I know some of you have come from the West Coast for 24
hours on the ground, so we really appreciate the effort by this
spectacular team of experts on entrepreneurship and the
entrepreneurship ecosystem in our country and, in some cases,
of the world. I thank you so much.
I am going to give a brief opening statement. We are
expecting one or two other members of the Committee. When they
come, they will be recognized.
This is different from a hearing in that what we are hoping
for is a lot of interactive exchange between the participants.
I will be leading off, of course, with questions, et cetera.
Let me set the tone for this morning, again thanking you for
coming.
This Roundtable is the first of a series of three that I
will be organizing through this Committee to explore options
and opportunities to strengthen the ecosystem for
entrepreneurship in America.
Welcome, Senator Brown.
We have assembled an impressive group of experts and
entrepreneurs to discuss of some of the more exciting ideas
that are being discussed here on Capitol Hill.
According to the Webster dictionary, the definition of
entrepreneur is, ``one who organizes, manages, and assumes the
risk of a business or enterprise.''
The term was originally a loan word from the French and was
first defined by the Irish-French economist, Richard Cantillon.
Entrepreneur in English is a term applied to a person who is
willing to help launch a new venture, enterprise, and accept
full responsibility for the outcome.
Jean-Bapiste Say, a French economist, is believed to have
popularized this word in the 19th century. He defined an
entrepreneur as one who undertakes an enterprise, especially a
contractor acting as an intermediary between capital and labor.
Whatever your definition of an entrepreneur is, we believe
that we need more of them in America and we need entrepreneurs
who can grow companies quickly and create the jobs that we need
in the future.
New York Times op ed columnist, Tom Friedman, wrote
recently, the future, ``will require our kids not so much to
find their next job as to invent their next job.''
That is what this Roundtable is about today.
It is often said that America's nearly 28,000,000 small
businesses are the backbone of this country's economy, and I
agree. Federal law defines a small business as all of those
businesses having anywhere from one to 500 employees or less.
They may all fit under the same broad category as far as our
Federal Government is concerned but they are very, very
different in size, shape, leadership, and potential to change
the landscape of our economy in the United States.
So, it makes no sense to me for the Federal Government to
have a one-size fits all policy, and that is what we are going
to try to break down today. We must put a special focus on
those firms that have the capacity to grow quickly in the near
future.
If small businesses are the backbone of our economy, and I
believe that they are, then high-growth firms are the engine of
our economic growth. According to studies provided by the
Kauffman Foundation that are here with us today represented by
Brink and Jonathan, fast growing young firms comprising less
than 1 percent of all companies generate roughly 10 percent of
new jobs in any given year.
Additionally, as stated in the interim report from the
President's Council on Job Competitiveness, over the last three
decades, young firms less than five years old have created 40
million net new jobs according to the U.S. labor data. Those 40
million jobs actually account for all net new jobs created in
the United States over that period.
It is clear from this data that some entrepreneurs have the
secret sauce or found the secret sauce that led them to be
successful and grow their workforce.
According to Steve Case, Chairman of the founding board of
Startup America Partnership, ``America's best chance to achieve
robust, sustainable growth and prosperity is by ensuring that
the United States increases its entrepreneurial competitiveness
relative to the rest of the world.''
Many of us continue to believe that America is still the
world's greatest home for innovation, entrepreneurship and that
our small businesses are the most innovative. We have some
evidence to suggest that that remains true.
The U.S. Patent and Trademark Office reports the U.S. filed
more than twice as many patents as any other country in 2010.
More specifically, the U.S. filed nearly 108,000 followed by
Japan, a far second at 50,000.
In particular, small firms are a significant source of
innovation and patent activity. SBA's studies shows that from
last October small businesses developed more patents per
employee than large businesses did. With the smallest firms,
those with fewer than 25 employees producing the greatest
number of patents per employee.
Finally, small firm patents tend to be more significant
than large firms, outperforming them in any number of
categories including growth, citation, impact, and originality.
This is largely because small firms tend to specialize in
high-tech, high-growth industries such as biotechnology,
pharmaceuticals, information technology, semiconductors to name
just a few, which brings us back to the purpose of this
roundtable, to give entrepreneurs a platform in the United
States Capitol, to give this issue the focus that it deserves
in the current economic climate, to discuss what the federal
role should be, if any, in creating and strengthening an
ecosystem for entrepreneurs that results in more successful
startups and more high-growth firms and, in my mind, spread
more evenly throughout the country.
Today's discussion is the first in a series of three
roundtables, as I said, and I will continue after these three
roundtables on a variety of different subjects to then move to
a hearing on a piece of legislation that will combine some of
the ideas, the best ideas out there, and then have a markup
some time in early spring. That is our goal for this Committee.
I recognize that some of the specific pieces of what will
be discussed today will have to be taken up in the Finance
Committee or the Commerce Committee or the Banking Committee
because they have primary jurisdiction over these issues.
But this Committee has the platform for entrepreneurship,
and I want to make sure this issue is getting the attention
that I believe it deserves in the current political debate.
So, let me begin by, of course, recognizing Senator Brown
for any opening remarks that he might have. He has to sit at
10:30.
Senator Brown. In managing the floor, yes.
Chair Landrieu. At 10:30. So, we will recognize him for
opening remarks and then I think he has a question or two and
then we will go to introductions.
Senator Brown.
OPENING STATEMENT OF HON. SCOTT P. BROWN, A U.S. SENATOR FROM
MASSACHUSETTS
Senator Brown. Thank you, Madam Chair. I appreciate you all
doing that. I am on the Insider-Trading Bill. It is my bill,
and I am managing the floor along with Senators Lieberman and
Collins. So, I appreciate that consideration and appreciate
your holding this roundtable this morning to encourage
entrepreneurship.
I would also like to thank Tim Rowe for participating in
this roundtable. Tim is the CEO and founder of the Cambridge
Innovation Center in Cambridge, Massachusetts.
Really you should see it. It is an amazing facility. We
have 450 startup businesses, some in the size of a phone booth,
others in the size of this room. The new Droid application
process was started in his building which is now obviously
taking over technology in certain sectors, and I am proud that
the Commonwealth of Massachusetts, as you know, is an
innovative state and we are an incubator for high-tech and
biotech startups.
We can do better in helping encourage small businesses not
only in Massachusetts but nationally, and people like Tim are
an example of a truly unique entrepreneur who recognizes that
creating an environment where startups feel nurtured creates
unbelievable growth, and we need to have more risk-taking in
the economy.
This past November, I introduced the Democratizing Access
to Capital Act, which allows for crowdfunding which is
something that the President quite frankly referenced in his
State of the Union.
I was thankful for that. I think I need to have another,
hey, by the way, Mr. President, that bill is already ready to
go and it is stuck in Committee, and maybe he will put that on
Fox and get that out again so we can get it heard right away.
As you know, that bill allows the average person with no
more than $1,000 to invest up to $1 million and not deal with a
lot of the SEC regulations that do not allow for that simple
model of investing. It is kind of a no-brainer.
So, we need to figure out how to do that and how to get
that sort of thing out. And as I referenced, the President
referenced it in his State of the Union. I have talked about it
long before that.
One other thing that will not help business creation right
now and, as I travel around Massachusetts, the number one thing
I recognize is the lack of certainty and stability, the fear of
not knowing what is next, whether it is regulatory certainty,
tax certainty, you do not know if we are going to have an
estate tax, do not know if we are going to have a lot of the
incentives associated with the R&D tax credit, the investment
tax credit. You do not know if they are going to be around.
So as a result, a lot of these businesses that I visited in
Massachusetts are especially are saying, you know, we are just
going to hang tight. We are not going to do A, B, C, or D, and
raising taxes in the middle of a three-year recession and not
having that certainty and stability is a problem.
I was happy and honored to sign on to the bill of Senators
Landrieu and Snowe and the Small Business Tax Extenders of
2012. There is more that we can do.
The Learn to Earn Reemployment Training Improvement Act is
once again a bill that is done. It is ready to go. It is
sitting in the HELP Committee.
That is one of the biggest problems. We have a lot of great
ideas not only in other committees but in this Committee in
particular. You look at crowdfunding, the Small Business Tax
Extenders, the Innovate America Act with Senator Klobuchar, the
SBIR reauthorization, the overregulation.
I have had the opportunity in Massachusetts to hold jobs
fairs in Massachusetts. We had 3,013 people show up at the last
one. That day a bank, TD Bank, hired 10 people on the spot. So
there are jobs. People are hungry to do them, and sometimes we
need to cut through the impersonal nature of the Internet and
actually do a face-to-face and let those folks convince
themselves why they want a job and why you would want to hire.
So, I appreciate your holding this. I would like to start
out with two questions, if that is okay.
Chair Landrieu. Go ahead.
Senator Brown. I will start with Tim.
Tim, thank you for taking time out of your busy schedule to
come. From your on-the-ground perspective and everything you
have been doing at the Cambridge Innovation Center, what do you
think the biggest problems facing small business entrepreneurs
right now are?
Mr. Rowe. One of the biggest problems is lack of talent,
enough talented people----
Chair Landrieu. You all have to press your mic and you are
going to have to speak into it.
Mr. Rowe. This is my first time in one of these forums.
Chair Landrieu. That is okay, Tim. You are doing great.
Just press that button and lean right into it.
Mr. Rowe. Nobody told me I was going to get the first
question.
Senator Brown. That is the way it is.
Mr. Rowe. I think the biggest problem is access to talent.
We talk about the challenge of unemployment in this country,
and I know it is high. But you would not know that in the tech
sector.
Everyone, what I hear is they cannot find people to hire.
They cannot find enough qualified people in the tech fields in
particular.
So, you know, what we are really looking for is in two
areas. One is let us follow the President's lead also in the
State of the Union where he called for more work at the
community college level to get the mid-skilled workers, people
who do not have jobs, trained up so they can take some of these
tech jobs.
The second area that you hear very often is access to
capital. You know, we are very excited about the crowdfunding
bill. In other countries, in India we call it micro finance. It
is the hottest thing in development economics.
If anyone has never heard of micro-finance, I would be
surprised. We do not have it in this country because it is
illegal. You cannot invest $100 in a startup or you cannot ask,
you know, a thousand people to invest $100 in your startup.
That is called a public offering and you would have to go file
a full million-dollar SEC filing. It just does not happen.
Those are probably the two biggest areas that we think need
to be addressed. And I would make one last comment.
When we heard about this bill, one of the entrepreneurs in
my center said, look, I think that is a great idea. I want to
build a startup that helps people do crowdfunding, and he
started a startup called Wefunder.
They launched on Saturday. I think Sunday was the official
launch. By Monday, they had something like 1,200 people who had
committed to, this is yesterday, 1,200 people who committed to
invest $1,000 each if the crowdfunding bill goes through. They
are asking Congress to make it possible to do this. And I think
they had about $4 million just over a couple of days. Saying
let us do this.
Chair Landrieu. Good job.
Senator Brown. It is interesting that you say that. We have
a high-skilled bill that Senator Lee and I are working on and
it is ready to go to allow people when they graduate, MIT,
Harvard, et cetera, BC, WPI, and Massachusetts alone. I know
all of you have your own interests. You graduate and you get
not only a diploma but you get a work visa here. We are losing
a lot of that talent.
Mr. Rowe. So there is research that says that, and I just
got this out of Berkeley where they did this, that 52 percent
of companies in Silicon Valley, this is the place they
researched. It is probably true elsewhere. Fifty-two percent
have a founder who is not American born. More than half of our
startups have at least one of their founders who is not
American born.
This resource, these are job creators that come to this
country to study, and it is really a shame that when they
graduate, they want to stay here, they want to build companies,
and I get these people talking to me all the time. And we say,
no, you have to leave because you are taking an American job,
and these people are not the people that are taking American
jobs.
Most of them, by the way, overwhelmingly, and if you are
interested later, I can show you charts and things, the lion's
share are doctoral students.
Chair Landrieu. Who are creating jobs.
Mr. Rowe. These are people coming out of places like MIT
and Harvard and Worcester Polytechnic and other schools around
the country. It looks like about 80 percent of them are doctors
and masters students. About 70 percent hard doctor students.
These are not the people taking the production jobs in Detroit.
Senator Brown. Right.
Mr. Rowe. These are people creating businesses that are
going to create jobs and we need to invite them and encourage
them to stay.
[The statement of Mr. Rowe follows:]
[GRAPHIC] [TIFF OMITTED] 73268.004
[GRAPHIC] [TIFF OMITTED] 73268.005
Senator Brown. Thank you. And, Mr. Crews, my last question.
You have written extensively about federal regs and the urgency
of getting a hold of our regulatory oversight process. I know
this Administration has had a tremendous amount of regulations
come out and the burden of small businesses is great. What are
your thoughts on that?
