[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]





                 REVERSING THE ENTREPRENEURSHIP DECLINE

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

                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                             JULY 19, 2017

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            Small Business Committee Document Number 115-030
              Available via the GPO Website: www.fdsys.gov
              
              
              
              
              
              
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                   HOUSE COMMITTEE ON SMALL BUSINESS

                      STEVE CHABOT, Ohio, Chairman
                            STEVE KING, Iowa
                      BLAINE LUETKEMEYER, Missouri
                          DAVE BRAT, Virginia
             AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
                        STEVE KNIGHT, California
                        TRENT KELLY, Mississippi
                             ROD BLUM, Iowa
                         JAMES COMER, Kentucky
                 JENNIFFER GONZALEZ-COLON, Puerto Rico
                          DON BACON, Nebraska
                    BRIAN FITZPATRICK, Pennsylvania
                         ROGER MARSHALL, Kansas
                      RALPH NORMAN, South Carolina
               NYDIA VELAZQUEZ, New York, Ranking Member
                       DWIGHT EVANS, Pennsylvania
                       STEPHANIE MURPHY, Florida
                        AL LAWSON, JR., Florida
                         YVETTE CLARK, New York
                          JUDY CHU, California
                       ALMA ADAMS, North Carolina
                      ADRIANO ESPAILLAT, New York
                        BRAD SCHNEIDER, Illinois
                                 VACANT

               Kevin Fitzpatrick, Majority Staff Director
      Jan Oliver, Majority Deputy Staff Director and Chief Counsel
                     Adam Minehardt, Staff Director
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Steve Chabot................................................     1
Hon. Nydia Velazquez.............................................     2

                               WITNESSES

Gregory Crawford, Ph.D., President, Miami University, Oxford, 
  Ohio...........................................................     4
Ms. Karen Kerrigan, President & CEO, Small Business & 
  Entrepreneurship Council, Vienna, VA...........................     6
Mr. Joe Schocken, CEO, Broadmark Capital, Seattle, WA............     8

                                APPENDIX

Prepared Statements:
    Gregory Crawford, Ph.D., President, Miami University, Oxford, 
      Ohio.......................................................    29
    Ms. Karen Kerrigan, President & CEO, Small Business & 
      Entrepreneurship Council, Vienna, VA.......................    33
    Mr. Joe Schocken, CEO, Broadmark Capital, Seattle, WA........    42
Questions and Responses for the Record:
    Questions from Hon. Aumua Amata Coleman Radewagen to Ms. 
      Karen Kerrigan.............................................    49
Additional Material for the Record:
    None.

