[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]







                 INNOVATION AS A CATALYST FOR NEW JOBS

=======================================================================

                                HEARING

                               before the

        SUBCOMMITTEE ON ECONOMIC GROWTH, TAX AND CAPITAL ACCESS

                                 OF THE

                      COMMITTEEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                             APRIL 18, 2013

                               __________


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



            Small Business Committee Document Number 113-012
              Available via the GPO Website: www.fdsys.gov




                                _____

                  U.S. GOVERNMENT PRINTING OFFICE

80-821                    WASHINGTON : 2013
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001











                   HOUSE COMMITTEE ON SMALL BUSINESS

                     SAM GRAVES, Missouri, Chairman
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                       BLAINE LUETKEMER, Missour
                     MICK MULVANEY, South Carolina
                         SCOTT TIPTON, Colorado
                   JAIME HERRERA BEUTLER, Washington
                        RICHARD HANNA, New York
                         TIM HUELSKAMP, Kansas
                       DAVID SCHWEIKERT, Arizona
                       KERRY BENTIVOLIO, Michigan
                        CHRIS COLLINS, New York
                        TOM RICE, South Carolina
               NYDIA VELAZQUEZ, New York, Ranking Member
                         KURT SCHRADER, Oregon
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                        JANICE HAHN, California
                     DONALD PAYNE, JR., New Jersey
                          GRACE MENG, New York
                        BRAD SCHNEIDER, Illinois
                          RON BARBER, Arizona
                    ANN McLANE KUSTER, New Hampshire
                        PATRICK MURPHY, Florida

                      Lori Salley, Staff Director
                    Paul Sass, Deputy Staff Director
                      Barry Pineles, Chief Counsel
                  Michael Day, Minority Staff Director
















                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Tom Rice....................................................     1
Hon. Judy Chu....................................................     2

                               WITNESSES

Jack Roach, Director, Southeastern Institute of Manufacturing 
  Technology, Florence, SC.......................................     4
Julie Lenzer Kirk, Co-Chair, Startup Maryland, Columbia, MD......     6
Steve Johnson, President and CEO, CreatiVasc, Greenville, SC.....     9
Michael D. McGeary, Co-Founder, Engine Advoacy, San Francisco, CA    11

                                APPENDIX

Prepared Statements:
    Jack Roach, Director, Southeastern Institute of Manufacturing 
      Technology, Florence, SC...................................    25
    Julie Lenzer Kirk, Co-Chair, Startup Maryland, Columbia, MD..    28
    Steve Johnson, President and CEO, CreatiVasc, Greenville, SC.    33
    Michael D. McGeary, Co-Founder, Engine Advoacy, San 
      Francisco, CA..............................................    40
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    James Bessen, Boston University School of Law and Michael J. 
      Meurer, Boston University School of Law, submitted by Hon. 
      Judy Chu...................................................    44
    CONNECT - An Innovation Agenda for the 113th Congress, 
      submitted by Hon. Judy Chu.................................    80

 
                 INNOVATION AS A CATALYST FOR NEW JOBS

                              ----------                              


                        Thursday, April 18, 2013

                  House of Representatives,
               Committee on Small Business,
                   Subcommittee on Economic Growth,
                                    Tax and Capital Access,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:00 a.m., in 
Room 2360, Rayburn House Office Building. Hon. Tom Rice 
[Chairman of the subcommittee] presiding.
    Present: Representatives Rice, Chabot, Schweikert, Chu, and 
Barber.
    Chairman RICE. Good morning. Thanks for being
    with us today. I now call this hearing to order.
    Today's hearing is the first in a series that will examine 
how to bolster America's competitiveness and propel economic 
growth through innovation and entrepreneurship. America is the 
most innovative nation in the world. As a global hotspot of 
breakthroughs and emerging technologies, entrepreneurs have 
embraced our country's creative spirit for decades and have 
brought innovations into the marketplace creating jobs and 
spurring economic growth. Only 20 years ago, the transformative 
``IT Wave'' struck the nation, generating new industries, and 
with it, new jobs and heightened economic prosperity.
    Currently, we stand at a critical juncture. The United 
States remains number one in innovation, but with unemployment 
at 7.6 percent and a sluggish economy, communities across the 
nation are fighting to regain strength and bring back economic 
prosperity. The question remains - where do these new jobs come 
from and how can America's competitive advantage in innovation 
drive economic growth?
    To address this question, various entities are taking a 
variety of approaches to capitalize on America's innovative 
spirit. For example, in my district, we have the Southeastern 
Institute of Manufacturing and Technology's Manufacturing 
Incubator Center, that aids startup manufacturers to transform 
innovative ideas into commercial products. This sort of focus 
reinvigorates local communities and recognizes the unique 
strengths of South Carolina's 7th Congressional District, and I 
am happy to have Mr. Roach, the Director of the Southeastern 
Institute of Manufacturing and Technology, with us here today 
to discuss their work.
    Additionally, ADP, human capital management solutions 
company, which has an office in my district, works with small 
businesses to find innovative solutions to their business 
challenges. While a representative of ADP was unable to be here 
today, I wanted to highlight the work that they and similar 
companies are doing around the country to help small businesses 
innovate to address challenges with everyday tasks such as cash 
flow, regulatory and tax compliance, and human resource 
management.
    It is evident that creating innovation-friendly conditions 
is necessary to allow entrepreneurs to thrive and generate new 
jobs, yet for each community, this may mean something 
different. Today's witnesses truly understand the challenge and 
conditions necessary to succeed, and I thank you all for being 
here. And I look forward to your testimony.
    I now yield to Ranking Member Chu for her opening remarks.
    Ms. CHU. Thank you, Chairman Rice. And before I begin, I 
want to congratulate you on your appointment as chair to this 
Subcommittee on Economic Growth, Taxes, and Capital Access. 
Chairman Rice certainly knows about small business economics 
and taxes. He owned his own tax law practice before he came to 
Congress, so he is certainly well qualified and I look forward 
to working closely with Chairman Rice on the many critical 
issues facing this Committee.
    Today's hearing is the first in a series that will focus on 
making America more competitive. Innovation is at the center of 
what makes America the greatest nation in the world. The 
ability to turn new ideas into reality drives the U.S. economy 
forward, creating entirely new industries and the employment 
opportunities that come with them. It comes as no surprise that 
small business startups are responsible for leading this 
charge, seizing on opportunities and growing rapidly.
    America has a long tradition of cultivating innovation. 
About 40 percent of Nobel Prizes have been awarded to American 
citizens, and almost half of the world's 100 most innovative 
companies are located right here in the United States. Whether 
it was providing electricity throughout the country, putting 
men on the moon, developing the Internet, or decoding the human 
genome, we can be proud of our legacy of discovery. Not only 
that, these innovative new businesses created new jobs, an 
average of 3 million a year.
    However, though America has the largest economy in the 
world, a highly-skilled workforce, top tier companies, and a 
second-to-none higher education system, there are signs that 
America's innovative performance is beginning to slip. In the 
most recent world economic forum, rankings of the national 
global competitiveness, the U.S. dropped from fifth to seventh 
place. In fact, in 2008, America ranked number one but we have 
been steadily outranked ever since.
    We can reverse this trend if we take certain key and 
critical steps. This means investing in education, funding 
federal research and development, strengthening our patent 
system, and reforming our nation's immigration system. Because 
of the timeliness of the last two issues, I'd like to make a 
few comments on them.
    Patents certainly incentivize creativity and innovation, 
rewarding people for their ideas. Businesses must also know 
that our nation's patent system is strong and their 
intellectual property will be protected. If we want to 
encourage more startups to invest in their businesses here in 
the U.S., then it is critical for us to ensure that their 
developments receive the protection they need.
    As a member of the Judiciary Subcommittee on Intellectual 
Property, I am happy to say that we did pass a law providing 
the greatest reform to patent law in 40 years. We are also, 
however, continuing discussions on supporting innovations 
through patents. Just yesterday we had a hearing examining the 
effect of abusive patent litigation. Unfortunately, there are 
bad players out there that abuse the system and impose 
obstacles for real innovative startups. Companies called patent 
assertion entities are what some call patent trolls, acquiring 
patents that they had no role in developing. Their business 
model is to sue companies that have related products and then 
seek as many settlements as they can for profit. According to a 
recent Boston University study, 90 percent of defendants in 
these suits are small- and medium-size companies. This poses a 
significant problem for startups, especially technology 
startups, and I am hopeful that we can find a solution to this 
issue.
    Comprehensive immigration reform is a key issue in Congress 
right now and is certainly related to the issue of innovation. 
Immigrants have made extraordinary contributions to America's 
innovation. Twenty-five percent of the highest growth companies 
in America, including iconic success stories like Intel, 
Google, Yahoo, and eBay were started by immigrants. In Silicon 
Valley, the world's hub of innovation, immigrants helped found 
half of all technology companies, many of which were small 
startups. But many of these high tech companies cannot find the 
workers they need because there are not enough applicants 
trained in STEM--that is science, technology, engineering, and 
math. To make matters worse, immigrants who study in the U.S. 
and want to make their great new idea a reality, cannot get 
visas to stay and work on their startup. Instead, they are 
taking the next Google back home instead of growing it right 
here in America.
    It is not just employment-based visas that are critical to 
the success of the technology industry. We will not be able to 
attract the best and brightest if they cannot live and work in 
the U.S. with their families by their sides. Immigrants are 
twice as likely to start a business as native-borns, and there 
are many who come to the U.S. through family visas. Jerry Yang, 
the founder of Yahoo, is a perfect example. His mother brought 
him from Taiwan to America when he was 10-years-old on a family 
visa. Despite knowing only one English word, shoe, upon 
arrival, Yang went on to master the language and thrive in his 
new home, ultimately founding one of the world's largest 
Internet companies. He created thousands of American jobs and 
provides a service that allows millions of Americans to be more 
productive.
    I believe a strong immigration system needs to work for our 
small and innovative businesses. We must reform our system so 
that our small businesses have the workers they need and that 
the students educated here can keep their ideas and businesses 
in America.
    With this in mind, I am looking forward to today's hearing 
which will provide insights into what our country can do to be 
one of the most innovative and competitive economies in the 
world. I would also like to submit two documents for the record 
under unanimous consent--one documenting the cost to our 
American system of abusive patent litigation and the other, 
policy recommendations from Connect, a successful program 
linking inventors and entrepreneurs with the resources they 
need.
    Thank you. And I yield back.
    Chairman RICE. Thank you, ma'am.
    Without further delay, let us get to the witnesses. I 
appreciate every one of you all taking your time and making the 
trek here to Washington to be with us to help educate us and 
the public about what we can do to foster innovation. I see us 
as the greatest country that has ever been on earth, and we 
have so much potential. And what we need to do is do everything 
we can to foster that.
    So starting out with Mr. Roach, Mr. Roach and I are 
acquaintances. He is the Director of the Southeastern Institute 
of Manufacturing and Technology, which is in South Carolina in 
my District. And just so you know, my District, eight counties 
in South Carolina with the national employment rate at 7.6 
percent, statewide unemployment rate 8.6 percent, not one of my 
eight countries is even at the state unemployment rate. We have 
got a lot of work to do, and it is through institutions like 
the one that Mr. Roach is the director of that we are going to 
start to deal with this problem. I have got one county in my 
district, Marion County, South Carolina, 19.2 percent 
unemployment. So there is a lot of work to be done.
    Mr. Roach, if you want to--I thank you again for being 
here. If you want to tell a little bit about you and what the 
Southeastern Institute of Manufacturing and Technology does, I 
sure would appreciate that.