Mr. Crews. Just quickly. I know we will hit a lot on this
during the discussion but you mentioned regulatory uncertainty
in the opening remarks, and I think that is the key thing
because every year there are about 3,500 rules that are coming
out from the federal agencies.
And a lot of them are just budget rules, you know, they are
relating to administration of Medicare and Social Security and
other programs like that.
But for the rest, it is really important to get a handle on
what their real impacts are. If you look at the latest OMB
report on costs and benefits of regulations, of the 3,500 or
so, OMB looks at around 400.
Of that subset, there are 66 that are so-called major,
economically significant rules, and these are the big rules.
EPA regulations, OSHA rules, and things like that.
But even of those, it is only about 18 that have a cost-
benefit assessment on both sides. So, we know very little about
the real impacts of regulation.
What we are trying to do is emphasize that, and especially
with some of the bills we will talk about today like the
FREEDOM Act and some others.
There are ways of enhancing the way we look at regulations
coming down the pipeline that are about to have an affect on
small business or may have an affect on small business.
I think there is a lot of low hanging fruit kinds of things
that we can do to deal with those with respect to reporting on
those rules annually and knowing what the impacts are and
quickly whether or not we can say anything with an assurance
about their benefits and costs. Thank you.
Senator Brown. Thank you.
Thank you, Madam Chair.
Chair Landrieu. Thank you, Senator Brown.
I really appreciate you attending and I know you have to
leave to manage your bill. But Massachusetts is so fortunate to
be one of these states that receives a significant portion of
federal research dollars, both through the university, through
SBIR. They are one of the top recipients of SBIR funding and
NIH funding.
And we are going to present some documentation at the next
hearing to show or ask, is there a relationship between federal
investment and the creation of entrepreneurs; and if so, maybe
we should be doing that in other states besides Massachusetts,
New York, and California, who are the three largest recipients
of federal research dollars. But that is a very interesting
question.
I want to submit, before we ask everyone, a portion of the
President's statement at his first Cabinet meeting for the
record of this Committee and to acknowledge and compliment the
Administration for their moving Karen Mills as the
Administrator for the Small Business Administration to a
Cabinet-level position which really demonstrates this
Administration's commitment to the subject at hand.
Without objection, I want to submit a portion of that
statement at his first Cabinet meeting which he directed the
subject of entrepreneurship which I think is important.
[The document follows:]
[GRAPHIC] [TIFF OMITTED] 73268.006
Chair Landrieu. All right. Let us start, Jim, with you if
you do not mind; and if you could just go around and introduce
yourself briefly, this is the 30-second, 60-second test, and
just say either your best idea, throw it out there for
strengthening the ecosystem or why you think this hearing is
important or this topic is important.
Mr. Kessler. I am Jim Kessler. I am the Vice President for
Policy at Third Way, which is a centrist think tank and a
startup ourselves.
This is critical here in the US, the question, is there a
federal role in the ecosystem? The answer is definitely yes.
We have tons of ideas. I am going to second what Tim said.
I think the biggest thing that we can do is we need to become a
global magnet for talent in this country. We actually already
are but we discard that talent. These are job creators. It is
just a tremendous opportunity for us.
Just imagine if we were facing the same problem and we were
not attracting the most talented people in the world to our
country and we had to attract them. Well, we already do. We
just tell them to go home.
[The statement of Mr. Kessler follows:]
[GRAPHIC] [TIFF OMITTED] 73268.008
[GRAPHIC] [TIFF OMITTED] 73268.009
[GRAPHIC] [TIFF OMITTED] 73268.010
Chair Landrieu. Thank you. Sean.
Mr. Greene. Sean Greene. I run the investment and
innovation programs at SBA and have responsibility for focusing
on entrepreneurship. I come to this as a former entrepreneur
and former investor, having invested in dozens of companies.
So, I bring a real passion.
Chair Landrieu. And we hope successful companies, Sean.
Mr. Greene. I am still standing.
Chair Landrieu. All right.
Mr. Greene. So, I think what I would like to talk about
subsequently is what we have been doing in the Startup America
effort, obviously talk more to the legislative agenda that the
President put forward yesterday but also talk about what we
have accomplished over the past year but in particular access
to capital, a critical issue.
We need to be attacking it on all fronts, not just
crowdfunding, not just the IPO issues but we see real
opportunities with the SBIC program. So, we can talk more about
that.
Secondly, what we have seen in our interacting with
entrepreneurs across the country is there are many great
organizations like Idea Village in New Orleans which you
obviously know well, Senator, which are doing great work on the
ground, who are accelerating the growth of small businesses.
So, we think there is a great opportunity to accelerate
those accelerators.
Chair Landrieu. Dr. Holtz-Eakin.
Mr. Holtz-Eakin. Senator, thank you for the chance to be
here today.
Chair Landrieu. You are going to have to speak a little bit
closer. You are going to have to lean into your mic for us to
pick it up please.
Mr. Holtz-Eakin. I am Doug Holtz-Eakin. I am President of
the American Action Forum, also a startup think tank. In my
career as an academic, I spent a lot of time doing research
into entrepreneurship.
I would highlight the very important role that tax policy
plays toward the success of entrepreneurs and the fact that the
U.S. tax policy at this point is a jump ball. We have no idea
what the future is.
In the end, an ecosystem for entrepreneurs is a philosophy
and it says that at every point in the policy process when you
have to break the tie between an objective that might be a
social goal versus one that is about growth and
entrepreneurship, break it in favor of entrepreneurship, and
that includes all of the big tax policy issues that are on the
table.
Chair Landrieu. Mr. Farmer.
Mr. Farmer. Hello. My name is Michael Farmer. I am the
Founder, CEO of a mobile search startup. We are in the seed
stage. We are going to be launching our app here in a couple of
days literally. I think my team is wondering what I am doing
here when they are out back developing code right now.
One thing I would offer is I was here in Washington quite a
few years ago and moved back to Kansas, and one of the things
we did in Kansas, which I think there are larger implications
here, is we took to the growth segments of certain sectors of
our economy and we actually said if you grow that statement,
and in our case it was biotechnology, we would plow a certain
percentage of that money back into a fund that would help to
capture some of this knowledge because startups are going to
fail all the time, not only that but you start to get
alignment, geo-clustering and all of these things.
Chair Landrieu. Is it a state-run fund or private?
Mr. Farmer. It is, yes.
Chair Landrieu. A State-run fund. And it is called the
Kansas?
Mr. Farmer. Yes. Emerging Investment Act basically.
Chair Landrieu. The Emerging Investment Act and Kansas
passed it some years ago.
Mr. Farmer. About seven years ago. It is a 600--you know,
people ask where does Kansas find $600 million. Well, what we
did was we basically said, all right, we have all these
different sectors asking for support and we said, you grow it
above a baseline and we will plow that money back. And if you
think about it, if you could do that on a national basis----
Chair Landrieu. A great idea, Mike.
Mr. Farmer [continuing]. For very specific sectors, then it
is not about, you know, a lot of our states compete against
each other in bioscience and biotech, but we make strategic
bets and all of the sudden we are now competing on the world
stage because we are getting alignment, clustering, and these
type of things.
Chair Landrieu. Great idea. Tim.
Mr. Rowe. I would like to say more things but maybe we
could hear from the others.
Chair Landrieu. Thank you. Wayne.
Mr. Crews. Wayne Crews, Vice President for Policy at the
Competitive Enterprise Institute in Washington, D.C. Our
message on issues like this, we are a small ``L'' libertarian,
you might say, policy and advocacy group is, you know, most of
the world's wealth has not been created yet.
And if we have the right policies in place in dealing with
the future, the sky is the limit. You do not have to tell the
grass to grow but sometimes you do have to take the rocks off
of it.
With respect to some of the things we have already heard
about with small business financing, with access to capital,
regulatory policy, even health and safety regulation that
sometimes can do worse things for health and safety than good
things, looking at antitrust policy, looking at frontier
industries, biotech, nano tech, and others, and making sure
that if we have done bad things in the past in the frontier
areas, we do not have to do the same things. We can rethink it
as we go forward, and there are some quick ways to do some of
that I believe.
Chair Landrieu. Thank you. Mr. Ezell.
Mr. Ezell. Hi. I am Stephen Ezell. I am a Senior Analyst
with the Information Technology and Innovation Foundation. We
are a startup technology and economic policy think tank.
I think when you look around the world you see that other
countries are doing a great job of directly supporting the R&D
innovation and new product development activities of their
small businesses, and one way they are doing that is through
innovative tax policy especially around R&D tax credits.
So, it is incumbent not just to make the R&D tax credit
permanent but to make it more generous. We actually have a less
generous R&D tax credit than Brazil, India, and China. So, we
need to increase that.
We also need to bring new innovative approaches with the
R&D to supporting SMEs. For example, one thing they are doing
in Canada, France, Norway, and the UK is to provide
preferential tax treatment to innovative young companies such
as buy. Since these companies often are not cash positive,
using immediate cash payments as opposed to carry-forward or
carry-back provisions.
So, innovation in tax policy will help our small
businesses.
[The statement of Mr. Ezell follows:]
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Chair Landrieu. Thank you so much.
You do not have to get all your ideas out on this because
it is just your best one to stir up some thoughts from the
others and then we are going to open it up for more discussion
about this.
Diane, real quick.
Ms. Tomb. Thank you, Senator. The National Association of
Women Business Owners, as you know, represents over 7000 women
business owners.
Unlike what we talked about earlier, I would say our number
one issue is access to capital. And, as you know, women are
starting businesses at record numbers. There is no shortage of
growth-minded entrepreneurs, women. It is just access to
capital from the financial institution.
SBA has been doing a phenomenal job. I know there is a lot
more that needs to be done in terms of education. Our research
shows that lack of knowledge for women on how to grow a
business from point A to point B, becoming an employer firm,
and also moving from being a technical firm to the business
leader are our business challenges.
So, really for us it is education for women entrepreneurs.
Chair Landrieu. Thank you. Mr. Evans.
Mr. Evans. Barry Evans from Austin. I founded Calxeda four
years ago and attracted $50 million of private capital to get
that company moving. So, we are four years old and growing
fast.
Chair Landrieu. And what does your company do?
Mr. Evans. We are a hardware company, and we are building
super low power server technology out of cell phone
technologies instead of PC-based technologies.
Chair Landrieu. Great.
Mr. Evans. So, our biggest challenge was getting launched
and attracting that initial seed capital early on. So, policies
that give incentive to get the big piles of private capital off
of the sidelines and into launching companies through targeted
capital gains incentives will get companies moving.
Chair Landrieu. It might be something that would be helpful
to you.
Mr. Evans. And as we are growing, our next big milestone
would be to go public, and so, IPO is a key enabler for a
company like ours to continue to grow.
Most of the job creation, some say over 90 percent of a
company's job creation potential is after the IPO and access
those public capital markets. But the bar is too high right
now. Some relief on SOX compliance and regulation would open
that up for us.
[The statement of Mr. Evans follows:]
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Chair Landrieu. Okay. Ms. Sumption.
Ms. Sumption. Thank you, Senator. I am Madeleine Sumption--
--
Chair Landrieu. You have to speak directly into your mic.
Ms. Sumption. I am Madeleine Sumption from the Migration
Policy Institute here in Washington. I look at the economic
impact of immigration policies around the world.
I think for the purposes of this conversation there are two
immigration policy areas that are worth talking about. The
first is the visa status of entrepreneurs themselves.
The current U.S. system provides complicated and relatively
limited opportunities for entrepreneurs to have a visa status
that give them the independence to set up a business and to
stay here and manage it.
The second area is the immigration policy system and how it
supports high-growth businesses themselves. The current regime
that we have creates an enormous amount of uncertainty for
employers who do not necessarily know when and if they will be
able to access the talent that they need.
So, those would be the two areas I will highlight and be
happy to talk about some of the more specific ideas there.
[The statement of Ms. Sumption follows:]
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Chair Landrieu. Thank you. Ridgely.
Mr. Evers. Ridgely Evers. I do not think I fit into 30
seconds but I will try.
Chair Landrieu. Well, try briefly.
Mr. Evers. I will. Serial entrepreneur. Started eight
companies. Those companies have created several hundred jobs. I
was the guy who created QuickBooks. That is sort of the
foundational----
Mr. Rowe. How many people here use QuickBooks?
[Laughter.]
Mr. Evers. And I do not do tech support.
[Laughter.]
I have worked as a VC. I worked with arguably the most
successful small SBIC in history which was Bill Drapers. I also
am a farmer. I have a small farm in Northern California. I am
on the board of SCORE, which is a volunteer organization with
about 14,000 volunteer executives working with small business
owners.
And I am actually here not to represent the high-growth,
you know, superstar companies because there is a vast ecosystem
that already exists to serve them. There is $82 billion of dry
powder sitting in venture funds in the United States
aggressively looking for places to put it.
