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



 
                          THE STARTUP MOVEMENT

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

                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                           NOVEMBER 20, 2013

                               __________

                               [GRAPHIC] [TIFF OMITTED] TONGRESS.#13
                               

            Small Business Committee Document Number 113-043
              Available via the GPO Website: www.fdsys.gov



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                   HOUSE COMMITTEE ON SMALL BUSINESS

                     SAM GRAVES, Missouri, Chairman
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                       BLAINE LUETKEMER, Missouri
                     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. Sam Graves..................................................     1
Hon. Nydia Velazquez.............................................     2

                               WITNESSES

Adam Arredondo, Co-Leader, Kansas City Startup Village, Kansas 
  City, KS.......................................................     3
Allison Lami Sawyer, CEO and Founder, Rebellion Photonics, 
  Houston, TX....................................................     5
Jeff Reid, Founding Director of the Georgetown Entrepreneurship 
  Initiative, McDonough School of Business, Georgetown 
  University, Washington, DC.....................................     6
Anton Gelman, CEO, Cont3nt, Dulles, VA...........................     8

                                APPENDIX

Prepared Statements:
    Adam Arredondo, Co-Leader, Kansas City Startup Village, 
      Kansas City, KS............................................    29
    Allison Lami Sawyer, CEO and Founder, Rebellion Photonics, 
      Houston, TX................................................    36
    Jeff Reid, Founding Director of the Georgetown 
      Entrepreneurship Initiative, McDonough School of Business, 
      Georgetown University, Washington, DC......................    40
    Anton Gelman, CEO, Cont3nt, Dulles, VA.......................    42
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    None.


                          THE STARTUP MOVEMENT

                              ----------                              


                      WEDNESDAY, NOVEMBER 20, 2013

                  House of Representatives,
               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 1:00 p.m., in Room 
2360, Rayburn House Office Building. Hon. Sam Graves [chairman 
of the Committee] presiding.
    Present: Representatives Graves, Luetkemeyer, Hanna, 
Schweikert, Collins, Velazquez, Clarke, Schrader, Payne and 
Barber.
    Chairman GRAVES. Good morning, everybody. I want to thank 
all of our witnesses for being here today.
    Today's hearing, we will examine a growing trend across 
America, which is the rise of startups and what that means for 
the United States. The term ``startup'' is often synonymous 
with high growth and innovation. While certain areas such as 
Austin or Boston, New York, and the Silicon Valley 
traditionally have been hubs for startup firms, in the past few 
years we are seeing the startup trend expand to much less 
obvious communities, such as Kansas City, which is obviously my 
backyard.
    On this Committee, we frequently highlight the benefits of 
small businesses to the American economy, and we know that 
small firms create the bulk of net new jobs in this country, 
but interestingly enough, research has shown that, in fact, it 
is a particular subset of small firms which are startups that 
are actually leading the way in terms of job creation. Further, 
a report by the Pacific Research Institute estimates that in a 
given year each net job created by startup firms increases a 
state's gross product by almost $1.2 million, shedding light on 
the significant benefits growing startups can have on our local 
economy.
    The terms startup and small businesses are sometimes used 
interchangeably. However, startups frequently have unique 
characteristics that distinguish them from the vast majority of 
traditional small businesses. Given this, the Committee is 
going to examine how startups operate and whether the 
differences between startups and small firms are, in fact, 
substantial enough to necessitate different policies.
    Today, we are fortunate enough to have a panel of witnesses 
from all across the country, including areas traditionally not 
viewed as startup hotbeds where the trend is rapidly expanding. 
I want to thank all of our witnesses again for taking the time 
away from your jobs and making the trip here to Washington for 
this very important hearing, and I very much look forward to 
your testimony.
    Now, I will turn to Ranking Member Velazquez.
    Ms. VELAZQUEZ. Thank you, Chairman Graves. Please bear with 
me. I am recovering from a bad cold.
    When we think of a startup business, the early days of 
Apple or Google usually come to mind. The stories are familiar. 
Hard-working entrepreneurs who took extraordinary risks to beat 
the odds. Like these companies, most successful startups have 
three things in common--a new product or service, extreme risk-
taking due to uncertainty of the marketplace, and leadership 
that can navigate the complexities of today's economy. Getting 
these three factors to align is the hardest part. On average, 
only one in three startups makes it to the tenth year, but when 
they do, high growth firms create new markets, increased 
competition, and attract other enterprises to provide support. 
As a result, startups have a disproportionate positive impact 
on job creation. According to the Census Bureau, they create 
jobs at nearly twice the rate of the nation's annual net job 
growth rate. By starting new endeavors and developing cutting 
edge products, entire industries, as well as the overall 
economy, are renewed and energized.
    During today's hearing, we will have an opportunity to 
examine the unique role that entrepreneurs and startups have 
played in the current economic recovery. One of the biggest 
obstacles facing startups is the lack of financing. According 
to the most recent Wells Fargo Gallup Small Business Index, 30 
percent of small business owners still feel credit is difficult 
to obtain. Capital is the life blood of small businesses, but 
particularly for startups and high growth businesses that do 
not yet have positive cash flow. Traditional bank lending via 
loans is ill-suited to the high-risk nature of startups. 
Fortunately, there are still a multitude of funding sources for 
new firms to choose from, including the SBA's SBIC program, 
angel investors, private equity, venture capital, and 
crowdfunding.
    Another area critical to the success of a business is 
technical assistance. SBA programs assist entrepreneurs by 
providing tailored education on everything from marketing to 
procurement to international trade. For a startup, this 
expertise can often make the difference between failure and 
long-term growth. These initiatives, like the Small Business 
Development Centers, have proven to be effective in delivering 
counseling and assistance to millions of entrepreneurs across 
the country. While the SBDC network is the SBA's largest 
entrepreneurial assistance program, it nevertheless faces 
challenges. With lower budgets and increased levels of demand, 
it is between a rock and a hard place. The burden of further 
budget cuts should not be placed on the backs of job creators 
who rely on these resources to succeed. Bringing new products 
to unproven markets is inherently risky. As a result, startups 
face a number of unique challenges--obtaining financing, 
managing operational processes, and addressing human capital 
issues.
    Today we will hear from experts on the cutting edge of the 
startup movement who can provide the best ways to support the 
innovative spirit of America.
    In advance of the testimony, I want to thank all the 
witnesses who traveled here today for both your participation 
and insight into this important topic. Again, thank you, and I 
yield back.
    Chairman GRAVES. Thank you very much.
    We will introduce the witnesses. We are going to have a 
series of votes unfortunately, probably in the neighborhood of 
1:15 to 1:30, somewhere right in there, which we will recess 
and then we will come back. But I apologize for that. The vote 
schedule is a little bit different all the time, unfortunately.
    Our first witness is Adam Arredondo. Mr. Arredondo is the 
co-founder of the Kansas City Startup Village. The Kansas City 
Startup Village is led by local entrepreneurs to strengthen and 
invigorate growth throughout the Kansas City Startup community. 
In addition to his role at the Kansas City Startup Village, Mr. 
Arredondo is also the CEO and founder of Hoopla.io, which was 
recognized by Turnstone as one of the ``15 Best Young Companies 
to Work For.'' Thanks for being here, and I look forward to 
your testimony.

 STATEMENTS OF ADAM ARREDONDO, CO-LEADER, KANSAS CITY STARTUP 
   VILLAGE; ALLISON LAMI SAWYER, CEO AND FOUNDER, REBELLION 
   PHOTONICS; JEFF REID, FOUNDING DIRECTOR OF THE GEORGETOWN 
  ENTREPRENEURSHIP INITIATIVE, MCDONOUGH SCHOOL OF BUSINESS, 
       GEORGETOWN UNIVERSITY; ANTON GELMAN, CEO, CONT3NT

                  STATEMENT OF ADAM ARREDONDO

    Mr. ARREDONDO. Thank you very much. I think it is very 
fitting that this week is Global Entrepreneurship Week. So 
Happy Global Entrepreneurship Week to everybody.
    But, yeah, outside of running my two companies--I have two 
Internet startups--I am also one of the co-leaders at Kansas 
City Startup Village. Kansas City Startup Village is an 
entrepreneur web effort that ended up starting September of 
last year with five startups and three properties within half a 
block of each other in the first neighborhood in the world to 
get Google Fiber. Not planned. There is no blueprint for what 
we are doing. But fast forward 14 months, and there is now 13 
properties, 25 startups. We have had people visit and 
investigate what is happening there from over 45 different 
countries. We have also had people move there from 12 different 
states, and we have created over 70 jobs. All of that with zero 
outside funding.
    And so there are a few takeaways that are big. One is that 
it is entrepreneur-led. One of the things that is critical to 
really building sustainable startup communities is that 
entrepreneurs are at the forefront of it. Government 
corporations and universities are absolutely critical to that 
but their role is to support the entrepreneurial-led efforts. 
And me being here today is a perfect example of that. I could 
not afford the travel as an entrepreneur and my company could 
not either, so I reached out to some of the supporters in the 
community, and actually, the Wyandotte County Economic 
Development Council helped me get here so we could tell our 
story. And that is a small example, but an example of how all 
these pieces need to work together.
    Another key part of what we have built in the village is 
what we call startup density. And we talk about serendipitous 
collisions all the time. So many good ideas and collaborations 
come from entrepreneurs, like-minded, innovative people being 
close together in physical proximity leads to more of those 
collisions, and those have played a huge part of the success of 
the village.
    And one other thing about the village is that although 
Google Fiber is something that is unique to Kansas City--it is 
the only city in the world with it--it is the community that we 
have built that keeps people there. A good example of that is a 
22-year-old entrepreneur that moved from Boston actually to 
Kansas City, he came because he wanted Google Fiber and there 
was a program there that offered him three months of free rent. 
And he was coming to mooch a little Google Fiber and leave, but 
he decided to stay because he said it is such an awesome 
community and he wanted to be a part of it.
    So like I said, we have had a lot of people come from 
around the world to see what we are doing, and we get asked the 
question all the time about small businesses versus startups. 
And one of the key things, and I am sure you have heard it, is 
a startup does not desire and does not look to become a small 
business. They want to become a large scaling company, an 
innovative company, a game changing company. And so that is one 
of the differences. And with that come different needs. And so 
one of the big needs as everyone knows is financing, and all of 
the traditional loans and SBA loans are all asset-based. As of 
yet, patents, mobile apps, algorithms cannot be converted for a 
loan. So honestly, I do not even spend any time trying to get 
any of those because I do not qualify.
    But I have been lucky to find a couple of grants through 
local organizations that we have been able to take advantage 
of. One was an H-1B grant through Workforce Partnership in the 
state of Kansas. We have a relationship with them, and it is 
for IT on-the-job training. And we have been able to use that 
to hire six employees. The Village has used it to hire 23. 
Another one is an i6 grant that UMKC got. And through a program 
called Digital Sandbox, they have been able to fund over 20 
different startups. Again, the key takeaway here is that I 
engage with the local organizations focused on 
entrepreneurships and they have relationships with us and know 
what we need. All of these different communities are different 
around the country. And so what I would recommend to you guys 
is to focus how do you get more resources into the hands of the 
organizations that interact with us on a daily basis so they 
can find the most appropriate ways to allocate and distribute 
that funding.
    So thank you very much for listening, and I look forward to 
questions.
    Chairman GRAVES. Thank you very much.
    Our next witness is Allison Lami Sawyer. Ms. Lami Sawyer is 
the founder and CEO of Rebellion Photonics located in Houston, 
Texas. Rebellion Photonics looks to promote safety by building 
cameras that can spot poisonous and explosive gas leaks on oil 
rigs and refineries. And in 2012, Mrs. Sawyer was named by INC 
Magazine as one of the 30 Under 30 and most recently, just a 
couple of weeks ago, as a matter of fact, Rebellion Photonics 
won the first annual Wall Street Journal ``Startup of the 
Year'' competition.
    So welcome to the Committee. Thank you for being here.