 STATEMENTS OF JACK ROACH, DIRECTOR, SOUTHEASTERN INSTITUTE OF 
  MANUFACTURING AND TECHNOLOGY; JULIE LENZER KIRK, CO-CHAIR, 
STARTUP MARYLAND; STEVE JOHNSON, PRESIDENT AND CEO, CREATIVASC; 
        MICHAEL D. MCGEARY, CO-FOUNDER ENGINE ADVOCACY.

                    STATEMENT OF JACK ROACH

    Mr. ROACH. Thank you, Congressman Rice.
    I am the director of the Southeastern Institute of 
Manufacturing and Technology. It is a wholly owned division of 
Florence-Darlington Technical College, which is in Florence, 
South Carolina. Historically, innovation has created the bulk 
of American jobs, and we believe it will most certainly be the 
force that creates jobs tomorrow. We also believe that 
creativity and innovation are critical to the success of 
business, industry, and the economy. The SiMT, as we call it, 
was created to provide support services to existing businesses 
and entrepreneurs, to help them be successful. Both existing 
companies and entrepreneurs tend to be in need of some of the 
same things. These typically include technology, customers, 
capital, and talent. The SiMT offers services in support of all 
these areas. Since we opened the doors of our 177,000 square 
feet Advanced Manufacturing Center in August of 2007, we have 
worked on projects for over 200 clients, with approximately 
one-quarter of those being entrepreneurs working on innovative 
new product ideas.
    In support of the first need, that being technology, we 
offer services in computer aided design, rapid prototyping/
additive manufacturing, as well as reverse engineering. 
Additionally, our 3D-Virtual Reality Center can develop content 
that allows clients to do both product and process 
visualization and simulation, and virtual prototyping. We have 
provided these services to clients that range from Fortune 500 
companies to entrepreneurs-inventors who come to us with a 
sketch on the back of a napkin--very common. The person that 
comes to us with a napkin sketch, and many small manufacturers, 
need a resource like SiMT to get their new product innovations 
to market. We become a part of their product development team, 
and in some cases we become their entire product development 
team.
    To help our clients with their second need, which is 
customers for their new product ideas, we create many sales and 
marketing visual presentations for our clients. These could be 
a product simulation shown on a laptop computer, or an 
Internet-based product demonstration. We use many tools, 
including virtual and augmented reality software to create 
compelling visualizations of new product concepts. 
Entrepreneurs, particularly, use these visual applications to 
sell their product idea to both potential customers and 
investors. Several of our client entrepreneurs have been able 
to generate enough interest in their product idea to secure 
funding for their business startup. In some cases, they were 
even able to procure purchase orders for their product from 
established retail companies, such as Home Depot or Lowe's.
    The third need, capital, is always tough to come by for 
innovative entrepreneurs. We are not in the venture capital 
business. We cannot offer seed money to a client to get his 
business going. However, what we can do is offer them some ways 
to leverage the capital they do have. In September of 2012, we 
finished construction of our new 28,000 square foot 
Manufacturing and Business Incubator facility. This facility 
provides startup companies both office and light manufacturing 
space, which is reasonably priced. It has a potential to house 
up to 26 different startup companies. It provides amenities 
found in most business incubators--things like Internet access, 
telephone service, conference and meeting rooms, shared copiers 
and printers, and shared commons areas where tenants can 
network together. Additionally, in partnership with our local 
Small Business Development Center, we offer training sessions 
for tenants on subject areas related to running a small 
business.
    Additionally, this new Manufacturing and Business Incubator 
facility is adjacent to our existing Advanced Manufacturing 
Center, which houses our large machining center. The machining 
center has state-of-the-art equipment, such as CNC machining 
centers, water-jet cutting, and an inspection metrology lab. An 
incubator tenant that may have a limited need for this type of 
equipment may procure time on our equipment instead of buying 
their own. Access to our capital machinery can help get their 
business off the ground, while preserving their precious 
operating capital.
    We currently have our first client tenant in the 
Manufacturing and Business Incubator facility. The company, 
MatrixXcom, was recently accepted into the Mentor-Protege 
Program that the Federal government has by Homeland Security. 
They feel that when they are up to full production capacity 
they will employ as many as 200 people in our local market. We 
have two more companies that we are currently working with to 
finish their product development. Ultimately, they will move 
into our incubator as well.
    The fourth need is talent, and it is almost universally in 
short supply today. Companies across the country say they 
cannot find enough skilled workers to meet their needs. Our 
parent organization, Florence-Darlington Technical College has 
its roots in training skilled workers for local industry. The 
SiMT carries on that tradition. We provide customized workforce 
development training solutions for client companies. When a 
startup company needs to train a new workforce or an existing 
company's desires to raise the skill level of its current 
workforce, they can get that specialized training at the SiMT.
    In conclusion, as communities look for ways to create jobs 
and drive economic growth, many are finding innovation to be a 
key element and startup companies to be the real job creators. 
The Southeastern Institute of Manufacturing and Technology is 
an initiative to support the innovators and entrepreneurs in 
its home state of South Carolina, as well as the southeastern 
region of the United States.
    Thank you.
    Chairman RICE. Thank you, Mr. Roach.
    Our second witness is Julie Lenzer Kirk. Ms. Kirk is the 
Co-Chair of Startup Maryland, which brings entrepreneurs 
together throughout Maryland to stimulate innovation and drive 
economic growth across the state. Startup Maryland was launched 
on March 30, 2012, and is one of the regional initiatives 
within the Startup America Partnership. A serial entrepreneur 
herself, Ms. Kirk founded her first company, Applied Creative 
Technologies, in 1995.
    Thank you for testifying today, Ms. Kirk. You may begin.