I am interested in what we call the TSBs, the True Small
Businesses which are owner managed and started to feed a
family. And those really are the backbone of the economy and
they need two things. Money and mentoring. I will talk more
about that.
Chair Landrieu. Thank you so much. Appreciate it. Michael.
Mr. Finney. Thank you, Senator. I am Mike Finney. I am the
President and CEO of the Michigan Economic Development
Corporation. And it is really my pleasure to be here.
As most of you probably know, Michigan has been one of the
more challenged States economically over the past several years
because of our high dependence on manufacturing and automotive
in particular.
Ironically, those companies that allowed Michigan to become
one of the greatest States in the nation essentially also
allowed us to move away from being entrepreneurial.
And so, talent is the thing that we find most challenging
in our environment, finding access to really good talent that
can help grow some of the best and brightest potential
companies that are out there.
If I mention names of companies like Google and Barracuda
Networks and Groupon, most folks know those companies. Would
you believe the founders were Michigan natives? But we did not
have an ecosystem and they went to Michigan universities, did
not have the ecosystem to support them and that mentoring and
coaching that was needed. So, talent is a huge thing.
But the number one issue that I have is really about
support for second-stage companies and allowing so many of the
programs that come through, you know, Federal Government and
State government to be accessible by second-stage companies
very similar to what Mr. Evans was talking about.
It is those companies between 10 and a couple hundred
employees who are trying to grow and continue growing and
providing job opportunities. We find that many of the programs
have very, very specific requirements that make it very
challenging for companies to get access.
Instead of having outcomes that you expect, in other words,
if you want to put money on the table to create jobs make that
an outcome that is expected and then allow us at the local
level to then define approaches that will allow that money to
be invested with companies so they can achieve the outcome.
So, moving more toward an outcome-based approach with the
tools that we have as opposed to very prescriptive, you know,
requirements as is the case with SBA and some of its programs.
[The statement of Mr. Finney follows:]
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Chair Landrieu. Okay. That is excellent.
Brink.
Mr. Lindsey. I am Brink Lindsey. I am a Senior Scholar at
the Kauffman Foundation. We have lots of ideas, big and small,
ranging from incremental to highly ambitious for how to make
the policy environment more entrepreneur friendly.
But for now let me just add my voice to that of others and
say that the single most straightforward concrete step we can
take to promote entrepreneurship in this country is to import
more entrepreneurs from abroad or rather stop kicking them out
because they chose the wrong country of birth.
Chair Landrieu. Well, I am not sure you choose your
country. It is maybe by accident but anyway. Go ahead, John.
Mr. Ortmans. Good morning, Senator. I am Jonathan Ortmans.
I am a Senior Fellow with the Kauffman Foundation. I have had
two startups and two exits. I am also President of the Public
Forum Institute.
I would say we have so much to say on our proposals that we
outlined in the startup but let me just perhaps since several
of you have already mentioned what I would put at the top two
as mine but I think, Senator, if there is a way, perhaps the
most important thing that the Senate could do right now is to
capitalize on the extraordinary goodwill and bipartisan
atmosphere that surrounds this issue of startups.
I think, you know, our work at the Kauffman Foundation is
really deep-seated in the broader question around how do you
grow an economy. And as we look at this question in economic
history, it has been somewhat under addressed.
So, in a way it is one of the first times that we have
really looked at this through the lens of new firms rather than
exclusively through the notion of small or large firms and it
is extraordinary through your leadership, through the
leadership of Senator Moran and others and through the
leadership of the President that there has been such great
attention given to this issue.
So, we applaud you on that and I think probably the most
important thing to do is to make sure that we do not allow this
issue to slow down our momentum in an election year.
Chair Landrieu. Thank you, and that is exactly why I am
holding a series of roundtables on entrepreneurship to keep,
you know, the accelerator down on this, to keep the attention
on this issue, to build support and momentum and I think our
Small Business Committee can do that.
There are other important committees on Capitol Hill but
they have very broad jurisdictions and they are being pulled in
many different directions as you can imagine right now with the
issues that are before the Congress.
This Committee is going to be singularly focused on this
issue of an entrepreneurial ecosystem, and pushing out
everything we can from our Committee in as bipartisan a fashion
as we can.
And then also encouraging the other committees, you know,
to act as well. So, that is our purpose and I thank you for
much or being supportive and a participant in that effort.
Let me recognize Senator Moran, who has introduced one of
the major pieces of legislation, for his comments and then we
will open it up for some discussion.
OPENING STATEMENT OF HON. JERRY MORAN, A U.S. SENATOR FROM
KANSAS
Senator Moran. Chair Landrieu, thank you very much. Thank
you for convening this roundtable. I appreciate those who are
participating and I am anxious to hear your comments and
suggestions.
I am tardy because I have come from the Brookings Institute
with Senator Warner where the topic of the morning was the
Startup Act, a piece of legislation that Senator Warner and I
introduced as a result of reading the Kauffman Foundation
analysis and determining that its research had great validity
and discovering, as you say, that this is an opportunity for
all of us Republicans, Democrats, those who are interested in
the economy to come together on something that is critical and
what Mr. Ortmans just said seemed so compelling to me.
I think there is a window of opportunity here the next few
months and there is a lot of cynicism out there that, you know,
why get involved in an issue. Congress cannot pass anything. It
is an election year.
If we take that approach, we will never succeed; and in my
view we have no ability to delay in trying to get our economy
jumpstarted.
I got interested in this topic as a member of the Senate
who strongly believes that the deficit is the huge, compelling
issue of my generation's time. I believe that my generation has
been irresponsible in setting the stage for the financial
condition our country is in and believe that it is very
difficult to create a growing economy when the weight of the
debt, the uncertainty of whether we are the next country to
have a credit crisis is out there.
I have been discouraged by the inability for Congress and
the Administration to address this issue in any significant
way; and while I am not walking away from that issue, another
way that we can approach the growing deficit is to grow the
economy and put people to work. Consequently, increased tax
revenues will help us meet our country's financial obligations.
And it is an opportunity that we cannot let pass us by for
the good of our country. And this concept that because it is an
election year you cannot see anything happening in Congress, I
can assure you that other countries and their economies, their
entrepreneurs, their startup business men and women are not
saying, well, we will not do anything this year because it is
an election year in the United States.
If we do not address these issues now and create the
environment in which entrepreneurship can flourish, surpassed
and unfortunately perhaps in more environments that help
startups will be created elsewhere rather than in the United
States.
The Startup Act is a piece of legislation that is certainly
worthy of strong support. I welcome the input that you all
provide about ways in which it should be modified or changed.
Senator Warner and I visited yesterday with the desire to
look at all the other pieces of legislation that are out there
to see if we can find the ones that we think belong in a single
bill and then work with the sponsors of those pieces of
legislation to put this into one, compelling piece of
legislation that has broad support in Congress.
We were seated at the State of the Union address in which
the President said, ``Introduce a bill.'' We then corresponded
with the White House saying we have introduced a bill; and as
we saw this week, the President increased his public support
for entrepreneurship and for creating an environment in which
startups can succeed.
So, I appreciate your leadership and thank you very much
for allowing me the opportunity to hear what folks have to say.
Chair Landrieu. Thank you, Senator, and that is exactly
what we intend to do on this Committee is to pull the best
ideas together and to shape them into a package that has a very
strong bipartisan support, and thank you for your leadership.
Let me begin by saying that when you want to speak or have
something to say please just put your placards up like this and
then I will be happy to call on you. We really want this to be
a very free-flowing, hopefully very effective discussion.
Just in your openings I have already written down 10 great
ideas and I am sure I missed a few of them but my staff, every
time we hear a great idea, we are writing it down. We are going
to do a little research about it and some of these are already
out in bill form but others have not been.
Please keep your placards up, but I would really like the
Kauffman Foundation, who is probably the institute that has
done the most work on this subject, to be given the first two
minutes to amplify some of the one or two or three really
important things that you think should be a part of this
discussion.
I know that you went across this briefly but I am going to
give you all some time, because you are the major foundation,
and then we will take a few questions.
I then want to go to Sean about what the three or four
things that the Federal Government is really focused on, and
then we are going to really just open it up.
Jonathan, go ahead, and explain the Kauffman Foundation and
how you all came about your work.
Mr. Ortmans. Certainly. People do not normally give you the
opportunity to talk your organization but I guess we will.
The Kauffman Foundation is one of these great American
institutions, formed by Americans who decide that their wealth
can be put to good use. It is like every other American
foundation.
We are based in Kansas City, founded by Ewing Marion
Kauffman, who was an entrepreneur. The distinctive difference
is he left his wealth ostensibly to advance entrepreneurship in
education and then I think that is what sometimes makes the
work that we do different to other foundations.
But as I said earlier, our work is really seated in a
broader discussion of how do you grow economies, and we have
taken a very close look over the past five years at trying to
improve the quality of research that is being done into
understanding the science of startups, understanding what is
often determined in the past as being a unique American
characteristic of our pioneering spirit, birthing the new.
I think Brink is going to, in just a minute, follow me and
talk about a couple of the things that we might highlight that
we have put forward in our Startup Act.
But let me, if I could, also bring in one I think important
point at the outset. One of the other hats that I have is I
chair a global entrepreneurship effort, and I think we cannot
underestimate, in my writings I have called it, I have done
some pieces around what I call the race to the top in the
startup ecosystem world.
I cannot underscore more the imperative urgency of us
dealing with these issues because of the global competitiveness
happening. There is, for example, a gathering which I will be a
part of in March where there are 3,000 people coming from 120
nations and the topic of the conversation is how to build a
stronger startup ecosystem. There are ministers coming. There
are entrepreneurs coming.
Chair Landrieu. But do they have a Small Business Committee
like this with muscle?
Mr. Ortmans. No, they do not.
Chair Landrieu. Do they? That is the question.
Mr. Ortmans. I think time is of the essence with this just
to emphasize Senator Moran's point.
Chair Landrieu. Where is that meeting going to be held?
Mr. Ortmans. It is actually going to be held in Liverpool
in the United Kingdom; and it is well represented by the United
States. But I view it as an opportunity to keep an eye on what
everyone is doing.
And one of the things that Brink will comment on has to do
with this issue that we have all brought up in the Startup Act
was this notion of high-skilled immigration and the need for a
startup VISA.
And one of the things that you will find when you look at
the global environment is that most nations are having hearings
like this working out how they can increase the funding for
their programs to recruit more talent into their country rather
than figuring out how do we actually just take away the
barriers that stop them staying when they are already here. And
so, I think this becomes, you know, an important perspective.
Chair Landrieu. And we obviously have a natural advantage
that we are not taking advantage of. Let us go to Brink real
quick, and then we will open it up.
Mr. Lindsey. So, I think if there is an area where the
Kauffman Foundation has had just overwhelming success it has
been in drawing the linkage between new firms and job creation.
Bottom line, between 1977 and 2005 there were seven years
in which existing firms created more jobs than they destroyed.
So, the take away here is without startups there is no net job
creation in this country.
What I would like to do now, though, in terms of setting
the broader context for all of these policy ideas that we are
going to be talking about is to focus on the relationship
between startups and innovation, why that is so important, why
innovation is now so important for economic growth, and why the
need for policy reforms to spur innovation is so urgent at this
time.
First off, existing firms do innovation all the time but
they tend to innovate at the margins. They do incremental
stuff. When you are looking at what we call discontinuous or
disruptive innovation that creates whole new industries and
totally topples the status quo, it is almost always new firms
for a very simple reason that no existing firm in its right
mind is going to nurture an innovation that totally blows up
its existing business model.
Chair Landrieu. That would disrupt their business.
Mr. Lindsey. Right. So, when you think of these real
disruptive pioneers, FedEx, Wal-Mart, Microsoft, Google, they
are upstarts.
Chair Landrieu. Dyson and Hoover.
Mr. Lindsey. So, when you are thinking about innovation you
have to think about startups.
Why is innovation so much more important now than it has
been at any time in the past? It is because other sources of
growth in this country are running out; and so, we are facing a
prospect in the next decade or two of a real slowdown in U.S.
long-term potential growth rates that is quite alarming. And it
boils down to demographics.
What is the easiest way to pump up GDP per capita? It is to
get more and more people, a higher and higher percentage of
people in the population making GDP which we did over the whole
course of the 20th century with women going into the work force
and an overall increase in labor force participation rates.
Women's labor force participation rates peaked in the
1990s. They have started falling since then. Men's labor force
participation rates have been falling gently for decades now
because of later entry into the workforce and early retirement.
So, we have lost that tailwind.
So, if you do not have as many people going into the GDP
gain, what is another way to boost things? Develop their
skills. Make them smarter. We have run out of gas on that too.
Human capital development has stalled in this country.
Our high school graduation rate peaked in the early 1970s.
It is lower now than it was then. Our college graduation rate
plateaued in 1980. It has not risen since then. Those are
incredibly important problems, and we need to address them.