                STATEMENT OF ALLISON LAMI SAWYER

    Mrs. SAWYER. Thank you for having me.
    So again, I am Allison Lami Sawyer, CEO and cofounder of 
Rebellion Photonics. We are an optics startup spun out of Rice 
University in Houston, Texas. And what we do is solve some of 
the world's largest problems using optics. And how I would 
differentiate startups versus small businesses and really 
compared to all other businesses is startups are truly the 
powerhouses for engineering innovation. Once upon a time, most 
innovation happened in the labs of IBM, GE, the Halliburtons. 
That is not how it is anymore. Now, most large companies have 
moved their R&D budget and made it an M&A budget, mergers and 
acquisitions, especially in hardware. So your heavy industry or 
oil and gas safety, like us. So hardware startups like us or 
heavy tech like us, we are truly the ones pushing forward 
engineering and innovation in some of these really difficult 
problems the world faces.
    So Rebellion Photonics, our main product right now is for 
oil and gas safety. It is called the Gas Cloud Imaging camera. 
And what we are trying to solve is imaging explosive gas leaks 
on oil leaks, like Macondo, or refineries before they explode. 
Current technology is abysmal. It is point detectors that alarm 
up to 10 times a day. That is why they are ignored. For 
example, Macondo, they muted the alarms for two days. To be 
fair, if you got 10 alarms a day you would mute it, too.
    So seven guys and myself down in Houston, this is the 
problem we are facing and that we are trying to solve. And we 
were successful. So we started launching our first full scale 
installations January of this year. BP was our first customer. 
We have also signed on Chevron, and we are looking to get all 
Big 5 oil companies. For seven people, Houston, Texas, tiny, 
barely cash flow positive. We are doing a $10 million raise 
right now hoping to close soon, but this just gives you an idea 
that it is really not the big companies of the world that are 
changing these massive problems. It is the small startups all 
across the country. So that is how I would define startup.
    Two things I would like to add are one way you could help 
us is with IP, and then there is Bill 3309 in your Judiciary 
Committee today, actually. Great bill, but there is a Section 
18 in the bill that really waters it down. So I am always 
afraid larger companies or patent trolls are going to sue me, 
even if they know they will lose, and they know they will lose 
because our IP is very strong. But they will sue me just to put 
me out of business so they can get a cheaper acquisition price. 
It happens all the time. So that is where I am coming from. It 
literally keeps me up at night. Even though we have worked so 
hard, it could all be taken away from me because of a lousy 
trick like that.
    And then a second thing is procurement. So we are focused 
on oil and gas. We do do a little with defense, mainly Air 
Force. So our cameras could also be used in drones. We could 
make an amazing drone camera. So our cameras do not just see 
colors; they actually see chemicals. Basically, they know what 
they are looking at. Bad guy gets into a 1957 Chevy. I can 
track him forever. So fewer mistakes with the drone attacks, et 
cetera. So this could really affect world affairs on a minor 
level, but we are not going to be doing that product, even 
though it could be such a special product because defense 
procurement is so complex and the infrastructure that I would 
require to do that product is not worth it.
    So when you are thinking of definitions and why you are 
changing a definition, especially if you are going to overhaul 
procurement or do anything with procurement, keep in mind we 
have so much to offer, especially defense, and we could do it 
faster, better, cheaper, but right now with procurement I 
cannot give you that product. And I want to. So it is something 
to keep in mind.
    Anyway, thank you for your time.
    Ms. VELAZQUEZ. Yes. It is my great pleasure to introduce 
Jeff Reid. He is an adjunct professor of Entrepreneurship at 
Georgetown University. Mr. Reid is an expert in the arenas of 
entrepreneurship, venture capital, startups, technology, and 
economic development. In 2009, Mr. Reid launched the Georgetown 
Entrepreneurship Initiative to capitalize on entrepreneurial 
thinking and launch new companies. Mr. Reid previously held 
leadership roles at the University of North Carolina at Chapel 
Hill, where he grew the Entrepreneurship Initiative to a number 
one national ranking and was chosen by his peers as one of the 
top directors in the United States. Mr. Reid earned a Bachelor 
of Science in Business Administration from Appalachian State 
University and an MBA from the University of North Carolina at 
Chapel Hill. Welcome.

                     STATEMENT OF JEFF REID

    Mr. REID. Thank you very much for inviting me here. I am 
excited to be here because I am passionate about helping 
entrepreneurs. It is what I get up in the morning just raring 
to go every day, and I am also to say Happy Global 
Entrepreneurship Week. This week around the world there are 
tens of thousands of events in over 140 countries to celebrate 
entrepreneurship. So it is great to be here, particularly 
during this week.
    I do feel like I have the best job in the world. I get to 
work with students at Georgetown University, these young people 
who want to change the world through entrepreneurial pursuits. 
And I also get to work with experienced entrepreneurs who have 
already been there and done that and who want to help out our 
students.
    The first main point I would like to make today is that we 
all are and can be entrepreneurs. I had the great pleasure of 
hosting Professor Muhammad Yunnus, Nobel Prize winner, at 
Georgetown University, and one of the things he is famous for 
saying is that all humans are entrepreneurs. The point he is 
making is that going back in human history, if you were not 
entrepreneurial, you just did not survive. It is only in recent 
centuries that society has grown in ways that suppressed that 
entrepreneurial nature that is within all of us.
    Now, the wonderful thing is in recent years the world is 
changing in ways that make it so much easier for that 
entrepreneurial spirit to come out, and so we are seeing that 
across the United States and around the world, more and more 
startups, more and more entrepreneurs are doing the things that 
they are great at doing. And that is awesome because 
entrepreneurs and the startups they crate are among the most 
powerful drivers of positive change in our society. 
Entrepreneurs solve problems, they create jobs, they provide 
value for their customers, they create wealth, and they lift up 
the communities around them. And I know that is why we are here 
to celebrate and learn more about entrepreneurs.
    But as has already been mentioned, people have a wrong 
impression of entrepreneurs. You know, when you ask, and I do 
this on the first day of my class, I say what do you think of 
when you think of entrepreneurs? And the common answer is just 
what you would expect. It is Bill Gates, Steve Jobs, it is 
these tech businesses, these folks that have become 
billionaires. But entrepreneurs are not just the techies in 
Silicon Valley. You have seen some good examples here already 
today, and there are so many more all around our country. They 
come in all shapes and sizes. They are in every one of your 
districts. And we need more of them.
    So being an entrepreneur is just as much about a mindset, 
in my opinion, as it is a career choice. You can work in a 
startup that somebody else founded and be entrepreneurial. You 
can work in a large company and be entrepreneurial. You can 
work in a nonprofit, maybe even for the government, and be 
entrepreneurial. But what does that mean? If you are not the 
founder of a startup, how do you be entrepreneurial? What it 
means is embracing change, understanding risk, living with 
ambiguity, evaluating and seizing opportunities, solving 
problems, finding creative solutions, and being relentless in 
the pursuit of your goals. Those are all qualities that anyone 
can bring to their life and career. And it turns out those are 
skills and mindsets that can be taught.
    And that leads me to my next major point, is that 
entrepreneurship can be taught. Education matters. It is not 
true that every entrepreneur just wakes up in the morning and 
is struck by lightning, has a brilliant idea, and the next 
thing you know they become a millionaire and raise money and 
all that is good. It turns out there are so many things that 
you can learn in a university or other educational environment 
about how to be a great entrepreneur. And colleges and 
universities like Georgetown and so many others across this 
great country have been doing this for a long time and are 
getting better and better at it. And it is of critical 
importance because our education system has traditionally 
taught people how to be part of a large organization. And that 
is one of the things that we should really look at is are we 
teaching people how to be entrepreneurial or are we teaching 
them how to be just a small cog in a big hierarchical machine?
    So what can Congress do to help? First and foremost, help 
us celebrate entrepreneurships. Let us celebrate startups. Let 
us recognize as we have started to do here today, that startups 
are not the same as small businesses. There are huge 
differences. And the ways they just consider themselves are so 
different. We would love to invite you to elevate the stories 
about entrepreneurs in your own districts, attend a startup 
weekend, just really get to know these folks. Immerse yourself 
in the process. Support the educational efforts in your 
communities around entrepreneurship. If you do not know who in 
your community is leading entrepreneurial education efforts, I 
will help you find them. And be relentless in finding the 
solutions to the problems you face. Be entrepreneurial 
yourselves. It is an amazing thing that we have this 
entrepreneurial revolution in a country that is really known as 
one of the best--as the best in the world for entrepreneurship. 
Let us keep growing that. And thank you very much.
    Chairman GRAVES. With that we are going to have to recess 
for a short time. I apologize, Mr. Gelman. We are going to have 
to recess for a series of votes. It is going to be a little bit 
longer than normal but we will immediately reconvene. And my 
staff will be here to answer any questions if you are curious 
about when we will be back or where the bathrooms are and that 
sort of thing.
    But with that, we will recess until after this vote series.
    [Recess]
    Mr. LUETKEMEYER. Let us gavel this back in order. I 
apologize for the delay, Mr. Gelman.
    Our final witness, Mr. Gelman, is the CEO of Cont3nt 
located in Dulles, Virginia. Cont3nt is a real-time market for 
photo and video journalism. Since Cont3nt's founding 
approximately one year ago, Mr. Gelman's company has received 
numerous honors, including winning ``Distilled Intelligence 
2.0'' and Startup America's ``TechBuzz Challenge 2012.'' Most 
recently, Mr. Gelman was named to Tech Biz Now, a list of 30 
Under 40. Thank you for taking time to be with us, and you may 
begin.