                 STATEMENT OF JULIE LENZER KIRK

    Ms. LENZER KIRK. Thank you. Good morning, Chairman Rice, 
Ranking Member Chu. I am honored to have the opportunity to 
talk to you about innovation as a job creator. It is a topic 
that is very near and dear to my heart.
    As you mentioned, I am a serial entrepreneur. I call it a 
``recovering entrepreneur,'' but I am not recovering very well 
because I surround myself by that which I am trying to recover 
from. But really, in my current role as co-chair of Startup 
Maryland, and as the executive director of the Maryland Center 
for Entrepreneurship in Columbia, Maryland, I feel fortunate to 
be surrounded by innovation every day. We have entrepreneurs 
and aspiring entrepreneurs coming in to us with incredible 
ideas and inventions and they are just looking for the 
resources that they need to help build their businesses.
    Raymond Cooper is an example of one gentleman who had a 
great idea. He had filed a patent for his invention. It is an 
innovative design for a wind turbine that is smaller and more 
efficient than current designs that are out there. But once he 
did that he was not really sure where to go to get the help and 
the resources that he needed. It is not until he stepped onto 
the Startup Maryland bus that he found the resources that he 
needed. It was actually on the advice of his mother who saw the 
bus on TV that the 39-year-old gentleman came out to Bethesda, 
Maryland on the second to last stop of our two and a half week 
tour across the state so that he could pitch his business idea. 
Little did he know that this unplanned visit to this big yellow 
bus with the Maryland State flag draped across it, that that 
would be the catalyst that was going to help him take his 
invention into the marketplace and go from being a dreamer to a 
doer, which is what we focus on.
    Contrary to what many people think after seeing phenomenal 
successes like Google and Facebook, the road between an idea 
and a viable business is highly complex and full of risk. And I 
am sure, Chairman Rice, you know this firsthand as a business 
owner and working with business owners, and I have been 
privileged to assist hundreds of business owners, 
entrepreneurs, and help them navigate the path from concept to 
viable business.
    Unfortunately, we lost a few long the way because of the 
risks. But what I found is that while there are many different 
paths to building a successful business and there is a myriad 
of unanticipated opportunities to what we call ``pivot'' along 
the way, we as a community can and should provide assistance 
throughout the process. Communities, by way of grassroots 
efforts like Startup Maryland and strategic public/private 
partnerships, can increase the probability of success and drive 
greater outcomes in revenue growth and job creation. They can 
do this by encouraging connections, promoting and celebrating a 
culture of entrepreneurship, and facilitating access to needed 
capital. This is exactly what we at Startup Maryland were told 
when we asked entrepreneurs across the state what they needed 
and what we have been focused on since we launched in March 
2012.
    You shared a little bit about Startup Maryland. It is a 
regional initiative of the Startup America Partnership, and it 
is a great example of what we can do through grassroots 
efforts. It is actually organized by entrepreneurs for 
entrepreneurs, and we are very much a startup organization 
ourselves. We are all working for free and we have no money. 
However, that has never stopped an entrepreneur, and that does 
not stop us. Our focus for 2013, as we shared at the White 
House briefing in February, is to leverage the unique assets of 
Maryland to provide entrepreneurial companies with the 
connections, coaching, and capital that they need to start and 
grow, while celebrating the entrepreneurial journey, which 
includes successes and failures. This, we are hoping, will 
provide them with an unfair advantage to help them drive 
increased scale.
    In 2012, as I mentioned before, we conceived of and 
executed a bus trip across the state of Maryland called the 
Pitch across Maryland, and we invited these entrepreneurs to 
come on the bus and pitch their companies to a video camera. We 
then posted them on YouTube so that we could get visibility for 
these companies and their businesses. We thought we would get 
about 50 people to come on the bus--we had 168. We had to start 
turning people away. The tour, we made 25 stops throughout all 
corners of Maryland, and Maryland is not a huge state.
    It was also created as a way to connect these entrepreneurs 
with the resources that can help them to start and grow their 
business, and also with each other. We tried to shine a 
spotlight on them to elevate the visibility of entrepreneurs. 
Now, pulling off something of this magnitude with a scant two 
months of planning, required collaboration with a lot of people 
around the state. Universities, community colleges, incubators, 
and economic development agencies all stepped up to help us to 
customize the message for their regions and to introduce these 
entrepreneurs to their resources. It was amazing. You had 
entrepreneurs not even knowing that there was an economic 
development organization in their county, and we were able to 
make those connections.
    The most impactful outcome for many was the connections 
that they developed between each other. They were just happy to 
share their story and to meet other people that were going 
through that very lonely journey. They were excited to be 
connected with not only the Startup Maryland community, but 
also the Startup America. We had a lot of fruitful connections 
and partnerships that came from that.
    Bringing together the community of entrepreneurs is also 
exactly what I was hired to do by the Howard County Economic 
Development authority, under the leadership of county executive 
Ken Ulman, from the Maryland Center for Entrepreneurship, not 
unlike the incubator that you run. We are leveraging the 
resources and programs. We have a technology incubator, 
although as an entrepreneur I do not like using the word 
``incubator'' because it sounds like a warm, fuzzy chicken, so 
we call it an innovation catalyst or the iCat. We also then 
connect them with other technology people in the community 
through the Howard Tech Council. We ran something called the 
Race for Innovation, where we brought in entrepreneurs, 
investors, supporters, and nobody knew who anybody else was, so 
it was just first name only, in a way to get them to connect 
with each other before they have to actually ask for an 
investment or ask for services. And that is really what it is 
about. It is connecting that community. And we have had mentors 
end up investing in or taking a leadership position in some of 
these startups and finding partners, getting revenues, and even 
getting customers.
    Another key need in fostering innovation is promoting a 
culture that supports it. Feeding the entrepreneurial mindset 
runs through everything we do at Startup Maryland and the MCE, 
but our climate does not always make it easy. So being able to 
celebrate failure as well as success I think is really 
important so that you can get that mindset that it is okay to 
try things and fail.
    Funding is also important. If you cannot have money, you 
cannot be successful. Many examples of state and local funding, 
but there is a lot we can do to help that. For example, making 
the SBIR process a little bit faster and easier so 
entrepreneurs can get that in time for their businesses. There 
is also a large and growing gap between sustainable company and 
concept, and we need more seed funding for that.
    So the work that you are doing here is really important, 
and having us here to help highlight these entrepreneurs, we 
really appreciate. We need to provide outlets so that we can 
spread these stories. We need to simplify the federal SBIR 
process, encourage and expand seed funding.
    Chairman RICE. I am sorry, Ms. Kirk, if you could wind up.
    Ms. LENZER KIRK. Absolutely. Facilitating key decision-
makers to bring innovations to companies to drive revenues.
    And then to your point, Congresswoman Chu, creating a 
startup friendly track to permanent residency for foreign 
nationals so that they can stay in the States and keep their 
innovations here.
    Thank you.
    Chairman RICE. Thank you, Ms. Kirk.
    Next we have our third witness, Mr. Johnson, Steve Johnson, 
who hails from my home state of South Carolina. Mr. Johnson is 
the President and CEO of CreatiVasc, located in Greenville, 
South Carolina. In 2012, his firm was competitively selected to 
be part of the FDA's Innovation Pathway Program. CreatiVasc was 
also an early company to receive support and investment from 
the South Carolina Research Authority's SC Launch Program, 
which aims to bring high tech companies into South Carolina and 
supports the growth of early stage firms.
    Mr. Johnson, thank you for being here today. You may begin.

                   STATEMENT OF STEVE JOHNSON

    Mr. JOHNSON. Thank you, Chairman Rice, Ranking Member Chu, 
members of the Committee, ladies and gentlemen.
    My name is Steve Johnson. I am president and CEO of 
CreatiVasc Medical in Greenville, South Carolina. Our company 
began full-time operations in 2007, and we are focused on 
developing medical device innovations for one of the most 
expensive chronic diseases: end-stage renal disease, or kidney 
failure. It represents now over a $47 billion burden to the 
health care system. These patients must rely on dialysis to 
live, but this cost over $86,000 per patient per year. It has 
also had very little innovation in the past 30 years.
    CreatiVasc developed and now has in clinical trials at 
Johns Hopkins an innovative device called the Hemoaccess Valve 
System, which has the potential to significantly reduce the 
complications and cost of dialysis.
    Last year, as you mentioned, CreatiVasc was selected 
competitively by the FDA to be one of the three inaugural 
companies in the agency's new Innovation Pathway program, which 
is designed to accelerate the clinical testing and approval of 
promising new technologies without compromising patient safety. 
Our company is in South Carolina, which has traditionally been 
viewed as a ``fly-over state'' when it came to innovation: you 
flew over us to get to either Research Triangle in North 
Carolina or Georgia Tech in Atlanta, or Palo Alto, or Boston. 
Now, we are proud that South Carolina is quickly becoming a 
destination state when it comes to innovation. Over the last 
six years, over 280 technology-based companies have started up 
in our state.
    What has caused this dramatic change? One major stimulus, 
as Chairman Rice mentioned, has been a program created by South 
Carolina Research Authority (or SCRA) called ``SCLaunch.'' And 
while the state of South Carolina fostered the creation of this 
program, not a penny of state funding has supported it. This 
SCRA program provides tax incentives to support and encourage 
private donations which are used to support early-stage 
innovations in our state. This SCRA early-stage funding is 
provided only after extensive and rigorous scrutiny of not only 
the technology but its management team, its competition, its 
patents, as well as its paths to market.
    Early-stage SCRA funds have triggered over $200 million in 
follow-on capital from angel and venture capital investors, and 
Forbes Magazine named it as one of the top five economic 
programs in the nation.
    The SCRA program recognizes that capital is the fuel that 
drives the economic engine. Capital transforms ``technology'' 
into ``products.'' This then translates into manufacturing, 
which then translates into jobs. But something has to prime 
that pump, and most times, traditional sources of capital, such 
as banks and now even venture capital funds, want to avoid the 
risk of early-stage technology startups. Programs like SCLaunch 
fill that vacuum. Without this program, most of these 
innovation startups, including our own company, would not 
exist.
    As a native South Carolinian, I fully recognize that our 
state has rarely been at the top of any ranking. We are usually 
48th or 49th. But that is rapidly changing when it comes to 
encouraging, supporting, and creating new companies with 
breakthrough innovations.
    Innovation is the key to economic growth because it is how 
we can compete in a global marketplace. It is also how we 
create good, high-paying jobs here at home. But for innovation 
to succeed there must be adequate capital to mature these 
inventions from the lab to the market. I can tell you from 
personal experience that the greatest challenge is to find 
long-term funding. Even though CreatiVasc was fortunate enough 
to be selected by FDA to be one of the top three innovations 
for one of the most expensive chronic diseases, it is still 
amazingly difficult to find capital, especially for medical 
devices which take years to develop, test, and get to market.
    This is the opportunity for the future: to provide 
attractive incentives that secure private investment to support 
innovative but maturing technologies.
    Again, thank you for this opportunity. It is something that 
obviously you can tell I feel very passionate about. I look 
forward to your questions.
    Chairman RICE. Thank you, Mr. Johnson. I am now going to 
yield to Ranking Member Chu for introduction of the minority 
witness.
    Ms. CHU. I have the pleasure of introducing Michael 
McGeary. Michael McGeary is the co-founder and chief political 
strategist of Engine Advocacy, a working group of people in the 
entrepreneurial sector based in San Francisco. And it is 
working to connect those leaders with government to effect 
change on issues that are important to high growth, 
entrepreneurial tech businesses. He also serves as a strategist 
with Hattery Labs, a San Francisco-based seed stage venture 
fund and creative consultancy. And he is working on high level 
social and brand strategy. Previously, he worked with Silicon 
Valley startup Tune-In, and with a leading California law firm 
specializing in political compliance and disclosure.