 
                   REVERSING ENTREPRENEURSHIP DECLINE

                              ----------                              


                        WEDNESDAY, JULY 19, 2017

                  House of Representatives,
               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 11:00 a.m., in Room 
2360, Rayburn House Office Building, Hon. Steve Chabot 
[chairman of the Committee] presiding.
    Present: Representatives Chabot, Luetkemeyer, Radewagen, 
Knight, Kelly, Blum, Bacon, Fitzpatrick, Marshall, Norman, 
Velazquez, Murphy, Lawson, Clarke, Adams, Espaillat, and 
Schneider.
    Chairman CHABOT. Good morning. The Committee will come to 
order.
    We appreciate the panel being here, and I will be brief in 
my opening remarks so we can get the testimony.
    Last month, the national unemployment rate was down to 4.4 
percent, and the stock market continues to rise, setting new 
highs almost daily. But amid these encouraging statistics, the 
American economy continues to grow at only half its historic 
average. A slower economy means lower growth and wages for 
American workers, a higher national debt, and makes it harder 
for Americans to achieve the American dream.
    Just last week, the administration acknowledged the need 
for faster economic growth through their MAGAnomics plan, a 
term I am told was coined by our former colleague and new OMB 
director, Mick Mulvaney. I look forward to continue working 
with the administration on their priorities of regulation and 
tax reform to grow the economy.
    One group that should benefit from these reforms are new 
and small businesses, as they are the main engines of economic 
growth. They create the majority of our nation's jobs and spur 
innovation. However, since the great recession, there has been 
a significant decline in entrepreneurship, which may in part 
explain the slow economic growth experienced in American today.
    With last week marking Major League Baseball's All-Star 
Game, the Committee has put together its own group of small 
business and entrepreneurship all-stars to testify this 
morning. By listening to solutions that can be made by the 
federal government, universities, and the private sector, we 
can all work together to ensure America remains the most 
innovative and entrepreneurial country in the world.
    We appreciate the testimony of the witnesses today. As some 
members may be aware, originally, I had Larry Kudlow also on 
the panel, and unfortunately, he informed us yesterday he was 
unable to make it today. So he will not be here. But we have 
three great witnesses we will turn to shortly.
    And I would now like to yield to the Ranking Member for an 
opening statement.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman. And thank you for 
holding this timely hearing.
    In this Committee, we often say that small businesses are 
the backbone of the economy, and that is absolutely true. 
However, when we think about job creation, something I know all 
of our constituents want us to focus on, it is not just small 
firms, but specifically, new firms, that lead the way. Fledging 
companies that scale up rapidly need to add employees to their 
payrolls and that translates into new jobs. This type of 
entrepreneurship has long been a cornerstone of our economy, 
and it is necessary for the United States to see continued 
economic prosperity.
    While the last 2 years have seen a slight uptick in 
business formation, unfortunately, entrepreneurship and 
business creation has seen a decades-long decline since the 
1970s. In 2014, our nation created slightly over 450,000 new 
firms. That represented the lowest number of firms created in 
any year in more than 4 decades. This troubling trend stems 
from a confluence of factors. Lack of capital remains an 
ongoing problem for all entrepreneurs. However, the problem is 
particularly pronounced for traditionally disadvantaged 
demographics, like women and minorities. In fact, the Kauffman 
Foundation found that over 70 percent of Asian, Hispanic, and 
Black entrepreneurs, relied on personal and family savings as 
their main source of startup capital. And women typically 
launch their ventures with 25 percent less capital than their 
male counterparts.
    These disparities come with significant cost to our 
economy. According to one analysis, if minorities started 
businesses at the same rate as non-minorities, the U.S. will 
have more than 1 million additional employer businesses, and as 
much as an extra 9.5 million jobs.
    We must also look at ways to foster entrepreneurship among 