                   STATEMENT OF ANTON GELMAN

    Mr. GELMAN. Thank you very much. It is wonderful to be here 
today. Hello, Congressmen and Congresswoman.
    So again, my name is Anton Gelman. I am the CEO of a 
company called Cont3nt.com. We are a real-time market for 
breaking news. We enable media companies and freelancers in 
places like Egypt and Syria and here in the U.S. to take that 
amazing photo or video that they shoot and in real-time sell it 
to the likes of CBS or NBC or the local paper, get paid for it 
in real-time, have it on the air in a half-hour. We are 
building an eBay for breaking news. Or to put it a different 
way, we are trying to create a global free market for free 
press.
    Since we launched a little bit over a year ago, we now have 
24,000 journalists in our system, over 2,000 media companies, 
in 25 countries. By the end of this year, we are going to be in 
60 countries, and by the end of next year, if all goes well, we 
will be in every country in the world.
    I am responsible for creating five jobs, including my own 
in the U.S., as well as an additional four jobs abroad. And we 
are expanding rapidly and really kind of are in the growth 
stage of startup. We are not a lifestyle business. We are a 
growth company. And actually, this right here, this is three-
fifths of all of our assets, of all of the physical 
infrastructure that we have. The other two fifths, the other 
two laptops, are currently in use at our office. We own no 
office space. We have no furniture. We lease it from the 
startup accelerator where we live. All of our assets are in 
intellectual property, they are online, they are in the cloud, 
and they are based in the customers and the relationships that 
we have built. And this is very different from the traditional 
definition of a small business.
    We are not a small business. We are a big business in the 
making. We think, and companies like ours, think like GE, not 
like the ma and pop shop across the street. Actually, I have 
been on both sides of the border. I have done a number of small 
businesses. My family actually immigrated here from the Soviet 
Union in search of the American dream. And I have run small 
businesses since I was like 12, and I have a tremendous amount 
of respect for people that do it. But the startup that I run 
right now is a very different thing. We act very differently, 
and we think very differently, and we require very different 
resources.
    So basically, a startup is not a storefront. It is a rocket 
ship. And I say this with complete seriousness. A startup is 
defined by its growth and its pace. And the big trick is that 
when a company grows from one person to 100 people in 12 months 
or in two years, that is something that the pace of that has 
not been met with policy or legislation that is appropriate to 
how it scales.
    So basically, one of the things that I would urge everyone 
in Congress to think about is to find ways to address these 
incredibly fast-paced companies with legislation that allows 
government programs to act much faster, to be able to enable a 
pace that is synonymous with what America has kind of been 
known for--for its leadership and entrepreneurship. For its 
leadership around the world with companies like Google and 
Facebook and LinkedIn and almost every other major company 
based in the U.S.
    Aside from a very rare exception, like for example, SBIR, 
which is at least somewhat palatable to a startup, most other 
programs, like even the wonderful SBA loans, they are 
impossible. I mean, this is our collateral right here. There is 
no way that we have two years of track records and any kind of 
credentials that we need in order to actually get those kinds 
of loans. And yet, it is quite likely that we will have more 
jobs in 12 months than five businesses of the same size.
    With the adoption of the Jobs Act and kind of the 
beginnings of crowdfunding and immigration reform, this stuff 
has been hitting its stride, and I love that it is actually 
coming to the forefront of policymaking. But still, it is 
pretty much in its infancy right now. I love that it is being 
done but we are at the very beginning of that process. 
Basically, it has yet to become very truly useful to the 
startup economy.
    I will give you an example of some of the things that do 
work, for example. Obviously, the policies in place are working 
kind of--are getting there. But, for example, in D.C., just 
down the street, so we work out of a startup accelerator about 
seven blocks away, and it was funded by $200,000 of D.C. 
government money. So $200,000, as you know, is a very, very 
small amount of money. That allowed them to set the baseline to 
seed that investment that they now have a $2.5 million run rate 
within four or five months. Two and a half million dollars run 
rate that they have collected on their own that funds his 
business. They have 170 companies working out of there. Over 
300 jobs have been created off of this tiny, tiny investment. 
And the reason it was done was because the D.C. government went 
out and acted very quickly. They allowed the minimal amount of 
investment to be signed quickly and to be delivered.
    And so I thank you again for being here, and I would just 
offer that we move faster and we try to put in legislation that 
targets this incredibly fast-growing pace of companies. Thank 
you.
    Mr. LUETKEMEYER. Thank you.
    We will enter the question and answer phase here. Keeping 
with Chairman Graves's model, I will defer to the end, and with 
that I yield to Congressman Collins for the first round.
    Mr. COLLINS. Thank you, Chairman. And thank you all for 
coming.
    Point of reference, I have spent my life in small business 
and involved in startups, and through the Center for 
Entrepreneurial Leadership at the University of Buffalo I have 
mentored over 200 companies the last 20 years. And I will tell 
you in true disclosure, I have spent most of my life buying 
startups after they fail. So I am known as the second owner. So 
after the startup overestimates sales, underestimates expenses, 
overestimates margin, and underestimates the difficult of 
growth, I step in as the second person and then help them go to 
the next phase after basically they have had problems with the 
original investors, et cetera. So really, what I have seen is 
most companies do just that--overestimate sales, underestimate 
expenses, overestimate margins. And really, that is what makes 
them entrepreneurs, their optimism. And the optimism gets in 
the way. But more than not, they are undercapitalized. They are 
undercapitalized because they do not want to give up ownership. 
It is their idea. They want 100 percent and they will give you 
1 percent for a lot of money because it is their idea. So 
typically, they run out of money. And when you are running out 
of money, that is not the best place to go.
    So I am really intrigued, Mrs. Sawyer. Startup company, you 
raised 1.1 million, and part of what we do at hearings is to 
send a message out to other small business folks. So I hope I 
am not asking for anything too confidential, but to raise the 
1.1, was that friends and family or was that venture? And how 
much of the company did you have to give up to get the 1.1 
million?
    Mrs. SAWYER. You are not going to like my answer. I have 
given up zero percent because it is debt. I was able to raise 
convertible debt. And in my next round though, we are doing a 
$10 million equity.
    Mr. COLLINS. I was going to ask you about that as well.
    Mrs. SAWYER. That is a proper equity round, and I cannot 
disclose that. That will be a minority investor, but they are 
getting a sizeable chunk with pretty normal negative covenances 
in the deal. So that will be a more traditional round.
    Mr. COLLINS. Well, I am intrigued. You do not consider 
convertible debt dilution?
    Mrs. SAWYER. We were able to buy it back. It did not 
convert.
    Mr. COLLINS. Oh, you had the option to buy it back?
    Mrs. SAWYER. Correct.
    Mr. COLLINS. They did not have a put?
    Mrs. SAWYER. Yeah. I love a good contract negotiation.
    Mr. COLLINS. Wow. I guess I am never going to do business 
with you.
    I just wonder if anyone else--now, I was also intrigued 
somewhat, Mr. Reid. You were saying a startup is not a small 
business, so I almost find that--I cannot reconcile that. By 
definition, a startup is one person, five people. That is a 
small business, and I would think a startup needs capital and 
they need a business plan and they need a vision, and health 
insurance, and a phone system. So could you explain why you say 
they are not?
    Mr. REID. Sure. Technically, by definition, yes, you can 
say if you have a very small number of people, whatever, it is 
a small business. But as Anton pointed out I think pretty 
eloquently a few minutes ago, he, in his startup, and most of 
the startups that I work with, they do not think like a small 
business. And so that was the main point I was trying to make 
is that there are small businesses that do important things in 
our economy and they are happy to remain small businesses. But 
if you are an entrepreneur who is launching a startup company, 
then you are thinking more like how is your business going to 
grow in scale beyond the phase where it is a small business.
    Mr. COLLINS. Yeah. Now, I suppose that in what I will call 
the Internet software world that is probably very true. If you 
are making widgets, I do not know if it is quite that much. I 
wonder, Mrs. Sawyer, do you actually make your cameras?
    Mrs. SAWYER. Oh, yeah. Right in Texas near Reliant Stadium 
where they have the rodeo. It is quite fun.
    Mr. COLLINS. All right. So let us see. Five years out, 
where are your sales going to be?
    Mrs. SAWYER. Five years out, over $100 million.
    Mr. COLLINS. Wow. Okay. Can I write that down and call you 
in five years.
    Mrs. SAWYER. Of course.
    We have had over 2 million in revenue so far, so I 
bootstrapped the company. So when I cofounded the company I was 
25 years old in Texas with a proof of concept, so 
realistically, no one was going to give me funding. So we had 
to bootstrap. And one of the ways we were able to do that is 
(a) we started selling product. Just whatever we had. We do 
contract work. But we also did get two SBIRs that were very 
helpful. So they were a huge part of our initial growth. I do 
not think the SBIR system is perfect. I think it is really 
great for research. When it comes to actually developing 
product it is a little slow. For example, we have a contract 
with the Air Force, and the way the SBIRs are structured, they 
are very structured. You know, there is phase one, phase two, 
phase three, then you do a joint with a large developer, eight 
years minimum. It does not take me eight years to develop a 
product. It is unnecessarily slow. I mean, the government is my 
customer. I could do a better job for the customer but they 
have tied my hands. It is really odd. Really odd.
    Mr. COLLINS. Well, thank you. My time is expired. Mr. 
Chairman, I yield back.
    Mr. LUETKEMEYER. Thank you. Thank you. We will yield time 
next to the ranking member, Ms. Velazquez.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman.
    Mr. Reid, according to a recent report on small business 
formation, half of all startups fail within the first four 
years due mainly to the lack of capital. So that is a big 
challenge. To combat this trend, many market participants have 
hyped crowdfunding as the future of small business finance. Do 
you think crowdfunding is going to help more of these 
businesses survive and become established job creators?
    Mr. REID. Yes. Thank you very much for bringing up 
crowdfunding. It is a big topic in the startup world. And I 
think it absolutely will help. I do not think it is perfect, 
but I think it is a wonderful way to bring more capital to the 
market. I am actually wearing a watch today that I bought from 
Kickstarter from a entrepreneur that was a Georgetown student. 
She started a watch company. And this is an important way for 
her to raise capital, and I think it is great that more and 
more companies are finding crowd funding as a way to get that 
early funding that will help them grow.
    Ms. VELAZQUEZ. Do you see any unforeseen risks or concerns?
    Mr. REID. Sure. You know, just like any other system, there 
are potential challenges there, and there absolutely will be 
problems where someone does something unethical. And I think 
there will be a lot of people who even do have the best 
intentions who lose money, either from the entrepreneur's point 
of view or the crowdfunders. And I think that is the key issue; 
that people have to understand and expect what the reality is. 
There is a lot of risk in these businesses and a lot of people 
will lose money. And those who are investing need to be really 
careful to know as much as they can about the companies they 
are putting money into.
    So those things are always going to exist. But the great 
thing about crowdfunding is it does allow people to find those 
entrepreneurs that they really want to support. So yes, there 
are some challenges and risks, but in general it is going to be 
an exciting time to see how that grows.
    Ms. VELAZQUEZ. Thank you.
    Mr. Arredondo, this is in line with the question that was 
made before by my colleague, Mr. Collins. A frequent complaint 
from entrepreneurs receiving venture capital investment is that 
some control over the company is often sacrificed as a 
condition of the equity they receive. Do you believe that this 
is a serious shortcoming with equity investment?
    Mr. ARREDONDO. No, I do not. I mean, to me it is part of 
the game. We got into it knowing if we are going to raise 
investment capital, we are going to be giving up part of our 
company. The way I approach it is if I raise a million dollar 
round, I expect to grow my company several times, if not many 
more times beyond that; that it will generate far more value. 
So even if I give up 25 percent of the company, I expect my 
company to grow in value threefold. So I do not view it as a 
negative at all, and honestly, I view it if you are in a 
position where you can actually negotiate with different 
investors, that it is an opportunity for me to select the one 
that brings the most value to my company. So I do not view it 
as a negative in any way.
    Ms. VELAZQUEZ. Mrs. Sawyer.
    Mrs. SAWYER. Well, it is interesting. So the venture 
capital community, especially coastal, they are a tight knit 
little club, especially if you look at the demographics where 
they get investment. For example, I am in the hardware 
business, also in oil and gas. I have never even met a female 
investor in my space. So you do get some interesting problems 
with that for minorities. I mean, it is strange to call a woman 
a minority. We are 51 percent of the population, but there you 
go.
    So that is why I am kind of excited to see some of these 
Kickstarter and different models for investing. Anything that 
adds a little more competition to a market I think is good. So 
that is why I want to see more competition on the investment 
side. We focus a lot on the entrepreneurs, but quite often it 
takes two. And while I am seeing lots more diversity on the 
entrepreneur side, I am not seeing much movement on the 
investment side.
    So anyway, on the whole I think it is fine, although for 
minorities it can be an issue.
    Ms. VELAZQUEZ. I would like to discuss the federal 
procurement marketplace. What are the type of challenges that 
you have faced? There are some contracting programs that have 
been established to help women entrepreneurs access the federal 
marketplace. So if you could share with me the challenges that 
you have faced?
    Mrs. SAWYER. Thank you.
    So I have worked with the National Institute of Health, Air 
Force, and I am beginning to work with ARPA-E. I have talked a 
little bit with ARPA-E. I do not know what that stands for 