                  STATEMENT OF MICHAEL MCGEARY

    Mr. MCGEARY. Thank you, Mr. Chairman and Ranking Member 
Chu, members of the Committee, thank you for having me here 
with you this morning.
    I want to spend my time talking about issues that will 
impact the true engine of economic growth in this country, 
which is our startup community. Starts promise the rebirth and 
rejuvenation of the American economy, and far from the idea 
that is held by many about startup life, of bespectacled views 
and ironic t-shirts gallivanting around Palo Alto or the 
Flatiron district of New York, spending their days writing code 
for the next great game about unicorns, we will all have our 
heads down in our phones, playing as we ride the subway to 
work. In fact, the startup community in America reflects the 
best of American business. It is dedicated men and women 
working in coffee shops and coworking spaces, office parks and 
garages in Kansas City and Austin and Pasadena and Nashville, 
and yes, San Francisco and New York, creating economic growth 
and multiplicative effects not seen in any other industry, 
helping power not just their own business but in many cases 
countless others across the country. These men and women have 
created all of the net new job growth in this country for the 
last quarter century, and according to our recent study, 
Technology Works, are projected to create 4.3 jobs in local 
communities for every job created in a technology concern.
    It is for those reasons and so many others that a few of us 
got together to form Engine Advocacy, and for those of you who 
may not be familiar with our group, we got started about a year 
and a half ago with the intention of connecting the startup 
community with government at the federal, state, and local 
level. We did so with an eye towards turning some of the 
workarounds, good ideas, and innovative solutions to common 
problems faced by the startup community into new legislation or 
government programs or smart regulation that can help make it 
just a little easier to start and run those businesses here in 
America.
    We did that in a number of ways for a community that has 
largely been underrepresented here in the halls of government. 
Our work is balanced between direct advocacy, convening our 
members from all over the country with leaders in government, 
such as yourselves, and educating all of the players by arming 
them with good stories and strong data that point to the impact 
that startups can have in driving economic growth.
    And that is really why I came here today. If you took a 
survey of startup founders and entrepreneurs, of investors, 
technologists, developers, engineers, and the myriad of others 
working in startups today, they would tell you that two issues 
more than any other threaten the promise and progress of their 
companies. These issues--immigration reform and software patent 
reform--are Engine's immediate priorities and will form the 
basis of our advocacy work in the coming year.
    First let me touch on immigration. Despite our historical 
competitive edge, we in the United States are facing a growing 
gap between the jobs we can create and the skills and employees 
needed to fill them. In the long term, we need to continue to 
work to evolve our American education system to help power that 
growth and give young people the skills they need to compete in 
a global marketplace. But in the short term, we must also 
realize that that most valuable resource, talent, is already on 
our shores. They are attending the University of Wisconsin or 
Kansas University or MIT or Stanford and others around the 
country. And unfortunately, we seem to be looking for ways in 
our current system to send these smart, talented, and 
entrepreneurial individuals either back to their countries or 
origin or to places like Canada or Chile or South Korea where 
they have hung out the welcome sign to these promising minds as 
we have done for so many years, going back to Ellis Island and 
Angel Island. It is imperative that we find a way to keep 
knowledge here, working and building business in America so 
that our economy can continue to grow and our businesses 
continue to thrive.
    Second, for those that cannot stay and others who are 
starting business, another specter is lurking, threatening to 
choke off innovation nearly at its source, and that is the 
danger of patent trolling. According to recent findings by the 
Electronic Frontier Foundation, patent trolls are, forgive me, 
patent assertion entities account for 56 percent of all 
lawsuits filed against innovators. This environment creates a 
legal and regulatory thicket, which many young companies of two 
and three people find incredibly hard and costly to navigate. 
We must find smart ways to protect innovative intellectual 
property, and as the constitution says, to promote science and 
the useful arts. The current system in place does no such 
thing. In fact, it even threatens to kill innovation as young 
companies find fewer and fewer avenues for capital as the 
prospect of patent troll lawsuits grow.
    In the end, what is good for startups is good for small 
business on the whole because startups power small business. 
Consider a single parent making jewelry in Boise who is able to 
sell to consumers all over the world thanks to Etsy or the 
rural doctor in South Carolina who is better and more readily 
able to diagnose cardiovascular problems in a patient because 
of increased computing power and new data from existing MRI 
scans paired with 3-dimensional flow visualization. That is the 
technology being pioneered right in our office in San Francisco 
and being made available by Morpheus Medical. And it is the 
bakery in my neighborhood in San Francisco's Sunset district 
that accepts credit card payments via Square on their iPad 
rather than having to buy a costly point of sale system.
    The promise and potential of America's entrepreneurial 
future is also so much more. Yes, we can create gaming apps 
that distract and delight, but there is also technology being 
created that saves lives, that brings people closer together, 
and allows us to see our world and ourselves from a reframed 
perspective. And startups can power the next generation of 
American growth if we let them. It will be in working with this 
Committee and with our other allies in Congress which can allow 
for that future, our future, to be prosperous.
    Thank you, and I look forward to your questions.
    Chairman RICE. Thank you very much for your statement.
    So many well-intentioned and very talented people here, and 
I just appreciate so much you taking your time to be here with 
us today.
    Mr. Roach, I want to start with you. I want you to tell me 
about particularly these technology programs that you have at 
the SiMT and how it is working with attracting students and 
what your job placement prospects are.
    Mr. ROACH. Yes, sir. The SiMT is part of the Florence-
Darlington Technical College, which is one of the 16 technical 
colleges in the State of South Carolina system. In our Advanced 
Manufacturing Center in our large machining center in that 
facility is where we have the Machine Tool Technology program 
run by the college. Those students are learning the science of 
machining materials. They start out with fundamental manual 
machining processes and by the second year of the program they 
are in computer numerical control, CNC Machining Center 
operations programming is set up. Those students have a 100 
percent job placement rating coming out of that program. In 
fact, it is very difficult for us to keep them in the program 
for the full two years because once they get marketable job 
skills, the local industries out there are trying to hire those 
students as quickly as they can to get them in the workforce 
because there is a shortage of those skill sets. So that 
program in particular is one that is in high demand, it is high 
paying, and it is even difficult to get people into the program 
because of the science and technology level it includes, and 
the young people coming out of high school today typically are 
not fully prepared to go under that kind of career path. But we 
are doing everything we can to try to encourage them to go down 
that path because there are good paying jobs in that field and 
they are placed 100 percent.
    Chairman RICE. You know, what would you say would be the 
average pay scale? And what would be the prerequisites for 
entering the program? Are you getting kids that have graduated 
from college that are entering this technical program?
    Mr. ROACH. Yes, sir. We get students in those programs from 
high school graduates to people with four-year baccalaureate 
degrees from other institutions who maybe they have got a 
degree in English or in History or something and they cannot 
find a job in the job market and they are looking for a high 
tech skill set that they can market. And they end up coming 
back to us. We jokingly refer to ourselves as graduate school 
for some of the four-year universities because we get a lot of 
their graduates coming back to get a skill that they can 
market.
    The perquisites essentially are the ability to do math and 
science. They need a good strong STEM background. Once they 
have got those prerequisites under their belt they make very 
good students in these programs.
    Chairman RICE. How many students do you take in this 
program?
    Mr. ROACH. Currently, we have approximately 40 students per 
year in the program. That includes both first-year and second-
year, so about 20 in each group.
    Chairman RICE. Is that your capacity?
    Mr. ROACH. No, sir. That is not our capacity. That is 
basically what we are being limited to by the local pool of 
candidates willing to go into the program. In our local area we 
have had a difficult time with the K-12 system actually 
steering students away from these kinds of career paths in 
their education going through high school, so we are trying to 
bring them in.
    Chairman RICE. And I just want your opinion. What is the 
status of manufacturing in the United States?
    Mr. ROACH. The state of manufacturing is strong. Even 
though we are down on job count, the manufactured products 
generated by this country are as great as they have ever been. 
The big difference is that it is being done with technology 
more than with people. So the people that work in industry 
today have to have a higher skill set. They have to have more 
training, and they get, you know, higher paying jobs. So it is 
a question of same output, fewer numbers of heads, greater 
skills, greater pay scale. And manufacturing is not dead. It is 
not going away. It is just different.
    Chairman RICE. And you are there and you are ready to 
provide the skills?
    Mr. ROACH. Yes, sir.
    Chairman RICE. But you cannot find the people to sign up 
for your program?
    Mr. ROACH. That is part of the difficulty, is getting the 
pipeline filled with people that are interested in going into 
manufacturing because the news is always talking about 
manufacturing is dying, no one wants to go into manufacturing. 
We have a hard time with parents steering their children away 
from that kind of a career path, even though a machine tool 
student graduating from our two-year associate degree program 
today starts out anywhere from $17 to $20 an hour with the 
possibility of going up to as high as $30 an hour with about 
five years experience under their belt. Good paying jobs.
    Chairman RICE. These jobs, are you placing them in the 
local area or are they going nationwide?
    Mr. ROACH. This particular program is local. There is 
enough demand in our local market that it is gobbling up all of 
our graduates. But we have gotten calls from companies as far 
away as Kentucky and the Midwest looking for people with this 
skill set. They have heard about our program through the SiMT 
and they are asking can we come in and talk to your graduates? 
Can we get them to come to our facilities? And we say, yes, you 
can come and talk to them but typically they want to stay close 
to home and there is a job for them waiting right here in the 
local market. We are providing as many as we can get our hands 
on to the industry.
    Chairman RICE. And one more question. What is your tuition?
    Mr. ROACH. Our tuition at Florence-Darlington Tech, I do 
not know the exact number because I do not deal with it myself 
on a daily basis, but we are about $150 a credit hour. So a 
full load is, you know, $1,700, $1,800 a semester. And in our 
case, with the State of South Carolina's lottery tuition 
assistance program, about 80 percent of our students qualify 
for some sort of financial aid, either Federal Pell Grants or 
state lottery tuition assistance. So by the time they are done, 
most of our students either go for nothing or for $200 or $300 
out of pocket a semester, not counting books. Books, of course, 
are additional.
    Chairman RICE. Can you stand up and turn around and show me 
your cape?
    Mr. ROACH. No, sir. I don't think I can do that. I cannot 
bounce bullets off my chest either.
    Chairman RICE. Ms. Kirk, could you please tell me some 
specific assistance? I want to know more about--did you say you 
work for free?
    Ms. LENZER KIRK. The Startup Maryland is all by 
entrepreneurs who are donating their time, so we are all 
volunteering our time to bring together the ecosystem.
    Chairman RICE. I bet you have a pretty big cape, too.
    Ms. LENZER KIRK. No, no, no. It is a great community of 
support. Everybody pitches in. I think any entrepreneur that 
has been successful, or even if they have failed and have 
really enjoyed the process which most of them do, they want to 
give back. They want to go and help. I am always amazed at the 
generosity of entrepreneurs to help other entrepreneurs.
    Chairman RICE. Now, does this entity, I assume, get some 
kind of funding? No funding at all?
    Ms. LENZER KIRK. No. In fact, it was interesting when we 
said we wanted to do a bus, everybody just kind of looked at us 
and said, ``How are you going to do that?'' And so we figured 
it out. We went out and raised money from corporations. We got 
some money from, like, the Howard County Economic Development 
Authority put the first money in for the bus. And once you 
start going we were selling the idea before we had it fully 
funded. I mean, that is kind of what entrepreneurs end up 
doing. We then charged all of the stops a stoppage fee so that 
they actually helped to supplement the bus tour. So it is about 