younger people. With over $1 trillion in national student loan 
debt and an average of $37,000 for recent graduates, too many 
young people are foregoing the opportunity to create a new 
business. I have authored legislation that will provide student 
loan relief to recent graduates who launch startups and to 
their employees. I would be interested in hearing the panel's 
view on that idea today.
    Finally, we must ensure that our nation remains the land of 
opportunity for foreign-born entrepreneurs. Immigration and 
entrepreneurship have long been drivers of our economic 
success. For generations, America has been the place to take a 
chance, build a business, and ultimately, strengthen our 
economy and communities. In my city, New York, nearly half the 
small businesses are owned by immigrants. Nationally, more than 
half of startups valued at $1 billion or more, were founded by 
immigrants.
    To reverse declines in entrepreneurship, we must build on 
this asset. I am concerned that the current administration 
policies and anti-immigrant rhetoric, could severely stifle 
this important source of talent. We should be advancing 
strategy that draws on immigrants' innovation, hard work, and 
entrepreneurial spirit, not creating additional barriers.
    During today's hearing, we will hear a wide array of ideas 
to foster entrepreneurship. This is an important topic that 
directly affects the livelihood of all our constituents, 
whether you are from Brooklyn, New York, Silicon Valley, 
Cincinnati, Ohio, or Lincolnshire, Illinois, I hope today's 
discussion provides a range of new ideas that members of the 
committee can coalesce around.
    In that regard, I want to thank all the witnesses for their 
participation and insight.
    And with that, Mr. Chairman, I yield back.
    Chairman CHABOT. Thank you very much. The gentlelady yields 
back.
    And if Committee members have an opening statement 
prepared, we would ask that they be submitted for the record.
    I would like now to take just a moment to explain our 
timing rules here. It is pretty simple. You get 5 minutes to 
testify and we get 5 minutes. I know some of you have been 
through the drill before many times. And there is a lighting 
system to assist you. The green light will be on for 4 minutes. 
The yellow light will come on and let you know that you have 
got about a minute to wrap up and then the red light will come 
on and we ask you to stay within that timeframe if at all 
possible.
    I would now like to introduce our distinguished panel here 
this morning. Our first witness is Dr. Gregory Crawford, the 
current president of Miami University, the real one in Oxford, 
Ohio, not that one down in Florida. And I might note that our 
staff director, Kevin Fitzpatrick, is a graduate of Miami 
University, and my son, Randy, and my brother, Dave. And Dave 
is a Miami merger because his wife Ellen also went there. They 
have four kids and live in Florida. But in any event, we 
welcome you here, Dr. Crawford. Under your leadership, the 
Entrepreneurship Program at Miami University Farmer School of 
Business is ranked sixth among public institutions and first in 
social entrepreneurship. He is also an entrepreneur himself, 
co-founding Myomics, a drug discovery company and Corum 
Medical, which produces non-invasive optical devices. And we 
thank you for being here.
    Our second witness is Ms. Karen Kerrigan, President and CEO 
of the Small Business and Entrepreneurship Council. Not a 
stranger, of course, to this Committee. Ms. Kerrigan has 
testified before numerous House and Senate Committees, and we 
welcome her back. She is an advocate for protecting small 
businesses and promoting entrepreneurship here in Washington, 
D.C.--not just here in D.C. but all over the country. She has 
served on numerous federal advisory boards, including the 
National Women's Business Council, and the U.S. Treasury 
Taxpayer Advisory Panel. And we again welcome you here.
    I would now like to yield to the Ranking Member to 
introduce our third witness.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman.
    It is my pleasure to introduce Mr. Joe Schocken, the 
president and founder of Broadmark Capital, headquartered in 
Seattle, Washington. He currently serves on the United States 
Commerce Department's National Advisory Committee on Innovation 
and Entrepreneurship. He holds a degree from the University of 
Washington and an MBA from Harvard University. Welcome. Thank 
you for being here today.
    Chairman CHABOT. Thank you very much.
    Dr. Crawford, you are recognized for 5 minutes.