actually. DARPA Energy. And then we have discussed a little bit 
with DARPA. And it is kind of interesting because with the big 
Air Force, Army, those big DoD offices, it is virtually 
impossible for us to pitch a product. What they make us do is 
partner up with a large--like Lockheed, for example. But when 
you go to do a deal with Lockheed, they want to own all the IP, 
where all we are worth is IP. I mean, it is really, I will say, 
impossible for me to go directly to Air Force. So one route I 
have is the SBIR which we discussed. I can do a product in 
basically a year and a half, sometimes quicker. They will not 
let me deliver a product in less than eight years, up to 14. 
What were computers like 14 years ago? It is pretty much the 
same with cameras. It blows my mind. It blows my mind, and I 
really kind of find it quite tragic because especially for the 
Air Force, we have the designs ready to go for a stunning drone 
camera. So we are in the field of hyperspectral imaging which 
has been used, for example, when they captured Bin Laden. 
Hyperspectral was used. But what they have to do is to fly the 
drone over, take it back to a super computer, process the data 
in like three days, and then they will have some answers for 
you. We do that in real-time. The drone actually sees in real-
time. So it is a very cool product and could have real 
consequences.
    You will not get it for a decade minimum, and frankly, I am 
not even going to--this is sad, but I am choosing not to do any 
focus on defense, and it is tragic because we are tech people. 
We love to see cool products, and it is really heartbreaking. 
So on the procurement side, cannot go directly to Air Force. 
SBIRs take too long.
    And so a change I would like to see is right now preference 
is given to procurement companies that have a long track 
record. Oh, wait, Lockheed has been around longer than I have 
been born, times two. I want to see the reverse. Okay? I want 
to see preference given to startups because I have the IP. I 
have it, not them. They do not have the internal R&D houses 
like they used to.
    And by the way, ever since sequestration, these big defense 
contractors are getting nasty. I mean, it is getting really 
rough out there. And I feel for them. I do. I am from 
Huntsville, Alabama, where we have a lot of defense 
contractors, but they are an example of companies who are suing 
startups so that we run out of cash, which happens so quickly 
because we are undercapitalized, like Mr. Collins said, and 
then they can get a quick acquisition. Buy us cheap and dirty. 
Oh, it is tragic.
    Ms. VELAZQUEZ. Thank you. Thank you, Mr. Chairman.
    Mr. LUETKEMEYER. Thank you. Good long questioning.
    Congressman Hanna.
    Mr. HANNA. I am going to give my time to Mr. Collins. Thank 
you, Chairman.
    Mr. COLLINS. Fellow New Yorker. Thank you very much, Mr. 
Hanna. He said I was having too much fun. So I am going to have 
some more fun.
    When I mentor folks, everyone should have a vision 
statement, a vision statement you could deliver in 10 seconds 
or less. So you are on, Mr. Arredondo. Vision. Vision of your 
company. Vision statement your employees know, you know, et 
cetera.
    Mr. ARREDONDO. Yeah. So we want to change the local event 
space entirely. Right now there is----
    Mr. COLLINS. You flunk.
    Mrs. Sawyer.
    Mrs. SAWYER. Rebellion Photonics vision is to change some 
of the world's largest problems using groundbreaking optics.
    Mr. COLLINS. Kind of okay. A little general.
    Mrs. SAWYER. I usually do oil and gas.
    Mr. COLLINS. Mr. Gelman. I am skipping Mr. Reid because you 
just help other entrepreneurs.
    Mr. GELMAN. We are building a global free market for free 
press. That is our vision.
    Mr. COLLINS. Okay. So now have some more fun. Your 30-
second elevator speech that you give to an investor. Who wants 
to go first? Thirty second elevator speech, go.
    Mr. ARREDONDO. Imagine the beer industry without beer 
distributors. You would not be able to get the beer into the 
hands of all the places you would buy it from. That is what is 
happening with local events. All the people organizing events 
have no one to distribute their events to the places people 
look. We are a local event distributor that is solving that 
problem.
    Mr. COLLINS. You did not tell me how much money I am going 
to make or how much money you need. Or who is your competition. 
Go ahead, Mrs. Sawyer. We are having fun.
    Mrs. SAWYER. The oil and gas industry loses a trillion 
dollars worth of oil and gas into the atmosphere every year. 
Dozens of Americans are killed on oil rigs and refineries, and 
it is all because they cannot see the gas leaks before they 
explode. We are Rebellion Photonics and that is exactly what we 
do. We are solving a $2 billion problem with our Gas Cloud 
Imaging cameras which we designed in-house three years ago. We 
started our first large-scale installations January of this 
year. We are doing a $10 billion round and we expect to sell 
for around $450 million within three years.
    Mr. COLLINS. Pretty good. Pretty good. Mr. Gelman.
    Ms. VELAZQUEZ. Would you mind, Mr. Collins.
    Mr. COLLINS. Go ahead.
    Ms. VELAZQUEZ. I am glad that BP is your customer.
    Mr. GELMAN. My company, Cont3nt.com is a real-time market 
for breaking news where we enable media companies and 
freelancers in places like Egypt and Syria and here in the U.S. 
to occupy Wall Street and the like to take that amazing photo 
or video that they shoot and in real-time sell it to the likes 
of CNN or BBC, get paid for it in real-time, and have it on the 
air in a half hour. We are like eBay for breaking news. We are 
actually not raising very much money right now, but we are 
expanding globally and join us.
    Mr. COLLINS. Good. Now, just in fairness, because I am a 
vision mission core value guy, if you go to my office, the 
vision statement is published, my six core values. And so when 
I came to Congress I had to say why am I here. So my vision in 
every e-mail you get from me or any of my staff, including two 
of them that are sitting there will say, ``The United States of 
America will reclaim its past glory as the land of opportunity, 
providing a bright future for our children and grandchildren.'' 
That is it. That is the vision. That is what I am doing here. 
Then you say, and how do we make it happen? And how do we cast 
votes? Six core values. And again, very succinct. ``A firm 
belief.'' Nydia, you might not agree with all these. We will 
see. ``Smaller government, personal accountability, local 
decision-making, fiscal discipline, and a government that 
serves taxpayers and respects future generations.'' I try for 
that to be as bipartisan as possible. So when we cast votes, 
there you go. So for my employees, same thing in the companies, 
vision, values. And so those folks that I mentor and help, I 
just try to simplify things down to succinct sound bites, 
whether it is talking to an investor, a bank, your employees, 
your vendors.
    Comments? Do you have a value statement as well as a vision 
statement? Is it published?
    Mr. ARREDONDO. No, that is great. I mean, we are moving so 
quick that in the last three weeks we have completely changed 
our business model. And that is as good as I can articulate it 
today, which will be different next week. But the nature of the 
business.
    Mr. COLLINS. Do any of the rest of you have it published, 
posted? Do the employees know what it is? Is it on your 
business card?
    Mr. GELMAN. We have a sign on our wall that says the 
beatings will continue until morale improves. That is used to 
drive much of the internal mission.
    Mr. COLLINS. Well, thank you. My time is expired. Thank 
you, Mr. Hanna, for letting me have some fun. I yield back my 
last six seconds.
    Mr. LUETKEMEYER. Thank you, gentlemen.
    Next we have Congresswoman Clarke from New York for five 
minutes.
    Ms. CLARKE. Thank you very much, Mr. Chairman. I thank the 
ranking member, Ms. Velazquez, and I would like to thank you, 
our witnesses, for your insightful testimony here today. It has 
been really enlightening.
    Given the prolonged and protracted economic recovery that 
we are all experiencing on Main Street, it is vital that we do 
all we can to foster an environment where our nation's 
entrepreneurs can thrive, creating the jobs that we so 
desperately need. You are who we are looking to to make that 
happen. And as we are all aware, as access to capital remains 
one of the most daunting barriers on entrepreneurs' face today, 
and I think you all have articulated that in your unique ways 
and in your unique space, while some startups have been able to 
use personal credit as seed capital, traditional avenues remain 
elusive. I believe that the federal government can and should 
play a role in filling the gap. Government programs, such as 
SBIR, have a proven track record of providing the jumpstart 
needed to power growth and create jobs, but I see that a ``one 
size fits all'' model is not what we should be striving for. 
And I think you have driven that point home today, Mrs. Sawyer.
    So let me ask you a question. I got a sense of how vital 
the SBIR grant was for you, but if you could fashion a 
derivative of the program that would meet sort of the 21st 
century technological needs of research and development, how 
would you fashion that? And what direct impact on your ability 
to create and maintain jobs would that have?
    Mrs. SAWYER. Sure. I really like the SBIR program for crazy 
research projects, because crazy research projects really do 
take eight years, especially in the hardware space. But if 
there could be an addition to the program that is really more 
product focused, right now the SBIR--every department, NASA has 
a department, DOE has a department, Army, they all have a 
department, and every quarter or so they are going to put up a 
list of what they are looking for, which in theory sounds nice 
but in actual fact they are not the ones who should be putting 
the list up because we are the ones who are on the frontier of 
tech. So sometimes we will see the list and it will ask for 
people to write in. And it is like a little incremental change 
in the tech. When we are pulling out our hair, it is like, no, 
do not ask for a camera that can do a few seconds faster; ask 
for something, the next thing, which is us, real-time. But they 
do not even think to ask because it is not possible for them. 
They are not in that sphere.
    So it would be great if they had--I am not saying a huge 
part of the SBIR program, but a small part where you, the 
company, the startup can recommend products. That is not 
possible right now. Now, you can kind of do it if you know the 
right people, but startups, there are five of us. We do not 
know the right people. We do not have a lobbyist. So if there 
was just a very clear way for us to simply recommend and 
propose a new product, it sounds so simple, and it would be. 
And they can turn it down if they are not interested, but there 
is no mechanism for us to propose the next generation. And it 
would not be that much of a fix to do that. Anyway, a small 
thing.
    Ms. CLARKE. That is a very good proposal, and it takes 
someone in your space to be able to make that recommendation, 
and I would want to suggest that perhaps that is something that 
we could have some conversations with the agency about.
    Mr. Reid, as I stated earlier, traditional access to 
capital remains fairly restricted and startups typically do not 
have this as an option. Could co-investment from the federal 
government, if appropriately structured, play a role in 
increasing traditional financing opportunities for startups?
    Mr. REID. I think that is a great question, and it is a 
unique opportunity for the government. The short answer I would 
say is be careful, but probably yes. It is difficult because as 
we probably would agree, government agencies would have a 
really hard time picking winners and lowers. There is a really 
good reason why venture capitalists who are successful get paid 
what they do. And we also know that there are a lot of venture 
capitalists who are not successful. And I have seen people at 
universities who, you know, people in my position who end up 
running a venture capital fund. And if they are any good at it 
they should probably be a venture capitalist instead of a 
government employee or a university employee, that sort of 
thing. But if it is structured, as you said, if it is 
structured carefully in ways that really do leverage the 
expertise of the private sector, then I think that there is an 
opportunity there for government funding to really help drive 
some more innovation.
    Ms. CLARKE. Thank you very much, Mr. Chairman. I yield 
back. Thank you all.
    Mr. LUETKEMEYER. I yield five minutes to the Gentleman from 
Arizona, Mr. Schweikert.
    Mr. SCHWEIKERT. Thank you, Mr. Chairman.
    Share with me how each of you have either capitalized, 
raised money from your early days and also what you see out 
there in interest. I will share with you I have a fixation on 
getting the SEC to actually do pragmatic and rational 
rulemaking on things like the Jobs Act where they are about 
crowd funding so bureaucratic and expensive and funding of the 
trial lawyers with it that the very small companies we intended 
to help are never going to be able to use it. So share with me 
first how did you begin? How did you capitalize?
    Mr. ARREDONDO. To start it was family and friends. That is 
how we got through the first two years. We got really scrappy 
over the last six where I think in my testimony earlier I 
mentioned there was an i6 grant that UMKC in Kansas City got 
that we got approved for, got some money there. We found an OJT 
H-1B grant through Workforce Partnership and hired six 
employees that way. We landed Sprint as a client. That helps.
    Mr. SCHWEIKERT. Now, on something like that when you landed 
that contract, did that make the value of the income from that 
contract bankable? Were you able to take that contract and walk 
into and almost factor the future income of that?
    Mr. ARREDONDO. Honestly, it happened so fast and I was able 
to leverage that to bring on three full-time employees with 
that and then immediately found these other grants. And 
honestly, I did not even go that direction because in the past 
whenever I started the conversation it stopped two seconds 
later when I have no assets to leverage against it. So maybe if 
there was more conversation with a more traditional path I 
could have gone that direction.
    Mr. SCHWEIKERT. We will come back and talk about that 
because I actually think there is a revolution coming in how we 
capitalize.
    Share with us. How did you?
    Mrs. SAWYER. Yeah, so I have looked into factoring and 
getting cash on accounts receivable, and it is virtually 
impossible if you do not have three years of history.
    Mr. SCHWEIKERT. Well, first, share with me, how did you 
finance the startup? How did you begin?
    Mrs. SAWYER. It is a funny story. I was a grad student. So 
in this country there are a lot of business plan competitions 
for graduate students and some of them have gotten very big. We 
are talking about hundreds of thousands of dollars are awarded. 
And three and a half years ago I did these and we walked away 
with about $170,000 worth of cash from these business plans. 
They are all over. They are in New York, Houston, San Diego. 
That was our starting capital and then we got two SBIRs, and 
then we started delivering smaller cameras for research. So we 
basically sold what we had. We basically sold our prototypes to 
researchers. And then we also last year were able to get a 
little bit of debt from the City of Houston. So the City of 
Houston gave us a little bit of debt to stay in Houston. We 
have had to look everywhere, every feasible way to bring money 
in. And I have tried more traditional ways. I was able to get 
an SBA loan on one piece of equipment because the equipment we 