But right now in the current context, the issue is doing
that is really hard. And so, if we are going to keep economic
growth going, we have to rely more than ever on innovation, on
new industries, and new ways of doing things; and that means we
have to rely on entrepreneurs.
So, why is helping entrepreneurs more important now than
ever? Because the state of entrepreneurship in this country is
not in the peak of health, and this started the slump in
entrepreneurial job creation and entrepreneurial activity began
before the recession of 2008.
The number of new employer businesses created annually
began falling after 2006 while the expansion was still going
on, dropping 27 percent by 2009. The average number of
employees per new form has been trending gradually downward
since 1998, and the pace of job growth at new firms during
their first five years has been slowing down since 1994. This
is all from Kauffman's research.
Let me mention just in closing other research funded by
Kauffman by a University of Maryland economist John Haltiwanger
that average annual job creation by startups has been as a
percentage of overall or expresses a percentage of overall
employment has been falling for quite some time now.
It came to 3.5 percent of total employment in the 1980s,
fell to 3 percent in the 1990s, and 2.6 percent since 2000. So,
a 25 percent cumulative drop.
It is hard to see in this haystack of new businesses the
needles we are looking for, those high-growth firms; but if
overall business creation is slowing down, there is reason to
be worried that the process of creating the new giants of the
future is slowing down too; and so, we need, in the face of
this structural problem, not just a cyclical problem but a
structural problem, we need structural solutions which means we
need to identify barriers to entrepreneurship and
systematically dismantle them.
Chair Landrieu. Thank you, Brink. That was excellent.
Tim, do you want to comment about that or something else?
Go ahead on this and then we will get to Sean in a minute.
Mr. Rowe. First of all, I wanted to say that the Kauffman
Foundation is the cat's pajamas. You guys are great. No, I am
serious.
Chair Landrieu. Thank you. I was looking for a word. I do
not know if I would have come up with that but I agree.
Mr. Rowe. Those of us who do not have the luxury to study
this stuff all day they are actually working in it.
Chair Landrieu. Great to know it.
Mr. Rowe. The material you guys present changes our lives
because we go out and talk about this stuff that you have got
the hard data. This is where the jobs come from. This kind of
stuff so thank you.
Kauffman also has a bias towards action which is really
helpful. Kauffman has underwritten probably every major
interesting new entrepreneurial activity in Massachusetts,
which is not your state, in the last three or four years.
Kauffman has been there each time. So, thank you.
I want to underscore what Brink and Jonathan are saying. We
see where we are today as kind of the calm before the storm in
terms of how the United States fits into the global competition
in innovation and creating new high-tech companies.
You said earlier, Senator Landrieu, that many of us believe
that we are still ahead, and the numbers would say that. I
think roughly 80 percent of the world's venture capital is
invested in the United States, and that is more than our fair
share, and that is great.
But what is happening is on all these growth drivers that
the Kauffman Foundation talks about, the other countries have
been working hard on this stuff. They are getting their
education levels up. They are understanding more about
innovation.
I speak all around the world as a number of us in the room
probably do on this stuff, and every country I go to we have
the country's leaders, the head of state talking about this
stuff, focused on this stuff, creating new foundations,
modeling them on Kauffman, trying to figure out how to do this.
So, we are in a point where we are still ahead but we
cannot rest on our laurels and I guess that is the main point
that I wanted to make.
The second piece that I am just going to ask you for, your
staff asked me to bring some kind of circles and arrows and
charts and things for your fancy new TV system.
Chair Landrieu. Oh, great.
Mr. Rowe. And since my aide spent several days doing that,
could I have like a minute just to go through some of this to
spark conversation?
Chair Landrieu. Absolutely. You can have more than a
minute. Go ahead.
Mr. Rowe. None of this is my research. This is highlighting
other people's research that I think is helpful.
Chair Landrieu. You all in the audience cannot see this.
Voices. Yes, we can.
Chair Landrieu. Oh, I am sorry. Great.
Mr. Rowe. They should. So, I think you are kind of in the
middle but if you go to the front very briefly, the next page.
I will go through this very quickly.
So, note on the pie chart. This is what I was talking about
in terms of the percentage of startups that have a non-US-born
founder. This is research from Duke School of Engineering and
UC Berkeley. AnnaLee Saxenian, who you guys worked with I am
sure.
And she did do, just focusing on engineering startups,
looking at the whole country, and found that that was about 25
percent non-US-born.
So, as you go into the Silicon Valleys, you go into these
hotbeds of entrepreneurship, and anecdotally I would say it is
very similar in the Massachusetts area, it gets even higher.
So, that is just some concrete data around that. We will share
this with the group afterwards.
The next slide. This is where those foreign born startup
CEOs are coming from, just to put a point on it. It is what you
think: India, China, Japan, Taiwan, Germany, places like that.
Surprisingly Iraq is right after that.
They are coming from a small set of countries, and these
people tend to poke up against caps, the numbers of people who
can come from their countries which is one of our specific
issues that I am sure Madeleine knows all about.
Next slide. So, this is a map of where foreign students,
all foreign students who come to the United States where they
come from in the world. It is the same places largely that the
startup CEOs are coming from. So, China, India, South Korea,
Germany, and Japan, the biggest sources of foreign students.
Next slide. This is the degrees they have or they are
working on when they come to the United States. So, I was
saying earlier that it is mostly doctoral students. It is
mostly doctoral students. These are the kinds of people that we
really want to be starting businesses here. Masters students
the next biggest group. The rest is almost noise in comparison.
Next slide. So, next slide. We have been talking about
crowdfunding. These are just some estimates. This is from
Gartner Research about how this can grow. They think that it is
around $1.6 billion now including such quasi crowdfunding
mechanisms as kick starter where you do not really invest. You
get like a thing. You give some money to the small business and
they have to send you a thing and you do not get any stock but
it is crowdfunding.
They think it will grow to 6.2 billion which is not the 80
billion that Ridgely mentioned but it is a significant amount
of funding. And a lot of this will go to the, what is it, the
true small businesses, the TSBs, because if you are a big, hot
startup, yes, you can get Kleiner Perkins or somebody to
invest.
But if you are starting a small business, you are starting
a new winery in, you know, California, this is exactly a great
place to get your funding, friends, family, the wider circle.
The next slide please. So, this is that Wefunder website as
of this morning. I am sorry. This is when they opened. Two more
slides. That was two days ago. This is yesterday and this is
today.
So, they are now up to 1299 funders promising to invest $4
million in startups if you pass this legislation.
Chair Landrieu. Fabulous.
Mr. Rowe. This is literally just the last two, three days
they have been out there and their tag line is it is illegal to
invest on your dollars in startup.
What they really mean is that there is no mechanism for an
everyday person to put $100 into a startup which a lot of
people would like to do.
If you want to invest in a startup, you really have to go
through a lot of paperwork. You are never going to invest as
little amount of money to make it work. Let us change that.
Micro-finance.
The next slide. The next slide. This one did not make it
into the President's State of the Union. It is not in anybody
else's platform, but we in Massachusetts think this is big.
So, this is the new idea, if you will. It does not come up
a lot from the Californians because they ban noncompetes. But
in Massachusetts and many states, we have a problem where we
have something akin to indentured servitude.
If you are a game developer, let us say a video game
developer which is a strong area in Massachusetts, and you go
to work for a particular video game development company, you
will sign a noncompete. Everyone requires it.
You are not allowed to stay in Massachusetts and work for a
game developer ever again. If you leave that company until you
are what, one, two, three years runs out, most people cannot
afford to not work for a year, and so they have to switch
industries.
And in fact, that is just what they do. One third of
workers who have signed noncompete agreements, this is
according to research at MIT that the Sloan school just
published in October 2011, actually drop their industry
entirely. They often drop the thing they got their degree in;
go to some other industry because when they leave their
company, they cannot continue in their industry.
Seventy percent of employees discover they have to sign a
noncompete after they have accepted the offer. They cut the
offer. They have told everyone. Now they hear, oh, by the way,
you cannot ever work in your industry again or not for years.
So, we want to see this changed.
This is typically thought of as a state-level legal issue,
and what I am proposing is that it be explored as a federal
question. You could argue that this is a restraint of trade,
that essentially you are saying, no, these people cannot go and
work in some other field. So, that is noncompete.
The next slide please. Next slide. This is just Dice, which
is one of many jobs websites that are all over the country, a
hiring website. This is just the Boston area.
And what you can see here is that there are 3647 tech jobs
that are standing open right now just in Boston. And if you
look at the tags, you know, what are these jobs in, .NET which
is a Microsoft technology, C sharp, HTML which is a web
technology. HTML has 372 open jobs. SQL, which is a database
technology, 1115 open jobs just in Boston.
When I was talking about holding back new startups, this is
actually one of the things that we see is holding, that we hear
from people who want to start new companies. If you are coming
out of one of the schools in the area and you are getting a new
company started, not being able to find qualified tech people
that you can hire is one of the biggest issues.
And interestingly, it is a big issue not just for the small
companies but the big companies. If you look at what Google has
done, Google has loaded on the benefits for new employees to a
wonderful and sometimes absurd degree where you have, if you go
into the cafeteria in Cambridge, you will have a full rock band
set up so at lunch if you want to jam with your friends, you
can.
They have competing chefs who offer the sushi and they
offer every kind of imaginable food. It is wonderful. They had
an oompa loompa band at lunch recently.
They do this stuff because this is what they have to do to
keep hiring. And that is great but the startups cannot compete
with that. It is very hard to do that. And so, what we would
like to do is see some adjustment in the number of people
trained in these areas.
I talked to, I will not name it, the head of the
entrepreneurial initiative at a local community college in
Massachusetts about this problem in the last few days. And they
said do not quote me but there really is not much of a link
between what we are teaching and what industry needs. We really
need to somehow figure out how to make a link in our
educational system.
The next slide, and I think I am just about done. This is
across the other metro areas, unfilled tech jobs. It is true
all across the country, not just in Boston.
The next slide. These are the states and their unemployment
rates, and the colored ones here are the high-tech states that
I just mentioned that have the biggest problems with tech jobs.
So that the states that have the highest unemployment are
also the states where ironically they are having the hardest
time finding people.
Chair Landrieu. Because of the mismatch between the
population that has not been trained for the skills that their
companies are desperate for?
Mr. Rowe. Right. Exactly.
Chair Landrieu. It is really quite shocking and shameful.
Mr. Rowe. Next slide.
Chair Landrieu. We will do one more slide.
Mr. Rowe. That is it.
Chair Landrieu. Thank you.
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Dr. Holtz-Eakin.
Mr. Holtz-Eakin. Let me just make three brief points.
First, Brink is right. Listen to Brink. He is all right.
Chair Landrieu. I am so glad that you all agree that
Kauffman is putting out some good data. I think it is
extraordinary myself.
Mr. Holtz-Eakin. I am a big fan and have been for decades.
Second is that Senator Moran is right that the debt is an
important part of this conversation. It does not make sense for
an entrepreneur to bring his or her skills to the U.S. and
scarce financial capital when its current plan is to have a
sovereign debt crisis, and that needs to get fixed.
The important part for this Committee is that how you fix
it matters; and there is, in fact, research that suggests the
right fix is keep taxes low and reform them to be more pro-
growth, encourage the entrepreneurs, and cut spending but not
all spending is created equal.
You want to preserve core functions of government, basic
research which will feed into innovation, infrastructure which
will permit entrepreneurs to compete successfully. Those kinds
of things, and cut transfer programs and government employment.
The latter is not a big deal in the U.S.
We are currently on a course to do exactly the wrong thing.
Sequesters gut the discretionary spending which is the core
functions of the government and we are not touching the
transfer programs. The small business and entrepreneurial
community has to care about this because we are getting it all
wrong
Chair Landrieu. I am sorry. And I would like my staff to
provide to the whole Committee the actual data on reductions in
spending. If you take the core of government which would be
described as everything besides defense, Social Security,
Medicare, Medicaid, the core discretionary spending has
literally been flat.
It has not been the driver of spending. It has been flat
over the last 10 years. The spending has been in defense, in
Medicaid, Medicare, and Social Security.
And part of that is driven by the changing demographics.
So, we have got to be very, very careful moving toward a
balanced budget what we are cutting and how we are cutting
because it gets exactly to your point.
You do not want to cut research and development. You do not
want to cut education if it is having outcomes that you want.
You want to cut it if it is wasteful and not meeting the
outcomes; but you want to invest in some of these, you know,
opportunities I think to, you know, to enhance or modify some
of the spending to enhance the development of the right kind of
training we need to fill the jobs that are right now available.
But thank you.
Mr. Holtz-Eakin. The discretionary programs are our future.
The entitlement programs are legacies of our past and federal
dollars to the past. We are letting our past crush our future,
and it has got to be fixed right.
My last point is the openness issue goes more broadly than
just capital and entrepreneurs. It is in competition as well.