 STATEMENTS OF GREGORY CRAWFORD, PRESIDENT, MIAMI UNIVERSITY; 
     KAREN KERRIGAN, PRESIDENT AND CEO, SMALL BUSINESS AND 
 ENTREPRENEURSHIP COUNCIL; JOE SCHOCKEN, CEO, BROADMARK CAPITAL

                 STATEMENT OF GREGORY CRAWFORD

    Mr. CRAWFORD. Thank you. Chairman Chabot, Ranking Member 
Velazquez, and Committee members, I am just thrilled to be here 
today to talk about entrepreneurship. So thank you so much for 
the invitation.
    I would like to answer three questions today: How do 
universities cultivate entrepreneurial leaders? The second 
question, how does Miami University promote the entrepreneurial 
spirit? And thirdly, kind of the new metric we are looking at 
is not just if our students get jobs, but how many jobs they 
actually create.
    So a little bit about my biases and my background. I am a 
physicist and inventory, so a little bit geeky, I bet. Co-
founder of two tech startup companies, industrial experience 
out in Silicon Valley and Xerox Park Economic Development in 
Indiana, and then leadership at three top universities. And so 
over my time in my career have sort of come to the definition 
of entrepreneurship as seeking potential, seizing opportunity, 
and synthesizing solutions for societal impact.
    And many folks think that at a university, that 
entrepreneurship is fully embedded in the business school, and 
we have one of the best business schools in the country, the 
Farmer School, but nevertheless, entrepreneurship is all 
throughout our campus, and more than half of our students are 
actually outside the business school in all different majors, 
across all the different colleges and so forth.
    One example is the company OROS, which just was featured in 
the Forbes Magazine article, Why Ohio is the Best State in 
America to Launch Startups, that were two science students at 
Miami who actually leveraged the NASA technology, Aerogel with 
low thermal connectivity, and made great new coats and apparel 
for that. So we are very excited about that.
    Entrepreneurship education and how do we do it? We kind of 
think of it in three steps. Number one, we think of the T-
shaped individual, and that is the person that has both depth, 
so there are good computer scientists, for example, but then we 
have this wonderful liberal arts core where they can study 
philosophy and ethics and anthropology and so forth. And then 
surrounded by that we look at entrepreneurship as a co-major, 
so they back that on. But what we bring to the table for our 
students is really to get them involved with entrepreneurship, 
exercises, experiences, and so forth, and those experiences. 
And so we look at it that way. We have a top-ranked institute 
for entrepreneurship, as you mentioned, Mr. Chairman, and also, 
we have a wonderful entrepreneurial faculty and students in our 
Armstrong Institute for Interactive Media Studies.
    Our ecosystem, a student can go along all different paths 
in the university. They can be involved with entrepreneurial 
clubs. They can live in a dorm that is a LLC, a living, 
learning community, where they are all entrepreneurial-minded. 
They can go and start a social entrepreneurship company through 
a net impact club. We do all kinds of great things on events 
and they can be part of a venture competition. We have a 
startup weekend where they just involve starting a company over 
a 3-day period. And we have internships all around the world, 
around the country. We think that Oxford, Ohio, is fantastic, 
but we need to get in the heart of some of these 
entrepreneurial environments.
    And so I would love to talk to you about a few of the 
examples there. Number one, we just think there is no 
replacement for students getting involved with an 
entrepreneurial company. They are real projects, real states, 
real consequences. It is messy, complex, and risky, and we want 
to get them involved with that. And one of our affiliations is 
Cintrifuse in Cincinnati, and it is just a wonderful place, 
which is a catalyst for high-tech startups and small startups 
and so forth. And so our students are engaged with companies 
such as Roadtrippers or Frameri, 84.51 and the Brandery, and 
they really get mixed up in those type of experiences.
    The second one is putting our students in the heart of 
Silicon Valley. And so we were one of the first external 
satellite campuses out there in Silicon Valley in the San 
Francisco area, and it is a study abroad experience in a sense 
but in our country. And the students are embedded in startup 
companies for 4 days of the week, and then on the fifth day 
they get to meet with executives and thought-leaders in the 
Silicon Valley area at places like Facebook, Apple, Instagram, 
Google, and Twitter. So we are very excited about that program, 
getting them deeply engaged in that.
    The impact of our alums is pretty fantastic. We do a lot of 
focus on our undergraduate education at Miami. That is what we 
are known for. And if we look at LinkedIn, we have more than 
1,500 Miami alums that categorize themselves as founders. Over 
the last 5 years, since 2011, we have brought in more than $2 
billion in venture capital money for affiliated high-growth 
companies coming out of the university with our alums.
    And thirdly, we had about 94 Miami companies exit high-
growth companies since 2011.
    So the role of entrepreneurship, it really plays sort of a 
big national role today and universities can add on the 
research side, which I did not speak too much about but we love 
to address. And they also can really train and provide 
innovative curriculums for students to really engage in that 
kind of enterprise.
    The outcomes are great. Students can graduate and start 
companies, which is fantastic, but they can also take those 
entrepreneurial skills and go off and be great lawyers and work 
in the medical enterprise and be congresswomen and senators and 
so forth. And I do believe there is the intangibles that an 
entrepreneurial kind of education offers that sometimes we do 
not talk about. We often talk about the skillset, but it 
creates an environment for them at a university where they can 
embrace failure, and when they fail, they can embrace it with 
kind of enthusiasm and optimism, knowing that it is just a step 
to success.
    Second of all, it gives you the courage to step out and do 
something that nobody else has ever done in the world or nobody 
else has ever succeeded at.
    And third, it enables our students to think about an idea 
and bring unity to a concept, and also bring unity to a team.
    And so I am very happy to be here and report that we are 
not just counting students who get jobs after graduation. More 
than 95 percent of our kids have a job 6 months after 
graduation. But my new metric is looking at impact on the 
university and how it impacts society in our country. And so 
how many jobs that our students create after graduation. Thank 
you.
    Chairman CHABOT. Thank you very much.
    Ms. Kerrigan, you are recognized for 5 minutes.