were buying, I mean, you could not get it for working capital, 
but I was able to get an SBA loan for equipment because it had 
an asset.
    Mr. SCHWEIKERT. For an equipment purchase. May I ask a 
range of how much that was?
    Mrs. SAWYER. Yeah, that was $475,000.
    Mr. SCHWEIKERT. Okay.
    Mr. Reid, what do you see out there?
    Mr. REID. Yeah, there are so many ways companies are now 
finding that early stage capital. Whether it comes from angel 
investors, friends and family, traditionally, the first money 
comes out of your own pocket. Friends and family come next, 
which can often make those Thanksgiving dinners a little bit 
awkward. And then there is a growing angel market, 
organizations and companies like AngelList and lots and lots of 
angel groups all over the country are now starting to really 
fill an important----
    Mr. SCHWEIKERT. But are you surprised in what you are 
hearing around you that almost no one actually went--sort of we 
all went to business school, so personal friends and family, 
angel, secondary angel, VC, you know, private equity, and the 
world does not actually work that way and has not worked that 
way for several years now.
    Mr. REID. Yeah. So few companies actually ever raise 
venture capital. Even the companies that grow huge. Right? 
Venture capital is not the primary financing solution. And the 
angel investing in a similar way. You are absolutely right. 
There are so many other ways to raise money.
    Mr. SCHWEIKERT. I am very curious because you have a 
fascinating business model because in some ways what you are 
doing is the future of sort of this distributive type of 
business model where you are selling a content without large 
capital expenditures.
    Mr. REID. Yes, absolutely. And I also smile at this past 
conversation because that model of first you work for a company 
where you conceive the product, where I worked for National 
Geographic where I conceived the product, realized that the 
product was taking off but it was not possible within the 
company. All of my friends bought condos; I bought this. Then I 
went off and created an actual prototype, launched and got some 
customers. It is no longer possible to actually get any kind of 
investment from outside sources without really having a very 
serious prototype and some customers. We got some friends and 
family investment. We won a number of regional competitions. So 
we won Startup America, TechBuzz America, followed by--we got a 
little bit of money in that. Closed in the angel rounds. And 
now we are here.
    Mr. SCHWEIKERT. Okay, and I know I am way over time, but in 
many ways your concept would have married up beautifully with 
crowdfunding?
    Mr. REID. For the next round we were actually very much 
hoping that we could do it, but we cannot yet because of those 
issues that you are mentioning.
    And one day, if any of the other members have an interest 
in this, we really need to find a way to talk to the SEC 
because they are about to destroy that capital formation for 
the truly, truly small sort of egalitarian entrepreneur, and 
once again, we are going to lose our future in the bureaucracy.
    Mr. SCHWEIKERT. Mr. Chairman, I yield back. Thank you for 
the patience.
    Mr. LUETKEMEYER. Good job. The gentleman from New Jersey, 
Mr. Payne.
    Mr. PAYNE. Thank you, Mr. Chairman.
    Let us see, Mr. Reid. Earlier you mentioned several issues 
that really interest me. Specifically, your statement that 
entrepreneurs come in all shapes and sizes and every person has 
the ability to be an entrepreneur. I am interested in 
understanding how we grow more entrepreneurs from disadvantaged 
backgrounds. I have introduced some legislation earlier this 
year called the Dream Jobs Act. This has helped to encourage 
Americans who live in areas below the poverty line to establish 
or sustain their own green businesses among other things. I 
recognize that green energy is our future, but startups are as 
well. Most common efforts focus on supporting businesses that 
serve the underserved, but how can we increase the number of 
people from low income backgrounds who actually lose startups?
    Mr. REID. Great. Well, Mr. Payne, thank you so much for 
asking that question. Before I worked for a nice university 
like Georgetown, I ran a nonprofit organization right here in 
Washington, D.C., and our mission was to go into inner city 
schools and teach entrepreneurship. And that is the Network for 
Teaching Entrepreneurship which exists in many other cities 
around the country. And there are other organizations like 
BUILD and Junior Achievement that are doing this, and that is 
where I would say the answer is, is we would talk to the young 
people, whether it was the teachers we trained or the 
entrepreneurs that we would bring into these schools. And you 
could see the entrepreneurial talent is there, but the students 
often had no idea. No one had ever told them you can be an 
entrepreneur. So step one was just exposing them to this idea, 
this concept, and then giving them the mindset and toolset and 
helping give them the skills to do it. There is entrepreneurial 
talent in these underserved populations no matter what you want 
to define it as, and just allowing those folks to see 
themselves as entrepreneurs, to have access to training, 
mentorship, and resources, you will see a lot of amazing things 
come out. And I had the benefit of seeing that, too. It changes 
lives just by being exposed to entrepreneurship as an option.
    Mr. PAYNE. So do you think that is something that as a 
government we should foster and support those efforts?
    Mr. REID. Absolutely. Absolutely. Other than helping 
provide funding, I have not thought deeply about the ways 
government can help but I think those are very, very powerful 
organizations. The entrepreneurship education at all levels, 
not just universities, really makes a difference.
    Mr. PAYNE. Thank you.
    I will yield back at this time. Thank you.
    Mr. LUETKEMEYER. Very good. We will give five minutes to 
the gentleman from Arizona, Mr. Barber.
    Mr. BARBER. Thank you, Mr. Chairman. And thank you all for 
coming. When I hear from people like you I get very excited and 
enthusiastic because your passion is obvious and you are 
breaking a lot of barriers. I just wish our government was as 
nimble as you are because it needs to be. Obviously, we are 
not, and that is part of the problem.
    I want to talk first of all though, Mr. Reid, about the 
role that universities play. We are very fortunate, I think in 
Arizona, at least in my community, we have the University of 
Arizona, which just a year ago initiated Tech Launch Arizona, 
and has consolidated essentially the launch offices from across 
the university into a really solid opportunity for helping 
university professors who are really good at research but not 
necessarily great at building a business, commercializing their 
product. In the last year alone, seven new businesses have come 
out of this and 15 patents were issued. So we are making 
progress.
    I guess I would like to ask you how and what do we need to 
do to better support our colleges and universities as they grow 
to begin to build this bridge between the research lab and 
commercial application?
    Mr. REID. I am a little bit familiar with that program at 
the University of Arizona, and yes, it is an amazing thing. 
There is another program that I would love to point out that I 
think helps answer your question you may be familiar with. It 
is called iCorps, as in iCorps, C-O-R-P-S. And it is about 
innovation. And it is actually funded by the National Science 
Foundation. And some of my colleagues at universities where in 
the Washington, D.C. area have led a nationwide effort. And 
what it essentially does is it brings the principles of the 
lean startup movement into university laboratories. And it is 
amazing to watch the transformation. You mentioned how many 
scientists are not great at business. That is no surprise to 
many of us but that is a big surprise when the scientist learns 
it. And so through the iCorps program the scientists, the 
developers of this technology are paired up with business 
people and mentors, but one of the most important things they 
do is they actually have to go and talk to customers and that 
is a transformative experience for a scientist to actually find 
somebody that is willing to buy whatever it is that they think 
is the greatest technology in the world. And so they learn a 
lot and that is an incredibly powerful experience. So that 
program is relatively new. It has been around maybe just one or 
two years, but it has been expanding rapidly. Some of the 
federal labs in this area are beginning to adopt it as well. So 
the iCorps program is what I would absolutely say is a great 
example.
    Mr. BARBER. Go ahead, please.
    Mrs. SAWYER. I did not know if raising your hand is the 
right thing.
    So I have a lot of experience with this surprisingly, and 
so it is the Office of Technology Transfer. Every university is 
going to have an Office of Technology Transfer, and their job, 
their sole purpose is to get technology in the labs out to real 
products, either through licensing, say license it to GE, or to 
start a company. Both good. Products get out there. It is fine. 
But there are some really good Office of Technology transfer, 
MIT is an example, but most are really bad. Really bad. And the 
federal government actually does have some bargaining power. 
Right? Where do they get almost all their money? You all. NIH 
grants are a big one. A lot of government grants. So what I 
would like to see is part of--let us bring NIH. National 
Institute of Health is a huge funder of research, and they fund 
this research and it creates really cool medical devices that 
never see the light of day because the universities are not 
graded on transferring and commercializing this technology. So 
what I want to see NIH do, for example, is when you submit a 
grant application, how good is your university at technology 
transfer? Now, it should just be one little bit of the grading 
scheme for a grant, but it could have a huge effect, even if it 
is just licensing. But that is good, too.
    Mr. BARBER. That makes a lot of sense to me that you would 
have some incentive or push to make sure they do that.
    I appreciate you working in optics by the way. We have an 
optics cluster down in Southern Arizona that we are very proud 
of. And come visit us sometime if you do not already know about 
it.
    Mrs. SAWYER. Oh, I do. Arizona, University of Arizona and 
Rochester are the two powerhouses in the world for optics. I 
have hired two people from Arizona for optics. They are great.
    Mr. BARBER. Well, graduate students are staying home and 
they are also going elsewhere. That is good to know.
    I know we are close to--I am almost over time but I just 
want to ask this question of as many of you as quickly as you 
can answer it. What can we do in Congress to help you get 
better access to capital? I mean, I think that is one of the 
biggest stumbling blocks I have heard from your testimony. Just 
if you could each give a one or two sentence answer to that 
question I would appreciate it.
    Mr. ARREDONDO. Yeah, mine is really simple. I think give 
resources to the organizations on the ground, in the 
communities that we are working, because every community is 
different. You guys are not likely to create one system that 
works for everyone, and where I have found the finances so far 
have been the people that I knew already and then they got hold 
of a grant that they could actually then turn and give me 
access to.
    Mr. BARBER. Mrs. Sawyer.
    Mrs. SAWYER. I would like to see the restrictions on SBA 
loans loosened. It is even tough to get an SBA loan which is, I 
think, a bit silly. So we are even slightly profitable and it 
is almost impossible for us to get an SBA loan. So I do not 
know who is getting them.
    Mr. BARBER. Mr. Reid.
    Mr. REID. So there is something I have seen work well in 
North Carolina that I think the federal government might want 
to explore. It is a qualified business venture tax credit. And 
what it essentially does is if you invest as an angel investor 
or what have you in a qualified business venture, which certain 
types of startups qualify, then you get tax breaks for that. 
And that multiples or it leverages the private investment. I 
think that should be expanded to other states and perhaps the 
federal tax system as well.
    Mr. ARREDONDO. That is, in the state of Kansas, the Kansas 
Angel Tax Credit, where if you invest up to $100,000 you get a 
$50,000 tax credit against your Kansas income. That is a huge 
draw, and pretty much anyone in Kansas City that is a high-
growth startup moves and becomes a Kansas company because of 
it.
    Mr. BARBER. And finally, Mr. Gelman.
    Mr. GELMAN. Yeah. I definitely agree with the things that 
people have said here. I would add that the tax credits could 
be a very big thing. Empowering companies on the ground and 
also giving R&D tax credits, like Canada, for example, does. A 
lot of companies are moving out of Silicon Valley and moving to 
Toronto because they actually could write off all the R&D that 
they can do. And so that is a wonderful thing. Provide great 
technology. If that is one thing that we could do, that would 
be a spectacular one.
    Mr. BARBER. I think all of us in Congress have a 
responsibility to break through some of these barriers. We have 
a new company in Tucson, Strong Watch, that is developing 
surveillance technology for border security. We have Syncardia 
to develop the artificial heart. We have got some great 
inventions all across this country. We need to find government, 
both getting to help as well as getting out of the way. And I 
really appreciate what you have done. Keep on doing it and keep 
pushing us to do better.
    Thank you. I yield back.
    Mr. LUETKEMEYER. Thank you.
    My turn, I guess. Thank all of you for being here today. It 
seems as though each of you has found a niche, and through your 
hard work and your willingness to take a risk and sacrifice and 
stay determined, you have been able to succeed. And I know, Ms. 
Sawyer, I am wondering why nobody at the federal government is 
wanting to give your company a chance. For every one of you 
that succeeds, Mr. Collins buys 20-something that do not. That 
is the problem we have with startup companies, and I am sure 
that the government is sitting there trying to sift through 
these--which ones are going to make it, which ones if we do 
business with you are going to be here next week, next month. 
And as a result, they are a little reluctant sometimes to take 
that risk.
    So what I would think would need to be a way to approach it 
would be some sort of a private-public partnership where the 
government would work with you and get together and say we need 
this. And you could say, well, you can do that but we can do 
this better if you do that. And by working together I think we 
could probably come to some sort of agreement. Would you agree?
    Mrs. SAWYER. I think it is an interesting idea, but I do 
find, especially with defense, mainly with defense procurement, 
oh, my God, I mean, America is so great because of our free-
market system. And through the procurement process, the defense 
department has blocked themselves out of a free market and is 
the opposite of a free market.
    So let us say, you know, 19 out of 20 startups they work 
with fail. I do not believe that, but let us say--we would 
still be cheaper than working with one of these behemoth 
defense contractors, even if 19 out of 20 of us fail. Right now 
procurement is fascinating because it is not how quick you get 
the product done or how good the product is; they get paid on 
how long they draw it out. So especially with Defense, you are 
not getting a great deal. So if you want to do a cost-benefit 
analysis of working with startups, I can guarantee we will be 
cheaper even then. So let there be other reasons not to work 