being creative. It is about figuring out a way, and that is 
what entrepreneurs do. It is not sitting back and waiting. I 
mean, we would love to take money and the Maryland State 
Government did support us but we got started before we had 
that. We went out and started raising money and talking about 
getting people excited about the idea, which is what 
entrepreneurs have to do.
    Chairman RICE. It sounds like you are doing a considerable 
amount of marketing and letting people know about available 
resources that are already there.
    Ms. LENZER KIRK. A lot of it is just grassroots, Twitter 
and Facebook, and people talking about it to their friends. It 
is more of a grassroots-type of an effort. No marketing budget.
    Chairman RICE. The bus tour sounds like it was a very 
innovative, brilliant marketing plan.
    So when an entrepreneur--how do they contact you?
    Ms. LENZER KIRK. How do they contact Startup Maryland? We 
have a website startupmd.org. And in fact, Startup America has 
several startup regions--38 regions across the country, s.co is 
the--s.co, that is all you have to type in, is Startup America, 
and you can get access to the region that is closest to you.
    Chairman RICE. Tell me more about the national Startup 
America Partnership.
    Ms. LENZER KIRK. So the national Startup America was a 
partnership with the Case Foundation and Kauffman Foundation. 
And they set out to help to do what we are doing--help 
entrepreneurs across the country. And so they are pulling in--
--
    Chairman RICE. How old is this entity?
    Ms. LENZER KIRK. Two and a half years, I think. It is 
fairly new.
    Chairman RICE. I did not mean to interrupt.
    Ms. LENZER KIRK. Yeah, no, that is okay. Obviously, I could 
go on, right?
    So what they realize is that each region really needs 
something a little bit different, and so they formed the 
regional initiatives so that the folks in the region could 
figure out what does that region need the most? So, for 
example, in Tennessee, they had no incubators, so they 
connected Startup America. They formed Startup Tennessee and 
now they have incubators across the state of Tennessee and are 
doing an amazing job of getting innovations and turning them 
into businesses. There is a Startup California. There is a 
Startup Virginia, Maryland, and D.C. We call it the Startup DMV 
where we try to work together because we are so close. And each 
region is focused on whatever that region needs. In Maryland, 
we needed to connect all these great resources we have. We have 
Johns Hopkins University of Maryland, but they operated in 
silos, and so they needed that connective tissue, and that is 
what we have been providing to them.
    Chairman RICE. Thank you very much.
    Moving on to Mr. Johnson.
    Now, I had one more question for you, Ms. Kirk. So when 
somebody contacts you, gets in touch with you through your 
website, what specific aid can you give them?
    Ms. LENZER KIRK. Well, first we figure out what they need, 
what stage they are at. And then we will often connect them 
with their local jurisdictions, the resources there. But within 
Startup Maryland, we have started a couple of new programs. We 
have a web portal called Co-Founders Lab that connects team 
members. It is like the EHarmony for entrepreneurs, so you can 
go in and find a team member. We have a program that we are 
just kicking off called ``Raise Your Game,'' that is for 
existing companies that can connect them into a community and 
help them go to their next growth inflection point. We have 
another startup that we have partnered with called Fosterly 
that is a resource map of all the resources in the state. It is 
crowd sourced. So we figure out really what it is that they 
need and then connect them into the network to find it.
    Chairman RICE. Thank you, Ms. Kirk.
    Mr. Johnson, thank you again for coming all the way here 
from Greenville. Wow, it sounds like you've done big things 
coming up with help for people with dialysis needs. That is 
wonderful.
    How specifically did SCRA help you get off the ground?
    Mr. JOHNSON. When we were forming the company in 2007, 
obviously we realized that with an implantable mechanical long-
term blood exposure device, this was not going to be either a 
short-term or inexpensive process. We needed, if you will, the 
term we use is ``runway.'' We needed a runway to raise money. 
We went to South Carolina Launch and pitched them on the 
concept of our device, the kind of need that there was in the 
market, the fact that there had been no innovation in the field 
in 30 years, and we were able to get a $200,000 grant from 
South Carolina Launch that basically bought us about nine 
months of time. During that period of time we went to the 
private investors in the area. We brought together 40 angel 
investors and we raised $3.4 million. That $3.4 million was 
based upon our achieving set milestones, and I think that is a 
key, too, to our success and to any----
    Chairman RICE. Was SC Launch or SCRA involved in pulling 
together these investors?
    Mr. JOHNSON. We pulled together the investors, the 
mechanism that gave us the funding to allow us that time to 
pull those investors together. But in that six month period of 
time we were able to raise $3.4 million as a total commitment 
from those investors, and then based upon milestones of 
developing a finished prototype in animal trials and then 
beginning human clinical trials, various tranches were called 
in from those investors based upon our success. But truly, and 
we have received three installments from South Carolina Launch. 
The first enable us to get off and running. The second one 
enabled us to actually create our finished prototype and 
finished device that is being implanted in humans now, and the 
third tranche came last year when frankly we were just out of 
cash. And it frequently happens. And again, even though we have 
one of the first innovations in this field in 30 years, it is 
still in this environment extremely difficult to raise capital, 
even among the venture capital community because they want 
lower and lower risk and greater and greater assurance of 
success. And in medical devices, you are always at the exposure 
of what happens in the human body that you do not see in the 
lab. And so it is not always linear. It is not always 
predictable, but it is something that we live with.
    Chairman RICE. Thank you.
    Mr. McGeary, I want to ask you questions but I have taken 
far too much time already. Not that I do not appreciate what 
you do or the fact that you are here, and I appreciate it very 
much. I could talk to each one of you for an hour. So just 
thank you all very much for what you are doing. Thank you for 
what you are doing to help create businesses and jobs in this 
country. And with that I am going to yield to the Ranking 
Member, Ms. Chu.
    Ms. CHU. Thank you so much.
    Well, I have questions for Mr. McGeary. Mr. McGeary, 
according to a study from the Center on Education in the 
Workforce at Georgetown University, science, technology, 
engineering and math could have a 230,000 shortfall of advanced 
degrees in the U.S. by 2018. What do you think is the best way 
to address this shortfall?
    Mr. MCGEARY. Thank you, Ranking Member Chu.
    I think that it is critically important to address. There 
are a number of ways in looking at the entirety of the system. 
Obviously, in the long term we need to address the educational 
system we have got in this country and really retrofit it for 
the jobs we are creating moving forward in the 21st century and 
train young people of promise to be part of these science, 
technology, engineering, and mathematics disciplines to take 
those positions.
    The short-term answer to that is comprehensive immigration 
reform, and as part of that it really does have focus on 
technology. Obviously, your colleagues across the street have 
shown us their proposal. The Senate has come out with their 
proposal on immigration, which has some good in it for 
technology, including improved access to H1B and things like 
that.
    We have done a recent study that I reference in my opening 
statement called Technology Works, which has similar findings 
and we will be diving deeper into those throughout the year, 
alongside the Georgetown study. And we are seeing the same 
thing--that we are going to have a gap between the jobs we are 
already creating and the skills needed to fill that and the 
talent needed to fill those jobs. So it is critically important 
that we start that process now. We have got people here in our 
universities as I mentioned, who are ready to take on those 
jobs or to create their own companies, their own startups in 
communities all around the country that would, in fact, create 
even more. We have got to do better at keeping those people 
here. It is not about even opening up so much; it is keeping 
people that are already here, here, as opposed to sending that 
creativity and that entrepreneurship and those skills overseas. 
So in the long term, education; in the short term, we have to 
keep people here.
    Ms. CHU. And talking about the short-term, can you give us 
an example of how our broken immigration is hurting startups?
    Mr. MCGEARY. Well, I will give you one that is clear and 
plain as day from last week. On the first of April, and this is 
not an April Fool's joke, we opened the H1B process for high 
skilled people to apply to stay here. There were 65,000 visas 
available. There were 124,000 applications. So not only are we 
keeping half of the people where, we are sending half of them 
home on a coin flip. We do not even frankly know if we are 
keeping the right 65,000 people here. That is a sin. Those are 
124,000 very skilled people that would power immense job growth 
not just in technology, but as I mentioned, it would also 
engender job growth in the communities that surround it to a 
level of 4.3 jobs created for every high tech job. So sending 
these people back overseas is awful and something we need to 
fix immediately.
    On the very same day, in Canada, they opened their startup 
visa program. It was a very nicely designed website that shows 
you all the different pathways and the people in government 
that will help you as an entrepreneur come and start a business 
in Vancouver and Toronto or any city across Canada to start 
your business there, and they will help you get a visa and they 
will help you start. So instead of shipping people away, they 
are asking people to come in. They are not alone in that. There 
are other countries, like I said, with a welcome sign out. We 
have got to be one of those countries again. We have a history 
of that in the United States. You know, I am a descendant of 
immigrants, as so many people are in this country. We have got 
to make it once again so that the highly skilled people that 
are powering economic growth on all sectors of the economy can 
stay here in the United States and start businesses.
    Ms. CHU. I would like to turn now to the patent issue, and 
you certainly were very eloquent in talking about the effect of 
that on startups. Could you give us an example of how these 
patent assertion entities, as some call patent trolls, how they 
work on the existing companies that do productive work? And 
also, any insights in terms of solutions that Congress could 
undertake.
    Mr. MCGEARY. I will answer that by telling a quick story. 
My co-founder was on a panel. I think it was Stanford Law 
School, and this was about a year ago now. It was him, it was a 
lawyer from a big law firm with an IP practice, and it was a 
gentleman from Intellectual Ventures, which is one of the most 
notable patent assertion entities out there. And a student 
asked a question. He said, ``I am starting a business and I 
think there might be some patent issues with this. How do I 
protect myself?'' And this is an early 20s, starting his first 
business, wanting to get started. And the gentleman from 
Intellectual Ventures says, ``Well, you can come to us and you 
can license our patent portfolio.'' Because what they do is go 
up and buy patents and they do not create products with them, 
but then they license them back to companies that will in some 
cases, or they use them as leverage against companies that are 
infringing them, knowingly or not, in court battles. And so 
that will cost you about $250,000. And then they went to the 
attorney sitting next to him and they said, ``Well, actually, 
you can come to us and we will protect you from the patent 
trolls and we will represent you in court, and that will cost 
you about $250,000.'' And then they got to Josh, my co-founder, 
and he looked down the table and he said, ``You know you people 
are all crazy, right?'' No startup, and certain no venture 
capital firm--and in my day job, which I get to do very 
infrequently these days, I work for venture capital and I see 
this every day--no venture capital firm is going to make an 
investment of $250,000 in a company so that they can then send 
that money into litigation. And that, by the way, is an opening 
offer. That is just to clear off the simplest of infringements 
unknowing, what have you. It goes so much deeper than that.
    There are a lot of things that we can do, I think, on a 
legislative level and on a regulatory level that Congress can 
lean on. Most notably is working with the Patent and Trademark 
Office to reform some of their policies on software patents and 
making sure that fewer bad patents get through. There has been 
a lot of that. There is a provision in the America Invents Act, 
which allows for financial services patents to be reexamined 
and thrown out if they were not shown to be useful. I think 
extending that to software would be good as well. But also 
looking at things like fee shifting and other areas, things 
like we have seen in your colleague, Congressman DeFazio's 
SHIELD Act, which is co-sponsored by Congressman Chaffetz, that 
has been out for a while, which we have taken a good look at 
and we are broadly supportive of. I think there are a number of 
avenues for doing this, but it is--I like to say that if you 
ask for the top five issue areas concerning startups, the first 
four would be immigration, but that fifth one is definitely 
patent. It is right there and we are looking at ways to work 
with the community on the whole and all of you here in Congress 
to make that situation much better.
    Ms. CHU. Thank you.
    Mr. Roach, I was interested in your comments about a couple 
of important programs in Congress--the Mentor-Protege Program, 