The places we have seen great innovation, semiconductors and
others, those where we have been open to international
competition, the entrepreneurs will rise to that competition
and succeed. We have to keep an eye on that.
Chair Landrieu. Jim.
Mr. Kessler. Thank you, Senator. I am going to pounce a
little bit also on that last point about our budget. If you
look at 1990, $0.44 of every dollar that the Federal Government
spent was Medicare, Medicaid, Social Security and interest on
the debt.
In 2030, it will be $0.68 of every dollar. And there is a
reason for it. I mean, it is the demographics that were talked
about. Over the next several decades the number of elderly
people in this country will double, and their average lifetime
benefit for both Medicare and Social Security in real dollars
will also double and the number of working age people in this
country will increase by one third.
So, you have got double, double, and one third and the
numbers do not add up. We have to figure out a way to--the past
is crushing us but we have to, you know, we have to take care
of people at the same time but we have to have a much stronger
investment budget.
And the way to think of an investment budget is, what are
the things that we are spending on that creates a future
revenue stream, and a lot of those things they have really
just--it has declined.
And in past American budgets, we were doing a lot of
things, whether it was on the research end, on the
infrastructure end, it was creating future revenue for this
country.
Chair Landrieu. Very excellent question. Excellent.
Michael.
Mr. Finney. Thank you, Senator. I just wanted to endorse
some of the points that Tim made, in particular around
crowdfunding. I am actually a member of an organization known
as Kiva, and Kiva is probably as close as it gets to an actual
crowdfunding tool that is out there.
One day I decided to put 100 bucks into it and make a few
investments because Kiva came to Detroit. So, I have invested
100 bucks in $25 increments. I view it a little bit as
philanthropy but also as a way to help entrepreneurs get to
where they go, and there are some pretty interesting startups
that have come out of that.
So, it is out there and it is one of the things that we can
touch in the crowdfunding space as a tool to help us better
understand how to get the legislation right so that it will
work.
Chair Landrieu. And describe a little bit more about Kiva.
Those of you who are familiar with it, I would like you to
describe it because it is operating in New Orleans right now as
well.
Mr. Finney. Yes, I was going to say Kiva-Detroit and Kiva-
New Orleans are the two locations that are set up in the United
States. We are actually in discussions right now to create a
Kiva-Michigan because we see an opportunity to extend it across
the entire state, not just the city of Detroit.
Essentially it allows the average individual who has a
limited amount of resources but wants to assist entrepreneurs
to make very small investments, as little as $25.
And you simply set up an account and you review the
business plans that are on that Kiva website both in the U.S.
as well as throughout the world.
It started as a Third World resource, funding small
startups that wanted to make bread or buy an animal so they
could have a dairy or produce milk and so on. And literally, it
is microlending at its finest.
Chair Landrieu. Using the Internet to connect the investors
with the projects worth investing in.
Mr. Finney. That is correct. I mean, the challenge of it
was the back end, and there is an organization out of New York
City, I think, called ACCION that really manages the back end
of it; and essentially they are the lender but Kiva is the face
of it.
So, it is a wonderful tool. Detroit and New Orleans are the
two locations in the states that have managed to get under the
umbrella right now, and it appears to be having some early
impact.
The point of bringing up Kiva is that this is a wonderful
opportunity for, I think, information exchange; and it is
probably one of the things that does not happen as effectively
as it could; and maybe there are some ways that we could
develop better opportunities for information exchange.
The last point that I want to make is that somehow we have
got to figure out how to get some of the great ideas that are
actually working in some of our states to become models for how
to do things on a national basis.
What Tim is doing we all know about. If you are at all
involved in what is happening in the entrepreneurial world you
know what he is doing. You have some good ideas and you are
snooping around trying to get a better understanding.
How do we create that with some of the other programs? The
State of Michigan, through my organization, we set up a small
business collateral support initiative and loan participation
initiative with support from the Department of Treasury.
It is called the SSBCI, the State Small Business Collateral
Support Initiative. It allows us small and medium-size
companies, for the most part, to get access to capital in
situations where they would otherwise never get it. I mean we
have done 138 deals in Michigan in the last 9 plus months.
Chair Landrieu. Are you using state general funds or a
combination of state and federal?
Mr. Finney. It started off with about $5 million of state
funds. We pitched the program to U.S. Treasury. They liked it
so much they created a federal program with one and a half
billion dollars of funding. It is available to all 50 States
and, I think, three U.S. territories.
And so, Michigan was the first state to actually draw down
the funds, about $80 million. That was intended to be a two-
year commitment. We will have all of it invested in less than
11 months. So, that is how robust a program it is.
Chair Landrieu. We did that in our bill, in our last small
business bill; and you can thank you Senator Carl Levin, who
promoted that idea; and we wrapped that up in our last small
business bill.
So, there is a billion, and that is an excellent model and
we used Michigan as the model for the nation. If some of you
are not familiar with what some of the states are doing that is
an excellent and we are very happy that it is working.
Mr. Finney. It is a great example of how some initiatives
that start relatively small at the state level are really
scalable at the federal level with quick action. In this case
Treasury acted very quick, launched the program. It is now
available to all 50 States.
We are actually providing consultancy to seven different
States on how to get the program up and running. It is really
working great to help small businesses get access to debt
capital because the other thing in the startup world, access to
debt capital is almost non-existent because there is typically
not assets that would support debt. This program actually
allows for that through some of the approaches that we use.
Senator Moran. Michael, what is the Treasury program
called?
Mr. Finney. The State Small Business Collateral Support
Initiative. SSBCI.
Senator Moran. And on Kiva, are those such small amounts of
investments that there is no securities law issues?
Mr. Rowe. It is loans not invested.
Senator Moran. It is loans not investments.
Mr. Finney. It is loans. That is correct. It is loans.
Senator Moran. And therefore, you do not have to worry
about being sued for fraud----
Mr. Finney. That is correct.
Senator Moran [continuing]. The statutory or common law
kind of fraud.
Mr. Finney. That is correct. In fact, the investors
actually do not receive any kind of a return other than return
of capital. So, they do not gain a return on the dollar. It is
social entrepreneurship at its best, in my opinion.
Chair Landrieu. Ridgely.
Mr. Evers. That is actually a great hand off. Thank you. I
think that one of the biggest issues we face is return on
investment. And the reason that there is--and by the way, Tim,
I just looked at the PQUA numbers. The amount of dry powder off
shore is now equal to the amount of dry powder on shore.
Mr. Rowe. Really?
Mr. Evers. Yeah. So there is about 60 billion----
Chair Landrieu. What does dry powder mean?
Mr. Evers. It is on invested venture capital.
Mr. Rowe. That is growing faster than we thought.
Mr. Evers. Yeah. It is the amount of money that venture
capital funds have raised but not invested.
Chair Landrieu. You are saying it is equal now in the
United States and offshore.
Mr. Evers. It is maybe 80 and 70. 80 here and 70 offshore.
But it, I mean, that is clearly diverging.
Senator Moran. But what is the significance of that point?
Mr. Rowe. Eighty percent of the investments, what has been
invested last I checked was in the United States, and you guys
probably have better data than I do. But what this means is
that what is being prepared to invest, what has not been
invested yet, what is being amassed in funds is rapidly growing
overseas.
Mr. Evers. Yeah.
Mr. Rowe. And we would expect that, as that money gets
invested, then it would get closer to 50-50, what is invested
in the United States and what is invested overseas.
Mr. Evers. That is sort of a side point. But what that
underscores is that capital is mobile and labor and small
business is not. And so, the question is, we have an
extraordinarily entrepreneurial country unlike any other in the
world although that may change over time.
But at the moment we clearly are hands-down the most
entrepreneurial. There are 10,000 Americans who start their own
business every day, weekends and holidays included. It is an
extraordinary number, and it varies a little bit with the
economy, and it varies a little bit with the availability of
equity in your home and that kind of thing.
But it is just day in and day out, and 40 percent of them
end up creating jobs, a third of them fail within the first six
quarters, mostly because they should have kept their day job
but oftentimes because they make preventable mistakes.
What is interesting is not that number, and we cannot make
more entrepreneurs. We can do great things to help people who
have entrepreneurial drive be more successful, whether that is
incubators or the kind of mentoring that SCORE does.
What is interesting to me is not the failure rate which is
fairly easy to measure, binary, are you alive or dead but
rather did you meet your potential.
And I think that the story that is missing at this table is
the underperformance of the smaller small businesses, the true
small businesses who cannot grow to the size that they have the
potential to become because they cannot get capital; and the
reason that they cannot get capital is they cannot secure it.
They do not have the assets to borrow against, and there is no
return for their investors because these are not companies that
are designed to be sold.
So, capital gains treatment does not help those
entrepreneurs. There are other ways that we can go about it and
we have talked about some of these in the past. There are other
things that we can do.
Tax policy is a very powerful tool here. But if you only
approach it from the perspective of capital gain, then you are
only going to be solving one particular kind of problem and
that is not the problem that the investor in a relatively
stable ``designed to be to feed a family'' business is going to
be attracted to because they cannot get their money out.
Huge opportunity. And unambiguously, you know, the Joint
Committee on Taxation aside, Congressional Budget Office aside,
moneymakers for the Federal Government. And yet we cannot do it
and it is incredibly frustrating to me.
The last point that I want to make is, is a cautionary one.
Be aware of the bright shiny object. You know, Facebook is
going to file sometime in the next, I think they may have
announced that they were going to file yesterday or today or
tomorrow.
They are going to go public at a valuation of about $100
billion. They are going to raise $10 billion. They have 3,000
employees. The average American business has revenues--I think
it is about $135,000 per employee. Facebook which is hiring
like a drunken sailor has revenues of about $500,000 per
employee.
They are massively profitable because they just do not have
that much to spend money on. They cannot create that many jobs.
They are not the answer to the job problem. You know, bringing
manufacturing back on-shore, doing a whole lot of things like
that which are not sexy businesses.
They are three yards and a cloud of dust businesses. That
is incredibly important for us to pay attention to and not get
distracted by things that are, you know, they are big successes
but they do not actually necessarily create a lot of jobs.
So, I encourage you as you look at ways to approach the
problems here and figure out how do we really create jobs and
how do we create a systemic environment that grows jobs,
recognize that what entrepreneurs need is not entrepreneurial
spirit. They cannot help themselves. What they need is money
and mentoring.
Chair Landrieu. Excellent comments. Excellent. Excellent.
Wayne. And if you want to comment on what Ridgely said or
take us in a different direction that is fine. I would really
like some comments from some of you about this difference
between an ecosystem that supports an entrepreneurship for
entrepreneurs that just want to feed their family and a few
more. It is a very good thing.
Mr. Crews. Yes.
Chair Landrieu. We should not underestimate the importance
of that or the significance of that. Not everybody wants to be
the head of Facebook. They just want to run their farm, hire 12
or 15 people, feed their family, turn their business over to
their son or their daughter and feel like they lived an
extraordinarily successful life, and they did, or whatever
business.
So, I do not want to under estimate that power and that
dream or dishonor it in any way. But go ahead.
Mr. Crews. Just quickly. It seems like the moral of the dry
powder story is that there is always going to be an America,
just if we are not careful it is going to be somewhere else
because there is a lot of money to invest, there is a lot of
hunger to create in the U.S. and around this room there is
tremendous agreement on the tech immigration issues, the
skilled immigration issues, on the access to capital like
crowdfunding. It is the easy stuff that is agreed on that we
can do.
Spending issues that got mentioned are much more difficult
and this is not the forum to address it. I would certainly love
to, after the CBO report of yesterday of 1.1 trillion deficit.
But it is the case that it is only 2012 and America has a long
way to go and the economy is dynamic and we can grow much more.
There was just a Wall Street Journal piece two days ago
saying if the Internet was the last era or the beginnings of
the Internet was the last era, next it is big data, customized
manufacturing, big manufacturing, and Mr. Evers just mentioned
bringing manufacturing back into the U.S., and the wireless
revolution that have changed things.
So, if we cannot cut spending right now, we can rely on
that dynamism and I would suggest and recommend that--think
about the things that can be done with respect to regulation.
If we cannot manage the budget too well just yet, think about
kind of the regulatory budget that affects small business, the
ones that may stay small, they may be handed over to a family
heir and that type of thing.
I would consider just a couple of things quickly.
Chair Landrieu. Real quick.
Mr. Crews. The Reg Flex Act that has been talked about, the
good bits, I would suggest looking at that notion and the
impact of new rules that are coming along on small businesses.
And then finally I would suggest that in the same way that
we look at the federal budget once a year do the same thing
with regulations. It used to be the case that when the federal
budget came out, there was an accompanying document called the
Regulatory Program of the U.S. Government, and it examined
Executive Order 12.291 and all the rules that are coming out
from the various departments, agencies, and commissions.