with startups, but it cannot be a cost argument.
    Mr. LUETKEMEYER. I know that I have got a technology 
company that works at the Department of Vets a lot and they 
have the same problems. They are one of the approved vendors 
that work with them every day. They come to them and say, hey, 
we need this, and it still takes months, and months, and months 
to get something done. So yours is not an unusual comment that 
I hear, so.
    Mr. Reid, you had a great idea with regards to the tax 
credits. Do you have an idea of return on investment of those 
at all?
    Mr. REID. I do not have number statistics. I know it was a 
program that was renewed each year and there was a huge amount 
of interest in the community each year when it was at risk of 
going away. And I was more involved in this years ago when I 
lived in North Carolina, so I have not followed the details 
since then.
    Mr. LUETKEMEYER. I know my state is Missouri, and we have 
gone through a process in the last few years of going through 
all the tax credits. We have got lots and lots of programs with 
tax credits. And you go through them and some of them you get a 
great return on investment and other ones you are paying 
people. That is money out the door.
    Mr. REID. I am pretty sure this would be one of the best 
deals.
    Mr. LUETKEMEYER. It sounded like a great idea. I was just 
kind of curious if you had some numbers on it because that 
would be very instrumental in being able to promote that and 
move forward with it.
    I guess one of the questions I have got is with regards to 
what regulation or set of regulations are your biggest hurdle 
to overcome?
    Mr. Gelman, why do you not start?
    Mr. GELMAN. It is tricky because when you work on the 
Internet, I mean, aside from there are some taxation issues and 
things like that that are happening----
    Mr. LUETKEMEYER. My next question is going to be tax 
policy. If you want to go ahead, that is fine, too.
    Mr. GELMAN. I mean, tax policy is tricky. When you are 
running a web-based company, an online company, any of these 
growth web-enabled companies, you are not competing against 
your neighbor or the next state or the next city. You are 
competing against the entire world. And so when we have major 
policy decisions, like taxes, like Internet regulation, things 
like that, net neutrality, these have an effect because they 
make us less competitive against other countries. And those 
other countries can just as easily take our business because it 
is online. It is very simple. And these are things that we have 
to struggle with.
    So I would say probably the biggest thing--I would not say 
that that is the single biggest thing that is hampering kind of 
innovation. I think there are other problems that are 
significantly in excess of that. Number one is just the 
difficulty in there is so much kind of--theoretically there are 
so many available programs that are out there. There is so much 
incentive that is kind of out there, none of which is 
accessible to businesses like ours. And when you also have 
problems like crowdfunding is coming out and it is going to be 
a spectacular thing if it ever makes it out in a way that we 
can make it, it is going to open up a new capital market.
    At the same time, almost half of my team is abroad. The 
reason it is abroad is because the people we work with are 
U.S.-educated entrepreneurs that graduated here. They are all 
U.S.-educated entrepreneurs. They graduated college here. They 
could not get a visa. They had to go abroad. Now they have 25, 
50, 100 person shops in Ukraine, Cambodia, and India. And so 
now we work with those guys over there. We have to because that 
is where the minds are. If there is any way to keep those jobs, 
those people here, it would go a long ways. If you talk to any 
startup around anywhere, in any region, be it D.C. or Silicon 
Valley or Kansas, they will tell you there is a huge talent 
crunch. We can never find enough people, and we cannot keep the 
people that we have. So I would probably focus on that as the 
top thing in addition to tax policy.
    Mr. LUETKEMEYER. So you are talking about visa problems is 
a big problem for your particular industry?
    Mr. GELMAN. Absolutely. Any technology.
    Mr. LUETKEMEYER. That is not something we do not hear 
regularly from technology companies. With the H-1B visas, we 
have got to reform that.
    Mrs. Sawyer, what is your biggest concern with regulations 
and/or taxation?
    Mrs. SAWYER. Regulation-wise, for Rebellion Photonics, 
because we do do some defense work, we have a huge amount of 
additional accounting infrastructure that we have to do and it 
costs a lot of money. And then my engineers, it takes a lot of 
their time away from real engineering. And this is--we went 
through an audit. We passed. It is fine, but all of this 
somewhat ridiculous accounting, ridiculous accounting for a 
seven-person company because there is just so much structure 
that they treat us almost like a Lockheed. This is ridiculous.
    And this is, by the way, the reason you do not see many 
diversified defense companies. There is so much accounting and 
infrastructure required to be a vendor for the U.S. Government, 
especially Defense, that that is all you can do.
    Mr. LUETKEMEYER. Is it a barrier for you that you cannot 
overcome?
    Mrs. SAWYER. We are thinking about cutting the whole 
defense portion of our business. When you look at the defense 
vendors, they only do defense. There is a reason for it.
    Mr. LUETKEMEYER. The cost does not outweigh the benefit to 
doing business with the government. Is that what you are 
saying?
    Mrs. SAWYER. Yes. And then also, as a vendor, as a 
customer, you do not want your vendors to be you are their only 
customer. You want your vendors to be diversified. That way 
when the ebbs and flow of defense contracts is inherent, 
because of war ebb and flow, they do not have to shed hundreds 
of thousands of jobs if they were more diversified. But they 
cannot be because of the really intense procurement 
infrastructure that is required. I know procurement is not sexy 
and no one is going to take it up and change it, but if you 
did, huge cost savings, fewer people would be fired when--we 
know defense budgets change. And then also, you could get 
really cool new tech out that you currently do not. And that is 
why you do not see many startups, really innovative startups 
doing defense because they would have to give up everything 
else.
    Mr. LUETKEMEYER. Mr. Arredondo.
    Mr. ARREDONDO. Honestly, my biggest issue is we have run 
into the H-1B issue as well. Talent is in incredibly short 
supply, and you see a lot of people off-shoring tech work. I 
mean, there is a new company in Kansas City that specializes in 
tech development, and all of their work is overseas. They only 
have a few project managers in Kansas City. If there is a way 
to stem that tide, I think the United States would be able to 
benefit greatly from it.
    Mr. LUETKEMEYER. You talked in your testimony a while ago 
about collaboration with some local groups to get your company 
off the ground. What do you mean when you say collaboration? 
Was that financially or were there other things that you were 
talking about?
    Mr. ARREDONDO. I use the word collaboration a lot, so I am 
not sure 100 percent which one you are talking about.
    So it might have been when I was talking to the two grants 
that we had access to. One was Workforce Partnership, who has 
made--they have a person on their team that her job or part of 
her job is to engage with us directly and go to events and get 
to know us. And then the grant, the i6 grant through UMKC, 
likewise, has an outreach arm that reaches out to us to help us 
understand what it is about. And so again, there is a 
relationship there. Another example on the collaboration side 
of a success is Sprint is actually getting really engaged with 
startups in Kansas City, and the only way they have been able 
to be successful is they had an individual that spent several 
months just going to events, talking to us, understanding the 
actual problem, and then they are equipped then to make the 
decisions and allocate funding because they know where the 
holes are.
    So when I talk about collaboration, I mean, those are a 
couple of the examples to kind of show. And that is why I am a 
big advocate of finding ways to get the resources to those that 
are with us on the ground that know those needs and holes in 
each community individually.
    Mr. LUETKEMEYER. That makes a lot of sense.
    Mr. Gelman.
    Mr. GELMAN. Actually, on that collaboration topic, just to 
add to what Adam was saying and actually what Jeff was saying 
earlier, the trick with these growth startups is we move 
incredibly quickly, and we try to move incredibly quickly. And 
most of the time kind of the goal was just to get out of the 
way. However, the big trick with helping is that it has to help 
in a way that matches our pace. And the trick is most of the 
time frankly it is just not going to be possible for a 
government grant to match that pace. And that is fine because 
the government really has to be very careful about how it does 
things. But what the government should then do is instead of 
trying to go direct to us--I mean, often, you know, there are 
programs that can do that but they always take longer--they 
should go to the qualified community organizers, essentially 
the middle men, that are acting either as VCs. You know, we 
have an investor in our company that is a VC of a state. So the 
CAT Gap Group of Virginia is an investor in our company. They 
are a very fast paced, fast moving part of the Virginia 
government. Whatever their structure is, they essentially act 
like a venture capital firm. They are given money by the 
government and then they move very quickly to execute. A lot of 
the associations, companies, incubators that we work with have 
benefit some from government funding. In fact, they are much 
better at getting it than any entrepreneur that is focused on 
their business. If the government was better at taking this 
large S and giving it to the people that can distribute it as 
quickly and effectively as possible, you will see exponentially 
high returns on that investment and you will be shocked at how 
little investment is needed to get incredibly high returns. 
Usually, government thinks in millions of dollars. This is tens 
of thousands, hundreds of thousands of dollars that will get 
you millions. Thank you.
    Mr. LUETKEMEYER. Very good. I am out of questions.
    Ms. Velazquez, would you like to have a second round?
    Ms. VELAZQUEZ. Yes. I just would like to--solicit your 
comments regarding the issue of more resources invested in the 
area of education, especially for those new faces in America so 
that we can prepare a new workforce with the skills that you 
need in the area of science and technology.
    And two, as part of an H-1B visa, we need to pass 
comprehensive immigration reform. Would you agree with me, Mr. 
Arredondo?
    Mr. ARREDONDO. I do not know if I want to dive into 
immigration reform. I am not particularly studied up on it.
    Ms. VELAZQUEZ. Well, the students that are here that cannot 
go on to college because they cannot get full scholarships in 
order to be able to attend college because of their immigration 
status. We are talking about four million students. So does 
that----
    Mr. ARREDONDO. Well, I mean, immigration, I believe, is a 
part of it, but I mean, I think Estonia is starting to teach 
programming in grade school. I guarantee that country is going 
to be a powerhouse in the technology world here soon. And the 
thing about technology, I know a lot of it focuses on 
technology, but technology is going to be weaved into every 
single industry no matter what we do. So it is integral to 
everything. And I believe one of the things we can do is kind 
of acknowledge that and find ways to encourage it at a younger 
age because honestly, right now, the best programmers from the 
United States that I have found are the ones that started 
teaching themselves how to code when they were 10 years old, 
not the ones that went to school for it. So it is all kind of 
wrapped up in the one.
    Mr. REID. Yeah, I would love to jump in on that.
    The issue about immigration, I know there are a ton of 
issues and I am not an expert in all that, but I can say that 
America, one of the reasons we are such an amazing country for 
entrepreneurship is because we have welcomed some of the most 
amazing entrepreneurs as immigrants over the 200 plus years of 
our country. And whether they are young people who were brought 
here by their parents and are now being asked to leave or 
people that graduate from our universities and want to start 
companies and create jobs and wealth and are also being asked 
to leave, or the folks who would like to get hired into the 
fast-growing companies and are not allowed to, those are all 
things that are self-defeating. They are hurting our country. 
And it seems like those issues should not have to be tied up 
with everything else. But yes, I absolutely agree. This is a 
great entrepreneurial country, and one of the biggest reasons 
is because we have allowed those amazingly talented immigrants 
to come here and thrive here and create jobs that help the 
country overall.
    Ms. VELAZQUEZ. Thank you.
    Mrs. Sawyer.
    Mrs. SAWYER. Yeah, I would like to add one thing to the 
visa discussion. Even if we doubled the number of people who 
come on H-1B visa, I probably still would not be able to get 
one because Yahoo and Microsoft and Facebook have legal 
departments who are going to be faster and more money than me 
to apply for these visas for their employees. So I would really 
like to see that when hopefully when we do get more visa 
allowed for tech workers, if some of those could be cornered 
off for small businesses. It does not even have to be startups. 
I will just take small businesses. That would be great for us 
little guys without the legal department because that 
competition is unfair and they will win every time. So if you 
could just give me a corner, a little corner I could fight in 
to get those it would be extremely helpful.
    Mr. GELMAN. So, I mean, obviously to your point, 
Congresswoman, you know, I am an immigrant myself. My family 
came here from the Soviet Union. You would look around the 
startup spaces that we work in and you will find 50 percent 
immigrants that are Americans now. And you will find a lot of 
people at the same time, as education is getting better in the 
U.S., teaching these kinds of things. So I run a hackathon. One 
of the winners of the last hackathon was a team of 14-year-olds 
from a magnet school in Maryland over here, and they were 
spectacular. There were there other teams that were added. 
There was a father with his son and like two other kids that 
were doing it. They are building spectacular products. If you 
can maintain that, if they can get a better education, if they 
can stay in the country, be it through college or after college 
with H-1B.
    Ms. VELAZQUEZ. After all the investment that has been made 
through public school.
    Mr. GELMAN. Exactly. And they love it here. They love it 
here and they contribute. And the more of those people that we 
can keep, the better we will be off.
    Ms. VELAZQUEZ. Thank you.
    Mr. LUETKEMEYER. Well, thank each of you for being here 
today. We certainly appreciate your testimony and your hard 
work and your inspiration to us. I know each one, I see the 
enthusiasm and the patient in your eyes and in your demeanor 
and your testimony, and we appreciate that. We thank you very 
much. We wish you well.
    With that, I ask unanimous consent that members have five 
legislative days to submit statements and supporting materials 
for the record.
    Without objection, so ordered. This hearing is now 
adjourned. Thank you.
    [Whereupon, at 3:50 p.m., the Committee was adjourned.]