as well as the SBDCs. You mentioned that your first client-
tenant in the Manufacturing and Business Incubator Facility had 
been accepted into the Mentor-Protege Program. And I was very 
interested in this because in the last Congress, Congressman 
Schilling and I introduced a bill to improve that Mentor-
Protege Program and it did pass. So could you talk about why 
this program was so important to your client and how it could 
help startups and small businesses to be more innovative?
    Mr. ROACH. Well, I will try. I am not a real expert in the 
program.
    My understanding of the way the program works is that if 
the small companies have some sort of technology that is of 
interest to the federal government, whether military or 
Homeland Security or whoever it is, they are paired up with a 
company who is already doing business with the government in 
that area. And that company sort of shepherds the small startup 
company through some of the government bureaucracy, the red 
tape of government procurement, things like that, as well as 
offering technical support in some areas to the small startup 
companies to help them really get their product developed, get 
it to market, and get it into the hands of the people within 
the government who want that technology. Sort of fast track it 
as best they can. That is kind of my understanding of the 
program. I am not an expert in the program.
    Ms. CHU. But I appreciate your insights. And Small Business 
Development Centers have provided training sessions to tenants 
of your incubator, so could you talk about these SBDC, Small 
Business Development Centers, and how they have helped in what 
you are doing as well as if there were cuts, which there could 
be cuts of $10 million due to the sequester, how that would 
affect the situation.
    Mr. ROACH. As far as our interface with the SBDC, we 
actually have one of the offices on our main college campus. It 
is one of the groups in the state of South Carolina. We work 
closely with that group all the time with our incubator 
facility. They actually help us do a good job of prescreening a 
lot of potential candidates into our center. I just had someone 
visit me this past week who wanted to come into my incubator 
and rent space, and when I discussed it with him it was obvious 
he had no idea what starting up a business was even about. He 
just had a good idea he thought and he wanted to come to me and 
rent space. I want him to go through the SBDC process because 
they will shepherd him again through the process, help him 
create a business plan, be a good sounding board whether his 
concept even is sound--all those steps that he really needs to 
do before he comes to see me at my incubator facility because I 
cannot give him that sort of grassroots guidance that the SBDC 
can. So we lean on them heavily to help us sort of prescreen or 
filter potential tenants in our facility.
    And they do a great job in our area. They work with a lot 
of people who have got an idea and they do not have a clue what 
they need to do as a first step to get started. They do not 
even know what a business plan is. Just I am going to get out 
there. I am going to make a million dollars today no matter 
what. I have got a good idea. So if I can say anything about 
the SBDC, we need to do everything we can to keep those folks 
in business. I do not know what the sequestration cuts might do 
to them. I have not got a clue. But we need to do what we can 
to keep those people doing what they do because they are a 
godsend to people in the startup phrase of contemplating a new 
business.
    Ms. CHU. Thank you for that insight. I really appreciate 
it. And I yield back.
    Chairman RICE. I now yield to Mr. Schweikert for five 
minutes.
    Mr. SCHWEIKERT. Thank you, Mr. Chairman. And I am sorry I 
missed some of the testimony. As we all know, this is the wacky 
time of year where they have you on two different committees, 
but at least we are on the same floor of this building.
    In listening to this--and this is sort of a question--and I 
was going to start with Ms. Kirk--access to capital. I have a 
personal fixation because of my participation with the Jobs Act 
last year and how do you get smaller companies an access to 
money. With what you are doing in Maryland, issue, nonissue, 
where does that rank?
    Ms. LENZER KIRK. Huge issue. Yeah, huge issue. There are a 
lot of companies--as he was talking about venture capital, they 
are going farther and farther away from pre-revenue. They want 
a less risky deal. But in the beginning, there are no 
guarantees, especially if you have to go through FDA approval 
and things. So it is a huge deal. We have companies looking 
for--and loans are harder to get, too. You know, thankfully, 
the SBA does back loans and that is helpful, but there is a lot 
of--because of the economy, there is a lot of entrepreneurs who 
maybe do not have great credit. That does not mean they are bad 
people. That does not mean that they cannot build a phenomenal 
business.
    Mr. SCHWEIKERT. From some of the smallest ventures you have 
had approach you in Maryland, how small? I mean, where do you 
see the entering point of someone with a good idea? I mean, are 
they looking for a million dollars?
    Ms. LENZER KIRK. Sometimes it is can you buy me a laptop? I 
need $1,500 to get a laptop. I need $5,000 to file a patent.
    Mr. SCHWEIKERT. Mr. Roach, for you, where do you see some 
of your starting point entrepreneurs? What are they hunting 
for?
    Mr. ROACH. Very similar. In a lot of cases the fellow I 
just mentioned who was looking to rent office space, all he 
needed really was--in his case I think he had a laptop computer 
already so he did not need that but he needed some amount of 
money to even pay his rent. He was off the hip for any rent 
money.
    Mr. SCHWEIKERT. Why does this sound like something I would 
end up investing in.
    Mr. Johnson, the same question.
    Mr. JOHNSON. It is very, very, very challenging. Venture 
capital, again, they want revenue-generating companies. And 
again, it is very difficult to get that at point when you are 
under regulatory scrutiny. And again, I think there is a great 
opportunity to improve the connection between NIH and FDA. They 
have been siloed too many times in the past.
    Mr. SCHWEIKERT. Well, but that is not where, you know, the 
first level of entrepreneurial innovation is coming from.
    Mr. McGeary, and you are also--you have a relationship with 
the venture capital world; right?
    Mr. MCGEARY. That is correct. I do retain a desk anywhere 
at a venture capital fund in San Francisco. And we make early 
stage investments in consumer and retail and enterprise 
companies.
    Mr. SCHWEIKERT. Because where I was going to come back to 
you, I know you said my first four is immigration, talent--
which having a large Intel facility in my state and these 
things I hear that all the time. But somewhere in there I was 
hoping I could get you to adjust your top five to have access 
to capital somewhere in there.
    Mr. MCGEARY. Well, the good news, Congressman, is through 
your work on the Jobs Act, that is less of a worry for us 
because especially for early stage investors--I am sorry, for 
early stage startups, there should be better access to capital.
    Mr. SCHWEIKERT. Now, there is a very interesting clause in 
that sentence, is there not? ``Should be.''
    Mr. MCGEARY. Should be. You have done your work and we 
thank you for it. And we need the Securities and Exchange 
Commission to enact the law.
    Mr. SCHWEIKERT. Say that again?
    Mr. MCGEARY. You have done your work, Congressman.
    Mr. SCHWEIKERT. No, no, no. Not that part.
    Ms. LENZER KIRK. We need the SEC to do their----
    Mr. SCHWEIKERT. No, no, no. I get enough flatter around 
here. I never knew I was so tall and good looking until I got 
elected as a member of Congress, but there is a discussion--
hey, you all know exactly what I am talking about.
    But the discussion--and I do not want to beat up on them 
because they have had a lot of interesting situations over at 
the SEC, but we all came together as a body, moved a bipartisan 
piece of legislation, and something like crowd funding, you 
know, it is the egalitarian access to put up an idea, have it 
vetted through the Internet, have us write positive and nasty 
things about it in blogs, and be able to raise up to a million 
dollars, and we cannot get it through the bureaucracy and we 
are over a year late on the rule set.
    And I guess where I was heading on this is you all build 
the silos and these organizations to help people. You are out 
there doing venture capital. You are trying to bring talent 
together, and yet it is our own bureaucracy that is killing, 
starving this next generation. Because who knows what that 
great idea is going to be? It is in someone's garage right now. 
It is probably not at the national institutes. It is probably 
in someone's garage. So please, help us to continue to fuss at 
the SEC to get these rule sets out. And with that I yield back, 
Mr. Chairman.
    Chairman RICE. Thank you, sir. I recognize Mr. Barber.
    Mr. BARBER. Well, thank you, Mr. Chairman. Thank you to the 
witnesses for coming. I am sorry I missed some of your 
testimony but I was here certainly to hear about the good work 
you are doing.
    Particularly, Ms. Kirk, I am very impressed. When you said 
how much does it cost, you said nothing. And of course, people 
are investing time and energy in providing that kind of 
collaboration and knowledge through others and I really commend 
you for what you are doing.
    I want to talk a little bit about how we move research--
university research from the university to small businesses. 
Yesterday, I met with President Ann Weaver Hart, who is the new 
president of the University of Arizona, which is one of the 
premier state universities in research, not withstanding what 
is going on at ASU, Congressman Schweikert. But one of her 
earliest decisions as president was to establish what she calls 
``Tech Launch Arizona.'' We know we have incredibly smart 
researchers, people who really know that part of our world very 
well, great scientists, but I think they would be the first to 
admit they do not know a whole lot about how to make something 
a commercial product. So this enterprise brings in expertise 
from the College of Business to help these professors and 
researchers get their product quickly to market. Arizona--
Southern Arizona in particular--has a very strong foundation of 
bioscience, high tech industries, and a burgeoning solar 
industry, so we have a base on which we can build.
    I guess my question to you and to any of the other 
witnesses who would like to respond is what can Congress do to 
help move, first of all, to find and move research to the 
market quickly. Small businesses, we all know this, are the 
engine of our economy. These innovations have the opportunity 
to provide great paying jobs that will last forever that will 
help people in many, many ways. And I would just like your 
advice on what it is we can do specifically to in this arena to 
help research universities get those products to market so that 
we can actually build those businesses.
    Mr. Johnson.
    Mr. JOHNSON. Traditionally, the University Tech Transfer 
Offices are overwhelmed. I think what needs to happen is if 
there could be assistance that could go to the research 
universities, in order to help them inventory their 
technologies that are on the shelf and help match those against 
market needs, unfortunately, so much university research is 
done sometimes in a vacuum. It is not connected to a need in 
the marketplace that pulls that technology through. Any 
assistance that could help those universities analyze markets, 
see market needs, get them in touch with real entrepreneurial 
ventures, like Ms. Kirk's, and help them understand the 
process, you do not want a researcher running a business, and 
all the data points to that. But you do need them to help 
transfer it into people's hands that can do that.
    Ms. LENZER KIRK. And I would say, so one of the programs 
that I taught is called Activate, and it is helping mid-career 
women start tech-based businesses. And it is all based on 
commercialization. We started out teaching them. As an 
entrepreneur, I had no idea there was this rich resource of 
intellectual property sitting in these universities and 
government labs, so educating the public about this opportunity 
and this thing is imperative that we need to do. We are getting 
ready to launch a program working with the NSA, Johns Hopkins, 
and APL to accelerate the commercialization of technology by 
bringing entrepreneurial thinking people in, teaming them with 
the researchers so that they can form a team. The researchers 
can keep doing what they love to do and have the entrepreneurs 
bring those commercial products to the commercial world.
    Mr. BARBER. I would really like to know more about that 
initiative when my staff is here, my legislative director. We 
would love to be able to learn a lot more about that. This is 
an adventure in our community that is in its infancy. We have 
had tech launch programs across the university, and this is the 
first attempt to really bring all of that expertise together 
with all of the struggle that it will be to take people away 
from their departments, but I think it is the future for our 
economy in many respects and many other states as well. So I 
would love to hear more about your initiative.
    Thank you. I yield back.
    Chairman RICE. Thank you, sir.
    Again, everybody, thank you so very, very much for being 
here today. You all came a long way. You all are doing your 
part to move our country forward, and I cannot express in words 
my gratitude for what you are doing. America is at a crossroads 
and cultivating our innovative strength to foster job creation 
and economic growth is necessary if we are going to compete on 
a worldwide stage. As our witnesses today demonstrate, 
America's innovative spirit is alive and well. I am encouraged 
by local communities and private entities who are finding 
creative ways to embrace the spirit and aid entrepreneurs in 
turning their ideas into viable business products.
    I ask unanimous consent that the Members have five 
legislative days to submit statements and supporting materials 
for the record. Without objection, so ordered. The hearing is 
now adjourned.
    [Whereupon, at 11:14 a.m., the Subcommittee was adjourned.]
                            A P P E N D I X