And if you could do that but then tweak it so that you do
the small business focus, look at startup rates and things like
that, but also look at how regulations stack up as a small
business grows. That sort of thing. So kind of a regulatory
report card to accompany the federal budget and enhancements to
regulatory flexibility.
There are a lot of other things like that that you can do
like you were talking about a meeting this morning with Senator
Warner. He had a proposal for one in one out with respect to
new regulations that come down the pipeline.
So think about things like that that are low hanging fruit
that bipartisan agreement can be had on not the difficult stuff
like cost benefit analysis and things like that. Do the report
cards. Do a one in one out if you can enhance Reg Flex.
Chair Landrieu. Well, one of the things the Roundtable is
hoping to do is not only get some of the best and most exciting
ideas on the table that can be fashioned into legislation but
also to rank them as the most important, you know, in terms of
the urgency of meeting some of the goals that I think we all
share and ranking them, what is the most important thing the
Federal Government can do.
Some of this we can do all right away. Some of it will take
some phase-in. So, I would like to throw out at some point
whether it is regulations or capital or technical assistance or
crowdfunding or the immigration piece, how do you all, what are
you hearing from your networks of entrepreneurs if they had to
rank what is the most important thing for them to get first,
second, third, fourth, et cetera?
But let me get Diane and then Barry. Go ahead, and then I
will come back to Madeleine and I will get you, Sean.
Ms. Tomb. Thank you, Senator. I wanted to echo Ridgely's
comments that, you know, for our membership, women business
owners, it really is the true small businesses, and many of
them are feeding their families as well, most of them are.
And I think in this effort to raise this issue, all of
these issues are really important, not forgetting those as we
look at these public policies, making sure that those
businesses are taken into account because often, again, I come
back to our primary issue, the access to capital, and think
about the barriers for them to access it, the money that is
there is----
Chair Landrieu. How many women businesses do we have, 7
million? Approximately. Or what do you think?
Ms. Tomb. I actually do not have that with me.
Chair Landrieu. Somebody has it.
Ms. Tomb. I know. I have it right here.
Chair Landrieu. We are going to get the number but my point
is, and the staff will get it in one second. But the point is
that whatever it is, and I think it is seven to eight million,
if half of those businesses hired one more employee, I mean,
let us just say it is 3.5 million, if they added one more
employee, I mean, we would have almost solved the job issue in
America.
So, I think this is an important understanding that while
the Kauffman Foundation is really giving us great data to help
us understand what are the companies that are really creating
the most number of jobs, we cannot lose sight of what makes
America, I think, essentially a really extraordinary country
which are these entrepreneur, small businesses.
Like I said, they do not want to have 100, they do not want
to have 1,000 employees. That is not why they started their
business. They want to feed a family, support a community, and
that is what they do.
How many? 7.8 million. I thought that that was what it was.
So, you know, this is an interesting point that I do not want
us to lose sight of and I would like the Kauffman's to comment.
But before you do, Diane, did you finish?
Ms. Tomb. The second point that I think both Ridge and Tim
were talking about earlier about the private equity piece of
it, you now, to me that is astounding that there is not much
money out there. You know, women owned businesses have zero
access to that. It is astounding.
So, I just throw that out there. I know there are a lot of
smart people in this room. Maybe we could figure out how to
change that.
Chair Landrieu. I think it gets back to what Ridgely said.
These investors, you know, I mean, we might, some of us might
be more philanthropic in our giving. But investors do not want
to make a 2 percent return on their money or 3 percent return
on their money.
And people have gotten kind of crazy about this idea; but
if they cannot make 15 percent in a year, they are not
interested because, in their mind, they are being driven not
what is in the benefit of the whole country but what is in
their own personal economic interest.
If they can invest and make a gazillion dollars in one
year, that is what they want to do. It does not matter if they
just enrage 10 people and leave a gazillion people
impoverished.
Now, I am exaggerating, not to say it, but it is not a, the
person investing it is not their job to worry about the whole
world. They are worried about their bottom line.
So, it is a disconnect and some countries do not spend
enough time figuring this out. But for me who believes in
capitalism and believes in democracy, this is a very important
issue to me as a policy maker.
I am not a venture capitalist but I am a policymaker and
what I want is a country that is exceedingly wealthy but that
everyone shares in it according to their merit and their
ability.
That is not what was happening today. There is a very big
disconnect.
Mr. Evers. Just one thing I want to add.
Chair Landrieu. Go ahead, Ridgely.
Mr. Evers. And that is I think it is really important to
understand that almost all of the capital that is in venture
capital is tax exempt.
Chair Landrieu. But capital that would go to other people
is not tax exempt.
Mr. Evers. Right.
Chair Landrieu. And how is that venture capital tax-exempt?
Mr. Evers. Pension funds, endowments, and so forth. They
are actually not concerned with tax policy as much.
Chair Landrieu. Okay. Go ahead.
Ms. Tomb. I was just going to say one more thing, Senator.
Perhaps incentives for them to invest in the types of
businesses we are talking about may be some policies we can
look at.
Chair Landrieu. Okay. Let me get Sean. I am sorry. Sean, go
ahead.
Mr. Greene. Thank you, Senator, and I know the point is to
look forward, but I want to look back for one second which is
to thank you for your efforts to get the SBRI re-authorization
done.
I mean, when we are talking about programs that impact the
innovative technology companies in this country, two and a half
billion dollars, that matters.
And so you know, you have given us an aggressive set of
deadlines to implement in terms of the reg changes and the
policy directive. The last re-authorization took two years in
terms of the implementation. That is unacceptable. We will hit
the aggressive deadlines that you have given us.
Chair Landrieu. Tell everybody real quickly what the SBIR
is in case you all do not know.
Mr. Greene. The SBIR is a set aside from federal R&D
funding to go to innovative technology companies across 11
different federal agencies, again two and a half billion
dollars went out last year. The entire venture industry only at
$1.6 billion into seed stage technology companies. So, this
program matters.
I just want to step back for a second. The Administration
launched last year the Startup America effort, literally a year
ago yesterday. And the explicit objective of Startup America
was now more than ever we need to be doing everything that we
can to help entrepreneurs and particularly the ones with high
growth potential.
We need to mobilize the public sector. We need to mobilize
the private sector. And one of the first things we did in that
effort was to get out and listen to our customers, the small
businesses.
So, we had roundtable conversations around the country. We
built online platforms to ask those entrepreneurs what barriers
they are facing and what concrete ideas could move the needle.
What we heard are the kinds of ideas that you are hearing
about today and the approach we took was to say, some of those
are best done by the private sector. So, the Startup America
Partnership will meet efforts there.
Some of them require legislative change and so the
recommendations that the President put out yesterday are
focused on the kinds of legislative change.
Importantly there are a lot of things we can do
administratively as well. And to your earlier definition of a
entrepreneur, the best definition I have ever heard is someone
who does more than anyone thought possible with less than
everyone thought was necessary.
[Laughter.]
Chair Landrieu. That is the best definition of the day.
Mr. Greene. And so, we have said that we need to be more
entrepreneurial in the Federal Government to say how do we do
everything that we can.
But what we have heard, and if I had to synthesize many of
the great ideas of today is, we need an ``all of the above''
approach. We are hearing tremendous needs on access to capital
but it is not just about bank lending. It is at that seed stage
crowdfunding. They are accessing the public markets.
Mobilizing private equity, you know, whether it is venture
or growth capital like in the SBIC program because not only is
there not enough of it but it is disproportionally concentrated
in small pockets around the country.
But all the data shows that these entrepreneurs are all
across the country and not just in the technology industry. So,
we need to do more there.
We feel good that we have, in things like the SBIC program,
got more capital out in that program than at any point in the
50-year history of the program. There is more we need to do.
We have heard over and over again the importance of the
human capital piece of it and that includes the immigration
issues but also issues like mentoring. So, how can we do more?
And what we have also heard, while there has been a lot of
talk about regulations and clearly regulations are important,
what we heard from entrepreneurs, it is also how the government
does business, how can we streamline things, how can we make
things simpler, how can we make the Federal Government easier
to navigate.
And so, as the example of the kind of thing we have done in
response, again picking on SBIR, was until a year ago
entrepreneurs would have to go to 11 different agency websites
to see what solicitations were relevant for them.
So, we built a platform with simple search technology to
say go to one place and let an entrepreneur who has sensor
technology understand that NIH cares about that technology for
breast cancer detection while DOD cares about it for landmine
detection.
So, there are many things that we can do but we need to be
attacking this on all fronts. We need to do our part, the
legislative part, and then the private sector as well.
Chair Landrieu. Thank you so much.
Barry.
Mr. Evans. The STEM talent immigration reforms have to
comprehend Masters, not just PhDs, especially for engineering
and computer science. That is what we need and that is what we
are hiring.
And as we grow and create jobs, we have to hire where the
talent pools are and would like to do that in Austin and then
in the U.S. and lastly open up centers overseas to tap those
areas.
More concerning to me is, as we keep the talent overseas
and create talent pools in other countries, you see capital
flow to those talent pools.
So, you are talking about U.S. dry powder (liquid assets)
flowing overseas. Anecdotally, I know of VCs from Silicon
Valley that are opening offices in China, and so, you are
seeing some of that capital be directed to create companies and
train talent that I will have to compete with rather than
having an opportunity to have that talent be in the U.S. and be
hired and funded here. So, when hiring overseas, it is to the
benefit of foreign economies and not ours.
And just in terms of capital, I see declining capital going
into launching companies because of the risk return equation
and the return potential that you were talking about. So in our
space with an IPO being out of reach for most companies, that
just turns off the capital spigot for capital going in to
launch those companies because the return potential is just
down.
Chair Landrieu. And I want to talk about this issue because
it is right before the Congress now about how to reduce the
regulations for a company to take itself public, et cetera, et
cetera. I want to come back to that.
But, Madeleine, you had something I think on the
immigration piece that you wanted to add.
Ms. Sumption. Yes. Thank you. Two points, if I may. The
first, since you brought up the question of smaller scale
entrepreneurship is an issue that I think might be interesting
to raise when thinking about how small-scale entrepreneurship
would relate to something like the startup or the entrepreneur
visa proposals.
The startup entrepreneur visa is a very interesting idea
because it uses venture capital or other funders as a kind of
screening mechanism to decide who the most likely successful
entrepreneurs are.
That is an extremely important principle. It mirrors in
some ways the idea in the rest of the employment-based
immigration system of using employers to screen people and
decide who has the talent and the most potential.
The reason that we do this is in part because we need
someone to tell us who the potentially successful entrepreneurs
are going to be. So, once you know, at least with some
probability who the potential entrepreneurs are, we wait and we
see if they successfully create a business and then at a
certain point we know whether that has happened and so they are
granted a longer-term visa.
Now, there is another population of people in the United
States, mainly smaller scale entrepreneurs who are here on E-2
visas which allow people to come in to start a business. It is
called a treaty investor visa. It is not open to nationals of
all countries and in particular China and India are excluded.
But there are a number of people who have been on these
visas which are renewable indefinitely but make it very
difficult to get to permanent residence.
So, I wonder whether, in the interest of fairness, it would
make sense to provide a mechanism for some of the smaller scale
entrepreneurs who have already demonstrated their ability to
set up and run a successful company and who in many cases have
been here for years and have become part of their communities,
also to have access to an entrepreneur visa.
Chair Landrieu. Do we know how many people this is
approximately?
Ms. Sumption. There is no data on the number of people who
are in the country now but there are between 20- and 30,000
people who are granted visas under this category every year and
that includes both entrepreneurs and small-scale investors.
Chair Landrieu. Kauffman do you have any data on that?
Mr. Ortmans. On the visas?
Ms. Sumption. On the E-2.
Mr. Ortmans. On E-2, no.
Chair Landrieu. No. But go ahead. You wanted to say?
Mr. Ortmans. Yes. I think the important thing about a lot
of these ideas is the reason when we put out this Startup Act
document last fall that we called it that, and that is, I think
we have got to be quite precise in our thinking.
You do put to gather a slightly different set of
prescriptions as government being the institution that sets the
rules and the incentives if you are looking to foster what I
might describe the path of potential new entrepreneurs and
those early one to five-year entrepreneurs. You do look at a
different set up prescriptions if your focus is on high-growth
entrepreneurship.
And Sean and I have discussed this in the past. But one of
the things that we think is really important that this
community says do is that we do not think that that puts
necessarily a dispute between whether we should be supporting
small businesses that, as you indicated, are not necessarily
there to grow but are there to make a living and high-growth
firms.
I just think there is a different set of prescriptions that
should be focused on; and, of course, our data, as you
indicated, brings us to conclude that if you are really looking
at growing the economy or rapid expansion of job growth, the
high-growth firms are obviously there to focus.