                            A P P E N D I X


                 House Small Business Committee Meeting


                      Wednesday, November 20, 2013


             Written Testimony Submitted by Adam Arredondo


    About Me

    Thanks so much for having me. I am very excited to be here 
and I'd first like to start by wishing you all a very happy 
Global Entrepreneurship Week!

    My name is Adam Arredondo. I am an entrepreneur from Kansas 
City. I am the CEO & Co-founder of Hoopla.io, an internet 
startup.

    As a Kansas City native, it's been incredibly exciting to 
be in the middle of all the entrepreneurial activity and 
momentum that has been building over the last several years. 
Kansas City is unique in that it's currently the only place in 
the world with Google Fiber, the world's fastest residential 
internet. However, the entrepreneur and startup community that 
has developed around it and the principles we have learned 
about building and nurturing it are applicable to any community 
across the country.

    Kansas City Startup Village

    Outside of running my company, I am a co-leader of the 
Kansas City Startup Village which is an organic, enterpreneur-
led effort in the first neighborhood in the world to get Google 
Fiber. Startups congregate to work, network and live in this 
neighborhood on State Line Road, where Kansas and Missouri 
meet. My company is one of those startups.

    It is first important to know that Kansas City Startup 
Village was not planned. We are not following any blueprint.

    In late September of 2012, a string of serendipitous events 
occurred that resulted in three properties and five startup 
companies settling down half a block for each other in the 
first Google Fiberhood. One of these houses was purchased by a 
local startup leader who recruited hackers and entrepreneurs 
from around the country to live in his Google Fiber enabled 
house for three months rent-free to build their startups.

    In the 14 months since, Kansas City Startup Village has 
grown to 13 properties and 25 startups within six blocks of 
each other. Entrepreneurs have moved from 12 different states 
to live and work in the Village. Delegates and business people 
from over 45 countries have visited. And, most importantly, the 
Kansas City Startup Village has created over 70 jobs ... All of 
this with ZERO outside funding.

    There are three main reasons why the village has seen such 
rapid success and notoriety.