                      Committee on Small Business


        Subcommittee on Economic Growth, Tax, and Capital Access


          Hearing on ``Innovation as a Catalyst to New Jobs''


                        Testimony of Jack Roach


 Director of the Southeastern Institute of Manufacturing and Technology


    Vice President of Workforce Development for Florence-Darlington


                           Technical College


                        Florence, South Carolina


                             April 18, 2013

    The Southeastern Institute of Manufacturing and Technology 
(SiMT) is located in Florence, South Carolina. It is a wholly 
owned division of Florence-Darlington Technical College. 
Historically, innovation has created the bulk of American jobs, 
and we believe it will most certainly be the force that creates 
jobs tomorrow. We also believe that creativity and innovation 
are critical to the success of business, industry, and the 
economy. The SiMT was created to provide support services to 
existing businesses and entrepreneurs, to help them be 
successful. Both existing companies and entrepreneurs tend to 
be in need of some of the same things. These typically include 
four things; Technology, Customers, Capital, and Talent. The 
SiMT offers services in support of all these areas. Since 
opening the doors of our 177,000 square feet Advanced 
Manufacturing Center in August of 2007, we have worked on 
projects for over 200 clients, with approximately \1/4\ being 
entrepreneurs working on innovative new product ideas.

    In support of the first need, Technology, the SiMT offers 
services in Computer Aided Design, Rapid Prototyping/Additive 
Manufacturing, and Reverse Engineering. Additionally, our 3D-
Virtual Reality Center can develop content that allows clients 
to do both Product and Process Visualization & Simulation, and 
Virtual Prototyping. We have provided these services to clients 
that range from Fortune 500 companies, to the entrepreneur-
inventor who comes to us with a sketch on a napkin. The person 
that comes to us with a napkin sketch, and many small 
manufacturers, needs a resource like SiMT to get their new 
product innovations to market. We become a part of their 
product development team.

    To help our clients with the second need, Customers for the 
new product ideas they have, we create many sales and marketing 
visual presentations for our clients. These could be a product 
simulation shown on a laptop computer, or an internet based 
product demonstration. We use many tools including Virtual and 
Augmented Reality software to create compelling visualizations 
of new product concepts. Entrepreneurs, particularly, use these 
visual applications to sell their product idea to both 
potential customers, and investors. Several of our client 
entrepreneurs have been able to generate enough interest in 
their product idea to secure funding for their business 
startup. In some cases, they were even able to procure purchase 
orders for their product from established retail companies.

    The third need, Capital, is always tough to come by for the 
innovative entrepreneur. The SiMT is not in the Venture Capital 
business. We cannot offer seed money to a client to get his 
business going. However, what we can do is offer them some ways 
to leverage the capital they do have. In September of 2012 we 
finished construction of our new 28,000 square feet 
Manufacturing and Business Incubator facility. This facility 
provides startup companies both office and light manufacturing 
space, which is reasonably priced. It has the potential to 
house up to 26 different startup companies. It provides the 
amenities found in most Business Incubators; internet access, 
telephone service, conference and meeting rooms, shared copiers 
and printers, and a shared commons area where tenants can meet 
and network with each other. Additionally, in partnership with 
our local Small Business Development Center, we offer training 
sessions for tenants on subject areas related to running a 
small business.

    Additionally, this new Manufacturing and Business Incubator 
facility is adjacent to our existing Advanced Manufacturing 
Center, which houses our large machining center. The machining 
center has state-of-the-art equipment such as CNC machining 
centers, water-jet cutting, and an inspection metrology lab. An 
Incubator tenant that may have a limited need for this type of 
equipment may procure time on our equipment instead of buying 
their own. Access to our capital machinery can help get their 
business off the ground, while preserving their precious 
operating capital.

    We currently have our first client tenant in the 
Manufacturing and Business Incubator facility. The company, 
MatrixXcom, was recently accepted into the Mentor-Protege 
Program by Homeland Security. We have two more companies that 
we are currently working with to finish their product 
development, before they move into the Incubator facility.

    The fourth need, Talent, is almost universally in short 
supply today. Companies across the country are saying that they 
cannot find enough skilled workers to meet their needs. Our 
parent organization, Florence-Darlington Technical College, has 
its roots in training skilled workers for local industry. The 
SiMT carries on that tradition; we provide customized, 
workforce development, training solutions for client companies. 
When a startup company needs to train a new workforce, or an 
existing company desires to raise the skill level of its 
current workforce to compete in a broader market, they can get 
that specialized training at the SiMT.

    In conclusion, as communities look for ways to create jobs 
and drive economic growth, many are finding innovation to be a 
key element, and startup companies to be the real job creators. 
The Southeastern Institute of Manufacturing and Technology is 
an initiative to support the innovators and entrepreneurs in 
its home state of South Carolina, as well as the southeastern 
region of the United States.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Good morning, Chairman Rice, Ranking Member Chu, and 
members of the Subcommittee. I am honored to have been invited 
to speak with you about Innovation as a Catalyst for New Jobs, 
a topic very near and dear to my heart. Not only am I a 
``recovering entrepreneur,'' but in my current roles as Co-
Chair of Startup Maryland and Executive Director of the 
Maryland Center for Entrepreneurship in Columbia, Maryland, I 
am fortunate to encounter innovation every day. People come to 
us with incredible ideas and inventions looking for resources 
to build them into a viable, sustainable business.

    Raymond Cooper had such an idea but didn't know where to go 
for support. He had filed a patent for his invention, an 
innovative wind turbine that is smaller and more efficient than 
current designs. From there, however, he wasn't sure which step 
to tackle next or where to find the resources he needed. Not 
until, that is, he stepped on the Startup Maryland bus. On the 
advice of his mother who saw coverage of the bus on TV, the 39 
year old came to Bethesda Maryland on the second-to-last stop 
of our 2\1/2\ week trip across the state so he could pitch his 
business idea. Little did he know that an unplanned visit to 
the big yellow bus draped in the Maryland State flag would be 
the catalyst that would launch his journey from a dreamer to a 
doer.

    Not an easy journey

    Contrary to what many people may believe after seeing 
phenomenal success of companies such as Google and Facebook, 
this road between an idea and a viable business is highly 
complex and full of risk. I know because not only have I been 
down that road myself more than once, but I've also assisted 
hundreds of entrepreneurs navigate the path from concept to 
viable business. Unfortunately, not all of them make it.

    What I have found is that while there are many different 
paths to building a successful business and a myriad of 
unanticipated opportunities to pivot along the way, we as a 
community can and should provide assistance throughout this 
process. Communities, by way of grassroots efforts and 
strategic public/private partnerships, can increase the 
probability of success and drive greater outcomes in revenue 
growth and job creation by encouraging connections, promoting 
and celebrating a culture of entrepreneurship, and facilitating 
access to needed capital. This is exactly what we at Startup 
Maryland were told when we asked entrepreneurs across the state 
what they needed and what we've been focused on since we 
launched in March 2012.

    Startup Maryland - Pitch Across Maryland

    Startup Maryland is a regional initiative of the Startup 
America Partnership, and it is a great example of incredible 
things being accomplished through grassroots efforts. Organized 
BY entrepreneurs, FOR entrepreneurs we are very-much a startup 
ourselves: we are all putting in a great deal of time without 
getting paid as we have no money and no resources. However, 
that's never stopped an entrepreneur and isn't stopping us. Our 
focus for 2013, as shared at a White House briefing in 
February, is to leverage the unique assets of Maryland to 
provide entrepreneurial companies with the connections, 
coaching and capital they need to start and grow while 
celebrating the entrepreneurial journey. This will provide them 
with an UNFAIR ADVANTAGE, ultimately increasing the rate and 
scale of successes.

    In 2012 we conceived of and executed a bus trip across the 
state called Pitch Across Maryland that connected entrepreneurs 
with the resources they need to be successful. The tour--which 
made 25 stops through all corners of the state--was created as 
a way to connect entrepreneurs with each other as well as 
state, regional, and local resources while also shining a 
spotlight on entrepreneurship through celebration and 
awareness.