And one piece of data that has not come up that I want to
make sure that we have all looked at is that one of the studies
done by our chief economist Bob Lighton showed that if the
number of billion-dollar companies rose from the current 15 or
so average today to between 40 and 70, we would be able to
increase GDP by a full percentage point.
So, that looks at, for example, growth and why we focus on
creating those next big iconic brands. And as we have talked
about, and you mentioned in your opening remarks, if our focus
is on job creation, yes, there is no incentive for large
companies not to have pressure from their boards to do it with
less employees. Their job is to maximize profits.
So once again, if the focus is on job creation, the
emphasis comes down to those early years. But I think the
critical thing here is that we can have a different
conversation, Senator, if it is around nascent entrepreneurs
and new firms rather than if we are around how do I take a 5-
to 10-year-old firm and make it easier for it to be able to
scale to growth, and I think it is important that we understand
that we are quite precise in that thinking because it is a
different set of ideas that need to be addressed.
Chair Landrieu. No. I think you have hit the nail on the
head but it is good to get this out right away. It is important
to think carefully through what the goals are.
If it is just GDP or GPA growth is one thing. If it is
growth and job creation, if it is growth, job creation, and
expanding the middle class and opening up opportunities, it is
something even broader.
And that is what Senators have to decide, and that is why
we are having this discussion because we have to decide whether
our bill is going to be focused on just growth so that a small
number of people just continue to get wealthier or if it is
going to be growth and other things so that we strengthen the
middle class.
If we put our emphasis and efforts and treasure on one or
equally, et cetera, I mean, this is the discussion of the
moment and this is what this debate is going to boil down to
and that is why we are having these discussions.
Steve, I want to get to you.
Mr. Ezell. So, we absolutely agree about making it easier
for entrepreneurs around the world to enter the United States
but we also can do a better job in our educational system to
spur more entrepreneurship at home.
In particular, we really need to transform our colleges
into entrepreneurial factories. There is a great university
called the Olin College of Engineering in Massachusetts,
started 10 years ago. Completely re-thinks the education
curriculum around engineering. Their graduates produce more
startups businesses than MIT, just after 10 years of being in
existence.
Chair Landrieu. Tell me the name of this university because
I am searching for them now. What is the name of it?
Mr. Ezell. The Olin College of Engineering.
Chair Landrieu. The Olin College of Engineering in
Massachusetts.
Mr. Ezell. Just outside of Boston.
So we need more Olins around the country. One thing
Congress can do is use the power of information to spur
competition among universities around entrepreneurship.
So, one thing you can do is direct the National Science
Foundation to collect data on university business startups and
spinoffs and put out university entrepreneurship and
commercialization rankings to inculcate competition and to show
budding entrepreneurs----
Chair Landrieu. That is a great idea. Please write that
down twice because we really do need that--I want to get back
to what Ridgely said is that you cannot maybe make an
entrepreneur but you can mentor them.
And if we identify the colleges that are best at mentoring
our entrepreneurs, they will naturally, without us telling them
to go, they will naturally go to those places where the kids
have an idea that they really want to be an entrepreneur and
they might be encouraged, they will naturally go to these
colleges that are really doing a good job, just not living off
of old reputations, but are really, you know, living up to that
and getting some kind of ranking.
Does anybody know anybody that is doing those rankings
right now, either government or private sector rankings like
U.S. News and World Report I think does the rankings of the top
colleges and then they do the most affordable colleges and then
they do this. But does anybody, of colleges that are good at
entrepreneurship, training?
Go ahead, Tim.
Mr. Rowe. There is one. I will try to look it up on the
telephone since we cannot get WiFi in here.
Chair Landrieu. Oh, I cannot get WiFi in here. Where is my
clerk? Thank you, sir.
Mr. Finney. Senator, if you are trying to tie in the
federal funding that comes through NIH, NSF, et cetera, the
Association of University Technology Transfer Managers or UTTM
actually has some pretty good data about research universities
but that does not include institutions like the one that
Stephen just mentioned that would not likely be a research
institution.
Chair Landrieu. I will tell you. I am learning a lot about
this since I am funding it, is there a lot of universities that
get a lot of research money but that research, and maybe I am
being a little bit critical here, I am really trying to
understand of the federal money that gets invested in these
universities for research how much of it is actually coming out
the other end creating the kind of jobs we need or how much of
that research is sitting on shelves?
I am having a hard time really understanding the measures
of where these federal research dollars are going, and people
say, oh, it is important for the Federal Government to invest
and for universities to do research. Yes.
And some research is not meant to be going immediately into
commercialization of ideas and creating jobs, some of it is
just the basic research that is important for the advancement
of a society or civilization. But I do think having better
measures on that would be helpful.
And I am going to get to you, Jim, in a minute. But, Brink,
do you want to say something about the idea that we were
talking about about the kinds of businesses that grow the jobs
the fastest? Is that what you wanted to say?
Mr. Lindsey. Actually that was not what I was going to talk
about.
Chair Landrieu. Okay. Go ahead.
Mr. Lindsey. I wanted to weigh in with Wayne on the issue
of regulatory reform because I think that is a hugely important
issue.
Chair Landrieu. Go ahead.
Mr. Lindsey. It is so hard to get a grasp of because there
are so many different dimensions of it, there are so many
different kinds of policies, and it is not that any one
regulatory rule makes the difference.
Mike Mandel at the Progressive Policy Institute has a nice
metaphor that each regulation is like a pebble in the stream.
One is fine but when they just start adding up they can block
the stream and it is a curative difference between cost and
benefits that makes the difference.
What I wanted to highlight because it is something that is
in the Startup Act that complements what Wayne was talking
about. Wayne was talking about federal regulations which are
very important but from an entrepreneurial perspective it is
State and local rules that often are really----
Chair Landrieu. Are the barriers.
Mr. Lindsey [continuing]. Causing people to pull their hair
out or causing them to never even think about opening a new
business because things like restrictive land-use regulations
jack up rents and keep people out of our most dynamic and
productive cities in the first place.
We have had just a huge explosion in occupational licensing
restrictions. About 10 percent of jobs in the United States
were subject to occupational licensing in 1970. It is about 30
percent today. And that price is a lot of people out of
entering, particularly smaller scale enterprises.
Now, these are state and local regulations so what can
federal legislation do about it, harkening back to Wayne's
regulatory report card idea, one of the proposals in our
Startup Act is that we create either through the government or
the government working together with private institutions
create a kind of regulatory report card for states and
localities along the lines of what the World Bank does
internationally with the Doing Business Reports.
Chair Landrieu. An excellent idea. So where are the cities
and counties that are most friendly to entrepreneurs and
startups?
Mr. Lindsey. A catalog of the kind of regulations that
matter the entry restrictions, the restrictions on competition
that can gum up the works of entrepreneurial dynamism and rate
States and localities by how well they are doing and start
pitting them against each other and start shaming them for
having lousy record that nobody knows about.
Chair Landrieu. Shame works sometimes as a motivator.
Jim, you have something.
Mr. Kessler. They love it from a competitive event too. To
some degree, you know, the Doing Business Study is a fabulous
analogy because it has been a major factor in getting nations
to focus their attention on this.
Chair Landrieu. Right. And it is not mandating. It is just
disclosing what your situation is and then the entrepreneurs
will be driven to those areas or will be enticed to those
areas. Jim.
Mr. Kessler. A couple of ideas and thoughts. Some may be
relevant to the true small businesses that you talked about.
You know, 401(k) or Roth IRA-type thing for startups in which
you can put money aside and earn it tax free and use it for a
start up, a way to raise small amounts of capital.
Standard home office deduction. One third of businesses
that are eligible for the home office deduction use it. It is
too complicated. You have to answer a dozen questions. It is
like an interrogation and often you get audited when you use
it.
The R&D tax credit for when you get to a larger size
company. We have an idea that make it tradable. If you are
eligible, if you are doing research in development but you do
not have a positive revenue stream at that point, you know,
make this a liquid asset that you are able to sell to another
company. And that is another way in which you can raise some
capital.
Have a better R&D tax credit if you both do research in the
country and you manufacture in the country because a lot of
startups occur when you are going through, this is one of Andy
Grove's big arguments at Intel, you go through the supply
chain. You do the manufacturing, a whole series of startups
occur because you have to solve problems as you are going from
prototype to actual production.
And the last thing I want to say is, that we have not
touched on, is of all these successful nations in the world
America is last in the amount of our economy that is derived by
exports.
It is only 13 percent of our economy and a lot of other
successful countries it is a higher amount. And Brookings did a
study. Only 1 percent of U.S. companies export, half of those
only export to one country.
And if you look at some other countries, they have been
very successful not only at exporting but getting their small
businesses and medium businesses that export too.
So, it is not just breaking down barriers but, you know,
Mr. Evers talked about the mentoring side. Part of the
mentoring is how do you navigate the maze and sell your product
in another place, in another country and, you know, Germany has
done a magnificent job on that. They really are trying to get,
you know, their small businesses to sell in other places and it
is a huge part of their economy.
Chair Landrieu. And, Jim, thank you for raising that. We
just passed a very significant export bill for small business.
It was part of our really extraordinary small business bill we
passed last year.
Amy Klobuchar, and who were the other Senators that focused
on that? Senator Shaheen and Senator Klobuchar and Senator
Snowe really focused on that and helped us to draft that.
I would really like you to review what we did and give me
some other ideas about, you know, how we could strengthen that
because we recognize this. I mean, think about it.
As the world starts creating a broader middle class, I
mean, America can, small businesses, begin selling our
products; and with the ability of the Internet, it really makes
it possible.
You know, 50 years ago this just was not possible really. I
mean, you had to have a big ship or had to, you know. But with
the Internet you can make a product in any small place in
America and, with the Internet, connect to a supplier or a
buyer and trade back and forth; and with UPS and FedEx and many
of these companies that can deliver a package from doorstep to
door step, and the U.S. Post Office at least in the near
future, can do some of that delivery.
I guess they do not deliver, well, they deliver overseas,
U.S. Post Office, you know. So, it is very interesting that
this could happen. So, will you look at that and let us know.
Mr. Kessler. Certainly.
Chair Landrieu. We have got so many. Ridgely, you had and
then Michael and then we are going to go around because we have
to finish up in the next 10 minutes.
Mr. Evers. You asked a question a while ago and I want to
touch on three areas. One of the things when you talk to small
businesses that they cite as being the issues, and to the
extent that they cite regulation, it is state and local.
And regulation, in general none of us likes to be
regulated. We are Americans. We like to do our own thing. So,
that is true; but if I had to allocate 100 points across the
problem, I would not put any substantive number of them at that
level relative to the others.
Number one, with a bullet, when you talk to, you know at
SCORE we deal with hundreds and hundreds of thousands of small
businesses every year and we have increasingly good data about
what matters and we have postmortem data and we have lots of
good stuff.
Money. Money. They have a capital problem and figuring out
how do you make investing in small business, true small
businesses, how do you make that attractive to capital is
really important.
And the kind of capital to which small businesses are
interesting is not big capital. It is small capital. You are
paring small capital was small businesses. There are ways to do
that and I think it is really, really, really essential to
tackle that. Number one.
Number two, mentoring. It is great to have schools that
teach people how to do stuff. My alma mater, Stanford Business
School, every single student in Stanford Business School is
paired with someone from the law school, someone from the
engineering school, and someone from the medical school and
they create a startup as part of getting their MBA.
That is important. But what you have to recognize is that
almost every person who is an entrepreneur running a business
in America grabbed a hold of a silk worm and jumped out the
door of an airplane. The stuff that they are going to
encounter, they are going to encounter for the first time and
you do not teach that.
That is where you need people around you as advisors, as
helpers; and that is where, I think, the entrepreneurial
development programs to the SBA are so incredibly important
because they deliver----
Chair Landrieu. Strengthen the mentorship network.
Mr. Evers. But they deliver just-in-time mentoring. The
idea that for example at SCORE that we cannot get an increase
in budget out of the SBA or not out of the SBA but out of the
Federal Government for a program that actually demonstrably
makes money for the Federal Government is just astounding to
me.
Two other things. At the regulatory level something the
Federal Government can do. Does anybody here know how many
sales tax jurisdictions there are in the United States? Over
10,000.
If you are going to do business, I happened to run a
winery, I happen to write software that helps other wineries
sell online, you have to track your sales in 10,000
jurisdictions and report out on it. Boy, is that a bad idea.
So, nobody does it, by the way. So, you have non-
compliance. By the way, the number one reaction to regulation
is I do not worry about it.
Finally, and I recognize there is a sacred cow here that I
am just going to stick a blade in, and I apologize in advance,
Senator. Exports are important. You know what a small business
should be focusing on? So, first of all, if you are in business
and you want to try to expand your business, you go to the
easiest next place. You do not say well, Gee, we did this in
San Francisco that----
Chair Landrieu. San Francisco.
Mr. Evers [continuing]. Now let us go do it in Mumbai.