    First, the efforts are 100% entrepreneur-led. We volunteer 
our time because we know that a strong Village makes for a 
strong Kansas City startup community which is better for every 
startup in it, including our own. Government, corporations and 
universities are absolutely critical in the sustainability of 
vibrant startup communities but those groups must allow the 
entrepreneurs themselves to take the lead followed by direct 
engagement to find the support mechanisms.

    A great example of this is my being here today. As an 
entrepreneur, neither my company nor I could afford to pay for 
this trip so I reached out to supporters around Kansas City and 
it was Greg Kindle with the Wyandotte County EDC that made sure 
we were afforded this opportunity to tell our story.

    Second, we have created startup density. In the Village, we 
talk about ``serendipitous collisions'' all the time; unplanned 
interactions between fellow entrepreneurs which often lead to 
new ideas and collaboration. Events are great for creating 
startup density, but are temporary. Kansas City Startup Village 
offers startup density on a daily basis.

    Finally, it's important to know that although Google Fiber 
may start the conversation and perk initial interest, it's the 
welcoming, collaborative community that gets people to stay. A 
perfect example of this is Mike Demarias, a 22-year old 
entrepreneur from Boston. Mike said, ``I came to Kansas City 
for Google Fiber and free rent, but I decided to stay for of 
the awesome community.''

    Startup vs Small Business

    One of the big questions we get asked all the time is ``Is 
there a difference between a startup and a small business''. 
The answer is definitely, ``Yes''.

    Although a startup can be categorized as a small business, 
very few small businesses can be categorized as a startup.

    No startup aspires to only become a small business. 
Startups want to scale rapidly. Startups want to become the 
next big thing. Startups want to disrupt the status quo. 
Startups want to innovate.

    Startups also have different needs than small businesses.

    Startup Needs

    A need of most small businesses is access to capital to get 
the business off the ground. Startups are no different. 
However, startups rarely qualify for traditional financing 
through banks and other financial institutions leaving 
entrepreneurs to scramble to find other funding options. And 
unfortunately, those funding options are few and far between.

    My company has been lucky enough to find two grants through 
local organizations.

    We were selected to receive funding through the Digital 
Sandbox which is the result of a $1M federal i6 grant. Thanks 
to this grant the Digital Sandbox has been able to provide 
startup capital to over 20 startups in the Kansas City area.

    We were also lucky enough to discover a grant through 
Workforce Partnership funding through the H-1B program. This 
allowed our company hire six new employees. This has had a huge 
impact on the progress of my company. In all, over 23 jobs were 
created in the Kansas City Startup Village alone, thanks to 
that grant.

    The important point here is that I accessed these grants 
through local organizations that interact with the startups on 
a regular basis and are best equipped to understand a startup's 
needs, effectively distributing funds.

    My recommendations to you is to provide local EDCs like 
Wyandotte County EDC, workforce development organizations like 
Workforce Partnership and startup focused efforts like the 
Digital Sandbox with the funds they need to continue the good 
work they do on a daily basis.

    No community is the same. Please, focus on providing the 
resources to those that know their community best and allow 
them to continue their good work.

    Thanks for listening. Onward and upward!

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                         Testimony of Jeff Reid


  Founding Director, Georgetown University Entrepreneurship Initiative


            United States House, Committee on Small Business


                        ``The Startup Movement''


                      Wednesday, November 20, 2013


    Thank you very much for the opportunity to speak here 
today. I will be brief but hope to make a few points that are 
helpful for you as you make decisions and policies that affect 
the entrepreneurs of America.

    First of all, we are all entrepreneurs. I had the honor of 
hosting Nobel Peace Prize winner Muhammad Yunus at Georgetown 
University a few years ago, and he has famously said that ``All 
human being are entrepreneurs.'' He makes the point that, 
across the millennia, if humans were not entrepreneurial, they 
would have never survived. It is only through civilization in 
recent centuries that the entrepreneurial spirit was 
suppressed. I agree completely--we are all entrepreneurs, but 
that entrepreneurial spirit has been suppressed and is now 
beginning to be unleashed all over the world.

    Entrepreneurs are not just those crazy people in Silicon 
Valley. Entrepreneurs are not just young white males with 
piercings and tattoos starting tech companies over Mountain Dew 
and pizza. Entrepreneurs are not superhuman. All too often in 
our popular culture, those are the stereotypes that we see and 
hear about, but those images do not tell the whole story. When 
I begin teaching a new class at Georgetown, I often ask my 
students, ``When you hear the word entrepreneur, what do you 
think of?'' Their answers are predictable: Bill Gates, Mark 
Zuckerburg, Michael Dell, Richard Branson. They say what so 
many people would say, and they missed a huge point. 
Entrepreneurs come in all shapes and sizes, and EVERY PERSON 
has the ability to be an entrepreneur.

    Being an entrepreneur is as much a mindset as it is a 
career choice. You can work in a startup that somebody else 
founded and be entrepreneurial. You can work in a large company 
and be entrepreneurial. You can work in a non-profit, or--
heaven forbid even a government agency and be entrepreneurial. 
There is a great entrepreneurial community growing right here 
in Washington DC, led by a vibrant community of leaders 
including the founders of 1776. It can be done anywhere. If 
Professor Yunus can find thousands upon thousands of successful 
entrepreneurs--nearly all women, by the way--among the rural 
communities in Bangladesh--some of the poorest regions on 
Earth, then we can certainly find--and develop--more 
entrepreneurs in communities all across America. And, if I can 
change the culture of a 225-year-old university to be more 
entrepreneurial, then it can be done anywhere.

    That leads me to my second point: Education matters. Yes, 
you can teach entrepreneurship. Entrepreneurship is not magic. 
It is not true that you must have a ``great idea'' to begin 
your life as an entrepreneur. It is just not true that 
entrepreneurs are simply standing in the shower one day and the 
so-called ``great idea'' just hits them as if lighting had 
struck, and then they go off and become millionaires.

    Colleges and universities--like Georgetown University and 
so many others--have been teaching entrepreneurship courses for 
decades. And now, more and more, community colleges and even K-
12 schools are teaching more courses and lessons that instill 
an entrepreneurial mindset and skillset in America's younger 
generation. And with new curricula that emphasize evidence-
based entrepreneurship, customer discovery, and lean startup 
principles, there are tools, processes, and frameworks that can 
make an entrepreneurial effort much more likely to succeed.

    And that is of critical importance. Our education system 
needs to change from one that teaches young people how to get a 
job and survive in a hierarchical employment environment to one 
that teaches them to embrace risk; that change is inevitable 
and not inherently bad; that they can pursue their passion and 
make a living doing it.

    What can Congress do to help? In short, be more like 
entrepreneurs. Solve problems. Serve your customers. Stop 
constant fighting and gridlock. Refuse to stand still. When you 
hit an obstacle, get creative and find a way to get things 
done.

    Other suggestions:

           Clarify the rules. Minimize uncertainty in 
        regulation.

           Remove red tape.

           Fix the idiotic immigration laws that kick 
        out the brilliant entrepreneurs that want to stay here, 
        build companies, and create jobs.

           Recognize that entrepreneurs are not the 
        same as small business owners.

           Celebrate entrepreneurs.

           Support entrepreneurship education efforts.

    In closing, I thank you for this opportunity to speak. I am 
passionate about growing the entrepreneurial spirit of America. 
I see young people every day who I am confident are going to 
change the world in amazingly positive ways through 
entrepreneurial efforts. I am very optimistic about the power 
of entrepreneurship in America, and I would be happy to answer 
any questions you may have, or help in any other way.
                Anton Gelman, Small Business vs Startup


    My name is Anton Gelman, I am the CEO of Cont2nt.com--a 
two-year old venture-backed startup based in Washington DC. We 
are building a market for breaking news that enables 
freelancers and media companies to sell their photo and video 
stories to media outlets around the world in realtime. We are 
eBay for breaking news--or put another way, we are trying to 
build a global Free Market for a Free Press.

    Cont3nt.com officially launched a bit over a year ago and 
we now have 24,000+ journalists, and 2000+ media companies, in 
25 countries around the world. I am responsible for creating 5 
jobs in the USA (including my own), 5 internships, and an 
additional 4 jobs abroad. We are expanding rapidly and intend 
to have a presence in every country in the world by the end of 
next year.

    I've been involved in entrepreneurship all my life--
starting from ``Anton Enterprises''--a landscaping company I 
started when I was 12, to the web development and strategy firm 
I ran throughout college, and all the way to the company I have 
right now. I have run small businesses, and I now run a 
startup. And I can tell you that there is a WORLD of difference 
between the two.

    A ``lifestyle business'' is an organization that grows 
linearly and aims to provide an income and independence to the 
people that run it. I have tremendous respect for lifestyle 
businesses and the people that create them. However a ``growth 
business'' aka ``startup'' is NOT a lifestyle business and 
treating them the same (as we have been doing) does not allow 
us to provide services to this crucial element of the American 
economy.

    A startup is ``a temporary organization in search of a 
repeatable business model'' (Definition by Steve Blank). This 
is a very strange definition for what we think of as a company. 
But it is very true.

    Startups are not a storefront--it is a rocket-ship. I write 
this with all seriousness. The goal of a startup is to test a 
hypothesis that should take this idea worldwide and try and 
dominate a market segment previously un- or under- addressed. 
Their growth is never linear (if it is, they are dead), it is 
either exponential or out-of-business. As a consequences they 
tackle big problems, run on intellectual property, and build 
jobs faster than is possible in any other industry.

    Startups are usually technology-based, run on intellectual 
property, and (often) venture funding. A company goes from 
theory to operations in 1-12 months, and can scale from the 
original founding team to dozens or hundreds of employees 
within the same period. It is fast growing, fast iterating, and 
acts much more like IBM than a mom and pop shop. As a 
consequence--their needs are very different from what has been 
traditionally thought of as a small business.

    Existing legislation is much too slow, based in existing 
banking-loan infrastructures, and cumbersome application 
processes. Startups don't have 6+ months to wait for program 
approvals, we have no physical collateral to back our bank 
loans, and the tax breaks given to research businesses usually 
pass us by. Because of the reliance on the old ``lifestyle 
business'' model--almost all previous legislation and programs 
have been ineffective in targeting startups.

    As a consequence, aside from a very rare exception (like 
SBIR), I do not know any startups that are able to take any 
advantage of government programs--it is usually impractical to 
even think about it. This is a shame because for minimal 
investment startups provide exponential growth & world-changing 
services, and policy can help increase our competitiveness on 
the world stage.

    With the adoption of the JOBS act, the beginnings of crow-
funding, and immigration reform--it is clear that this is 
becoming a mainstream issue, and we are all the happier for it. 
However as good as these efforts have been, they are in their 
infancy, and have yet to become truly useful to help the 
startup economy.

    I would urge policy makers and legislators to quickly 
implement the changes needed to streamline small business 
programs and target startup companies with resources like R&D 
tax credits, access to funding (not reliant on traditional SBA 
loans), immigration reform, and a network of trusted 
organizations that could help dispense government offerings 
faster and in a way that is targeted at growth companies.

                                 
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