    Pulling off something of this magnitude with a scant two 
months of planning required collaboration with key sponsors at 
each tour stop. A combination of universities, community 
colleges, incubators, and economic development agencies stepped 
up and customized the message and approach for the bus's visit 
to meet their community's needs and pulled in their local 
businesses to support and celebrate. Working through both our 
network and those of our state-based partners, we were able to 
exceed expectations in number of entrepreneurs reached and 
still hear stories of valuable connections that were made as a 
result of the tour.

    The most impactful outcome for many has been the 
connections that developed between the entrepreneurs 
themselves. Grateful to have an opportunity to share their 
passion for their ideas and businesses, the entrepreneurs we 
met along the way used words like inspired, exhilarated, 
motivated, and we can't leave out--relieved--to describe how 
they felt after their experience on the bus. They were exited 
to be connected to each other and to something bigger--the 
community of entrepreneurs assembling as Startup Maryland as 
well as their peers across the country through the Startup 
America Partnership. A specific example of a fruitful 
connection resulting from the tour was the partnership between 
Startup Maryland and local startup CoFounderLab. CoFounderLab 
created a platform that is the e-Harmony of startups, helping 
entrepreneurs to build teams. Startup Maryland is now providing 
this service to the community.

    Maryland Center for Entrepreneurship

    Bringing together a community of entrepreneurs was also 
exactly what I was hired to do when the Howard County Economic 
Development Authority, under the leadership of County Executive 
Ken Ulman, formed the Maryland Center for Entrepreneurship, or 
MCE. At the MCE, we are leveraging our resources and programs, 
such as a technology incubator called the Innovation Catalyst 
(iCat), a Speaker Series and an innovative program called the 
Race for Innovation with the goal of ensuring members of the 
ecosystem--entrepreneurs, innovators, investors, mentors and 
service providers--are not only getting connected but are 
engaging with each other in meaningful ways long before they 
need to pursue formally working together. For example, we've 
had mentors end up investing in or taking a position with our 
companies, strategic partnerships being formed, and companies 
finding new clients via the relationships they've built through 
the community.

    Creating a Culture of Entrepreneurship

    Another key need in fostering innovation and 
entrepreneurship is promoting a culture that supports it. 
Stoking the entrepreneurial mindset runs through everything we 
do at both Startup Maryland and the MCE but our environment 
doesn't make it easy. Maryland has over 15 academic 
institutions led by world-class innovators and 
commercialization leaders Johns Hopkins and University of 
Maryland. We have the highest concentration of employed 
doctoral scientists and engineers and opportunities for high-
quality jobs at the approximately 20 government agencies and 
over 50 federal labs \1\ in our state. Unfortunately, these 
assets can provide significant career and earning opportunities 
that mark a stark contrast to the realities of lean earning 
while starting up a business. Additionally, some places consist 
of an environment which encourages a mindset that can counter 
and even deter people from considering entrepreneurship as a 
career option. Continuing to promote not only entrepreneurial 
successes and failures alike will make entrepreneurial role 
models and realities more readily available and accessible. 
This is especially crucial among under-represented groups and 
by offering programs to specific affinity groups such the 
ACTiVATE entrepreneurship program for mid-career women and the 
veteran's entrepreneurship program, both supported financially 
in part by private company sponsorships, the MCE is actively 
working to spread the culture of entrepreneurship beyond 
traditional boundaries.
---------------------------------------------------------------------------
    \1\ Federal Labs Consortium, http://www.federallabs.org/labs/
results/?State=141

---------------------------------------------------------------------------
    Funding Innovation

    A business has no chance of being successful if it can't 
bring in money from either customer-based revenues or outside 
capital (dilutive and/or non-dilutive). There are many examples 
of state and local funding made available to innovators and 
entrepreneurs, but more can be done. For example, many rapidly 
developing innovations rely on and could benefit from the 
federal Small Business Innovation and Research (SBIR) grants 
but the time and complexity to apply for and receive these 
monies is often untenable for a startup who needs to move fast 
to take advantage of market conditions.

    Currently, there is also a large and growing gap between 
idea conception and sustainable sales that every company must 
go through and many don't survive without funding. Called ``The 
Valley of Death'' (one of many for a growing company), it is 
imperative that we help companies bridge that gap with more 
seed-level and pre-revenue funding including access to 
potential customers, large and small. One of the ways Maryland 
is helping companies to cross that chasm is through the $84M 
InvestMaryland fund that was created by offering insurance 
companies tax credit. This fund is being deployed across the 
state to be used to fill the funding gap, but is still too new 
to quantify the results.

    Call to Action - What Can You do?

    The work of this Subcommittee is important. Having me and 
my colleagues here today, shows you care about entrepreneurship 
and innovation and hopefully appreciate its importance in 
driving our economy. You are allowing us an opportunity to give 
voice to all of those entrepreneurs who need a chance, like 
Vasoptic Medical who is putting the ability to detect the onset 
of diabetes-induced blindness in the hands of primary care 
physicians; Unbound Concepts, who is helping level the literacy 
playing field by getting tools into the hands of educators; and 
Raymond Cooper, whose innovation could provide a huge leap 
forward in the adoption of wind-based energy solutions.

    It is crucial that we continue to support these nascent 
companies and I respectfully offer the following 
recommendations:

          1. Provide outlets to spread the word about 
        entrepreneurial successes and failures, creating more 
        visibility for role models and reinforcing the value of 
        an entrepreneurial mindset.

          2. Simplify the federal SBIR process to get much-
        needed funding into the hands of the start-ups more 
        quickly. This could be an ideal project for members of 
        the Presidential Innovation Fellowship.

          3. Encourage and expand seed and early-stage 
        investments that may be more risky than what a bank 
        would take on, even with backing from the Small 
        Business Administration (SBA). Example programs could 
        consider tax credits for seed-stage investors 
        (including the entrepreneurs themselves).

          4. Facilitate key decision makers in the public and 
        private sector sharing their needs with innovative 
        companies. This outreach could also create a forum 
        whereby innovators share their concepts with CEO's and 
        Directors as they explore various types of partnerships 
        that could help drive increased revenue.

          5. Create a start-up friendly track to permanent 
        residency for foreign nationals who obtain advanced 
        degrees in the United States, particularly those start-
        ups that have independent backing from, for example, 
        the SBIR program, an SBA loan, adequate angel or VC 
        investment.

    Thank you again for the opportunity to share my experiences 
and thoughts around innovation as a job creator and I look 
forward to answering your questions.
        STEVE JOHNSON TESTIMONY BEFORE THE U.S. HOUSE COMMITTEE


          ON SMALL BUSINESS, SUBCOMMITTEE ON ECONOMIC GROWTH,


                 TAX AND CAPITAL ACCESS: APRIL 18, 2013


    Chairman Rice, Members of the Committee, ladies and 
gentlemen:

    My name is Steve Johnson and I am President and CEO of 
CreatiVasc Medical in Greenville. Our company began full-time 
operations in 2007 and we are focused on developing medical 
device innovations for one of the most expensive chronic 
diseases: End Stage Renal Disease, or kidney failure, which now 
represents over a $47 billion burden on our healthcare system. 
These patients must rely on dialysis to live but this costs 
over $86,000 per patient per year. It is also a field that has 
had little innovation in over 30 years.

    CreatiVasc developed and now has in clinical trials at 
Johns Hopkins an innovative device called the Hemoaccess Valve 
System which has the potential to significantly reduce the 
complications and cost of dialysis.

    Last year, CreatiVasc was selected by the FDA to be one of 
the three inaugural companies in the agency's new Innovation 
Pathway program which is designed to accelerate the clinical 
testing and approval of promising new technologies without 
compromising patient safety.

    Our company is in South Carolina, which has been 
traditionally viewed as a ``fly-over state'' when it came to 
innovation: you flew over us to get somewhere else like 
Research Triangle, Palo Alto or Boston. Now, we are proud that 
South Carolina is quickly becoming a ``destination site'' for 
innovation. Over the last 6 years, over 280 technology-based 
companies started up in our state.

    What has caused this dramatic change?

    One major stimulus has been a program created by South 
Carolina Research Authority (or ``SCRA'') called ``SCLaunch''--
and while the state of South Carolina fostered the creation of 
this program, not a penny of state funding has supported it. 
This SCRA program provides tax incentives to encourage private 
donations which are used to support early-stage innovation in 
our state. This SCRA early-stage funding is provided only after 
extensive and rigorous scrutiny of not only the technology but 
its management team, its competition and patents as well as its 
path to market.

    Early-stage SCRA funds have triggered over $220 million in 
follow-on capital from angel and venture capital investors, and 
Forbes magazine named it as one of the top five economic 
programs in the nation.

    The SCRA program recognizes that capital is the fuel that 
drives the economic engine. Capital transforms ``technology'' 
into ``products.'' This then translates into manufacturing 
which generates jobs. But something has to prime that pump--and 
most times, traditional soucres of capital such as banks and 
now even venture capital funds, want to avoid the risk of 
early-stage technology start-ups. Programs like SCLaunch fill 
that vacuum. Without this program, most of these innovation 
startups, including our own company, would not exist.

    As a native South Carolinian, I fully recognize that our 
state has rarely been at the top of any ranking. We usually 
come in 48th or 49th. But that is rapidly changing when it 
comes to encouraging, supporting and creating new companies 
with breakthrough innovations.

    Innovation is the key to economic growth because it is how 
we can compete in a global marketplace. It is also how we 
create good, high-paying jobs here at home. But for innovation 
to succeed, there must be adequate capital to mature these 
inventions from the lab to market. I can tell you from personal 
experience that the greatest challenge is to find long-term 
funding. Even though CreatiVasc was fortunate enough to be 
selected by FDA to be one of the top three innovations for one 
of the most expensive chronic diseases, it is amazingly 
difficult to find capital, especially for medical devices which 
take years to develop, test and get to market.

    This is the opportunity for the future: to provide 
attractive incentives that secure private investment to support 
innovative but maturing technologies.

    Thank you for this opportunity to speak about something 
that I feel very passionate about--and I look forward to your 
questions.

    April 18, 2013

    Contact information:

    Steve Johnson, President & CEO

    CreatiVasc Medical Incorporated

    330 East Coffee Street

    Greenville, South Carolina 29601

    864-242-4700

    www.CreatiVasc.com


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    
                                 