Chair Landrieu. Right.
Mr. Evers. You say, well, maybe we can should go to San
Jose.
The place that we should be focusing on helping small
businesses is on import displacement. How can we work with
companies in Detroit to get them to start buying from American
manufacturers, small businesses, rather than from suppliers in
other countries? How do we teach the entrepreneurs in America
how to sell to the enterprise?
These are huge, low-hanging fruit areas where the Federal
Government actually can have a role. How can we give American
businesses, large businesses, incentives for buying from
American small businesses? There are all kinds of interesting
things like that. Asking a small business person to take on
currency risk, language risk, time zone risk, and a metric
because we still measure in inches risk in order to do business
off shore is imposing an awful, a huge risk tax on their growth
which they do not need to take.
Chair Landrieu. Interesting observation.
Michael, and then we are going to go down this row from Tim
backwards. Go ahead.
Mr. Finney. Ridgely set up my comments.
Mr. Evers. We worked together.
Mr. Finney. This is amazing.
So, we have set up a program we call Pure Michigan Business
Connect, and the idea behind Pure Michigan Business Connect is
that we have some hundred thousand plus, you know, small
businesses in our State who no longer pay a business tax, by
the way.
We had tax relief to the tune of about $1.8 billion for
small businesses. So essentially, if you are not a C Corp., you
do not pay a business tax in the State of Michigan. It is a
pretty cool idea.
But behind that idea is that if these hundred thousand
businesses could create one job, we cut our unemployment rate
by 2 percentage points or some number relatively close to that.
But more than just cutting taxes, you had to do other things.
And so, we have started that process of connecting the small
companies with large established companies. One example and
then I will move on.
One of our major utility companies in the State, Consumers
Energy, has committed to spend at least $250 million more with
small and medium-sized Michigan-based businesses.
So, they are keeping us up-to-date on how they are doing.
They have already crossed the $70 million mark in terms of new
spin. But the beauty of it is is they are contracting with
small companies.
One example, a small company that makes a variety of
different products was able to bring back five workers that
they had laid off and then they hired another 35 as a result of
this new business they received from this large company.
Well, that is still not enough either. We need to identify
new markets. So if you are a company that makes injection
molded parts for the auto industry, could you make those for
the medical device industry, the aerospace industry, and so on?
And we are finding that there are numerous opportunities
for that kind of business connectedness as well. And it is a
pretty comprehensive program. It includes exports. It includes
a variety of different pieces including business services.
But finding ways for those small and medium-sized companies
to grow by one job is a big part of what we decided to do with
Pure Michigan Business Connect, and that really is doing
precisely what Ridgely just described.
I will close with really the thought that I wanted to touch
on. More important than anything else in my opinion is get the
outcomes right. If, through this process, we get the outcomes
right, we have a chance to be wildly successful in this
entrepreneurial space.
Is it about creating jobs? Is it about creating wealth? Is
it about immigration? I mean, all these things are really
important; but if we get the outcomes right, we have got a
chance to be wildly successful with this.
Chair Landrieu. Excellent. Okay Tim, and then Mike, Sean
and then we will wrap up.
Mr. Rowe. First of all, I just wanted to thank the
Committee. This has been great to have this conversation and it
is very timely. I want to convey a sense of urgency that we
really do need to get going on this stuff but also underscore,
I mean, we are very fortunate here. We have probably the best
schools in the world. I do not think anyone disagrees with
that.
We have tremendously creative people. We are creating many
of the world's coolest, most interesting businesses when you
look at the Apples and the Googles and the companies we have
been producing.
So, let us not lose sight of the fact it is awesome. We
have got some things we need to work on and let us work on it.
But it is awesome.
As we look at what we are all talking about doing, let us
take crowdfunding as an example. It is a little bit risky. It
is a little scary. Right. Well, what if people, you know, use
this to defraud investors or something like that? But we have
the creativity to solve that too.
If you look at eBay, for instance. You know, I spent $1000
to buy some piece of art on eBay from somebody across the
country I have never met and I probably never will meet, and I
trust them because----
Chair Landrieu. And it worked.
Mr. Rowe. And it works and I trust them because they built
a system that tracks our reputations. We can bring these kinds
of ideas, these creative American ideas to these problems and
we can make this work, and so let us get to gather, experiment
a bit, and make it work.
Chair Landrieu. Thank you, Tim. Mike.
Mr. Farmer. Yes. I just wanted to say two quick things.
First of all, I introduced what we had done on the Emerging
Industry Investment Fund that we created in the State. And I
was sitting here listening to all of this thinking to myself,
you know the order of the day today is everybody is asking how
do we pull those Apple manufacturing jobs to the United States.
I think this Small Business Committee and I think this
looking at the emerging sectors of industries such as
manufacturing, I will bet you 15 years ago there was an
emerging small business that could have been serving that today
had we had the right ecosystem, the right people around to look
at that.
I agree with Ridgely. You know, you cannot focus on the
Facebooks of the world, the big shiny things. We have to look
at the emerging segments of all parts of our economy. In the
State of Kansas, for example, we found some growth segments in
animal health, for example.
I want to make one final comment. In my current company, it
is a true startup, Leap2, we have one employee but we also have
15 contractors.
This talent issue is definitely a big issue, and I am
wondering, these 15 people believe so much, I call them the
believers, in what we are doing they leave their day job and
then at eight o'clock they login and they start working until
about three o'clock in the morning.
Well, some of them are actually doing it for equity, and
what you are doing with the Startup Act on the capital gains
portion, you know, you should change the language. It is not
just about investors because there are a lot of people who
believe in things who are, you know, in this case my
contractors that actually have an upside with that as well.
Chair Landrieu. Stephen and then, Sean, you are going to be
the wrap up Stephen, Barry.
Mr. Ezell. I just wanted to reaffirm the role of the
manufacturing extension partnership in the U.S. small business
entrepreneurship innovation ecosystem.
We fund the MEP 25 percent less than we do as a shared GDP
when we initially started in 1998. Other countries like Japan
fund their similar MEP-like agency 40 times more than we do as
a share of GDP.
This is a key part of our innovation ecosystem and it is
just important that Congress recognizes that and helps its as
it moves into supporting small businesses as they move into
innovative and new kinds of all activities.
Chair Landrieu. Thank you so much.
Barry.
Mr. Evans. Just a quick comment on ecosystem. I would
encourage your staff to explore some of the public-private
partnership work that is happening in Austin.
For instance, there is a capital-intensive wet lab that is
being put in with some subsidy from the government side to
foster small business and startups in the life sciences area.
There is some partnership with some of the federal agencies
and some large companies and university and small companies as
well in the Pecan Street project that is looking at how to
deliver energy. There are other examples like that that I would
be happy to go into detail with your staff and explain how we
do that.
Chair Landrieu. Wonderful.
Mr. Ortmans. Senator, I am just going to add to Sean's
definition of the entrepreneur. You know, one of the things in
the global context as people are viewing it is is a little more
profound one which says that it is really about the possibility
of human endeavor for the benefit of all.
And I think we should not under estimate what is going on
here. It is these young startups that are breathing the
dynamism into our existing industries, and that most of these
people that get involved in this, to come back to your point,
you know, you have to get in and see the culture of these
startup communities, the cacophony of the networks of people
who are just in this organic, exciting, fun process of creating
new firms.
And that is why we have to remove the barriers to allow
them, and almost all of them are in it not to make money. They
are in it because they want to do good and do well at the same
time.
So, I also want to end on an optimistic note because I
think it is an enormously exciting time----
Chair Landrieu. Let me be clear. I agree with you about the
people creating businesses. I mean, even the guy who started
Facebook said he never did it to make money. It is not the
entrepreneurs that their goal is making money. It is the
investors who have stood back who do not create a thing, who
want to use the benefit of this extraordinary capital to
enrich. And that is fine. I mean, that is the American way. We
have got to make sure that we are starting out getting to the
end. It is not just making a few investors wealthy. That is not
the goal of this Committee.
It is trying to honor that spirit that you just described
in the best way possible, expanding the middle class which is
being horribly hollowed out in the United States and giving the
talent that is in the United States the opportunity to
participate in some way and doing it in a way like Ridgely said
where you are matching the capital to big ideas, small capital
to smaller ideas but not disrespecting just that entrepreneur
that just wants to feed his family and the family next door or
run his farm or her farm and give it to their grandchildren.
You know, I mean.
Mr. Ortmans. Right.
Chair Landrieu. So, I do not disagree with you about
entrepreneurs but I do think that there is if we are not
careful, and do not make these rules right that what you end up
doing is giving the entrepreneurs a great opportunity to create
businesses and the only thing that happens is a few people in
the world get wealthy. And that is not my goal.
Mr. Ortmans. I think Brink and I would probably be remiss
if we did not mention that on this question of capital we agree
that we have got to be cautious about the attention that is
given to venture capital, for example.
I mean, more than half of businesses in the United States
start without any debt or any equity and less than 20 percent
of high-growth businesses ever take any venture capital.
So, this is why we think it is really important that we
remember if your interest here is enabling the entrepreneurs to
create new firms, you have got to do that.
I just want to answer two quick questions and then I will
wrap up. One was you asked about measures for performances on
campus. We did a more than $100 million investment into
Kauffman campuses at the Kauffman Foundation.
It is not a ranking, but we have lots of lessons learned
from that. I mean we can tell you why we would send you to go
visit ASU University, for example, over some others.
And then also in the research space you will notice that in
the Startup Act similar to almost, actually 80 percent of the
proposals in there are budget neutral but there are also ideas
in there as to how you can easily accelerate the movement of
those innovations into the marketplace, the R&D, to use your
words, sitting on the shelf.
The last thing I would mention just on the state part of
this is that at the Kauffman Foundation we are actually having
a State of Entrepreneurship address. We do it every year. We
are doing it next week and we are focusing on state policies
around this.
Everybody is welcome to come. It is next week but we will
be delivering our new address on this with new research and
thoughts on it.
Chair Landrieu. And again, thank the Kauffman Foundation
for getting the data that helps us to try to make the best
decisions that we can, and we really thank you.
And Jonathan, if it is public record, how much do you all
invest in your foundation every year on research? What are you
all doing? What is your rough budget for research?
Mr. Lindsey. We may be the largest private foundation
funder of economics research in the country, and it is millions
of dollars a year.
Chair Landrieu. Millions, okay. Sean.
Mr. Greene. Thank you again, Senator, for organizing this
and inviting everyone here on my birthday, I may add.
Chair Landrieu. Great.
Mr. Greene. So, two final points. One is to tie together
the mentoring piece which again we think it hugely important
and the commercialization piece, the universities.
What we have seen, I have cited Idea Village but in
Cambridge many other places there are great models of
organizations on the ground mobilizing mentors.
In our view, every university in the country should be
organizing a single kind of thing and how can we mobilize that
is a big opportunity.
But secondly, and where I would like to conclude is on this
issue we have been talking about of the high-growth businesses
versus the mom and pop, sort of the main street, and obviously
at SBA this is something that we evaluate and look at all the
time.
And I would encourage you and your staff to think that this
does not have to be an either/or. It can be a both/and. And I
am going to pick on the Facebook example because it shows how
it can be a both/and.
Facebook has less than 3,000 employees. But studies have
shown that jobs that Facebook has helped created as a result of
its app developers is close to 200,000. And if you look at
something like eBay or a Etsy, what those companies, yes, those
are big technology companies but----
Chair Landrieu. They have created many opportunities.
Mr. Greene. For businesses large, medium, and small to
distribute and reach new customers. So, I think that is where
the opportunities are is to say how can we foster disruptive
innovation that will serve consumers directly but also help
mobilize other businesses as well.
Chair Landrieu. Excellent point.
Listen, this has been terrific. Thank you all. The record
will stay open until February 15. So, any reports, summaries,
additional thoughts or comments, you can e-mail them in, you
know send them in.
And we really are going to try to gather all of the very
best ideas through these three roundtables. We are not going to
wait to put a perfect bill together. There have been some very
good bills dropped. We have not figured out all of the politics
of all of that yet but we are not going to wait until there is
the perfect bill.
We will try to pass as quickly as we can some things that
have received broad enough bipartisan support and clarity. Then
we will work on.
So, it is going to be a series of things but let us go
ahead and get started, you know, as soon as we can.
I think the President did a very good job of focusing our
attention at the State of the Union. I think some of the
members have already stepped up and introduced different
pieces. So that is the intention.
It would not surprise me at all if we had 12 different
pieces of legislation, you know, the Startup Act, and then this
and then this then that pass over the next year or two.
I mean, I think this is going to be going on hopefully
after the next election as well regardless of who wins, you
know, the election. I think our country is very focused broadly
on this and they understand the potential that is out there if
we get some of this stuff right. Okay.
Thank you so much. Meeting adjourned.
[Whereupon, at 12:10 p.m., the Committee was adjourned.]
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