                  STATEMENT OF KAREN KERRIGAN

    Ms. KERRIGAN. Well, great. Thank you so much, Chairman 
Chabot and Ranking Member Velazquez, Members of the Committee. 
It is great to be here.
    Chairman CHABOT. Could you pull the mic a little closer, 
maybe?
    Ms. KERRIGAN. No. Actually, I think--oh, this? The whole 
box? Okay.
    Chairman CHABOT. Yeah.
    Ms. KERRIGAN. Okay. Got it. How are we doing?
    Chairman CHABOT. Good.
    Ms. KERRIGAN. Good.
    Chairman CHABOT. Much better.
    Ms. KERRIGAN. Okay. Thank you.
    So my group, the Small Business and Entrepreneurship 
Council, we are very grateful that the Committee has convened 
this hearing on this very critical issue. Restoring healthier 
levels of entrepreneurship and new business creation is vital 
to our country's economic strength and to opportunity in 
America. Thank you for the invitation to be here.
    SBE Council, just real quickly, we are a nonprofit advocacy 
research and education organization dedicated to protecting 
small business, promoting entrepreneurship. For nearly 25 
years, we have been working on policy initiatives and private 
sector initiatives to strengthen the ecosystem for startups and 
successful small business growth. Our members have testified 
many times before this Committee, and they have seen that their 
participation and your positive engagement has led to 
successful policy outcomes in a number of areas--access to 
capital, tax policy, regulatory relief, government procurement, 
and more. So we appreciate your continuous work and your 
ability to actually get things done. That is very much 
appreciated by our members. Every hearing, every piece of 
legislation and your advocacy is very important to building an 
environment where people want to take risks and pursue the 
dream of starting a business.
    John Lettieri, the cofounder of the Economic Innovation 
Group, he recently participated in our event we had on the 
Hill, the Startup Policy Forum last month, and he made an 
observation that I think is worth repeating here. He noted 
that, indeed, there is a growing awareness about the trends in 
entrepreneurship, but there is a lack of connectivity in the 
policy debate regarding just how severe these trends are and 
what their implications are for the broader economy. And we 
think that really needs to change at every level of government 
and within the business community itself because 
entrepreneurship, as you know, is so critical to our country, 
its dynamism, and strength.
    In a series of gap analysis studies at my organization 
conducted in the summer and fall of last year, our chief 
economist, Ray Keating, looked at key gaps in the economy. We 
looked at gaps in wage growth. We looked at the gaps in private 
sector investment. We looked at the gap in jobs. And of course, 
we looked at the gap in entrepreneurship.
    Keating looked at three data points--the incorporated self-
employed, unincorporated self-employed, and employer firm data. 
He looked at the pre-recession high--that is 2008--for each 
measure as a share of the civilian, noninstitutional population 
and compared those to where we are now according to the latest 
data. His findings show that there is a gap of about 3.5 
million businesses in America. That is businesses that simply 
do not exist because people never started them.
    An Economic Innovation Group study reinforces our findings, 
but also finds that new business creation during the 2010-2014 
recovery was highly concentrated. Their study notes that the 
five metro areas of New York, Miami, Los Angeles, Houston, and 
Dallas, produced as big of an increase in Businesses as the 
rest of the Nation combined. And for comparison, the recovery 
and expansion during the 1983-1987 period found much less 
concentration, with new business creation in 25 metro areas 
produced the same increase as the rest of the Nation.
    So obviously, this has been happening over some time. We 
know this recovery has been imbalanced. There are those left 
behind, those who currently think they are still, or we are 
still in a recession, and we know this difficult period has 
left these scars on many. We believe it is showing up, for 
example, in the big drop-off in entrepreneurship among younger 
Americans, those ages 18 to 34. I cite several reports in my 
written testimony, the Millennial Entrepreneur study from the 
SBA Office of Advocacy, a Wall Street Journal report, the 
latter of which finds that the share of younger people who own 
private businesses has reached a 24-year low.
    Now, there are some groups, and there is some positive 
news. Some groups and sectors of the population that have 
bucked this trend where entrepreneurship remains stronger is 
growing. Entrepreneurs aged 55 to 64 made up for 25 percent of 
all new entrepreneurs in 2016, and that is up from 14.8 percent 
in 1996. Immigrant entrepreneurs continue to show strength as 
they account for 30 percent of new entrepreneurs.
    So, you know, there is obviously some bad news on the 
entrepreneurship front, but I do think there is a lot to be 
hopeful for in the future. At the state and local level there 
is a tremendous amount of policy changes and initiatives that 
are focused on lowering barriers and providing support to help 
people start businesses. In terms of the states of the two 
witnesses here, I mean, both of their states rank in the top 10 
in terms of from a policy environment, but that took a lot of 
hard work in terms of keeping taxes low, streamlining 
regulations, engaging the business community and making those 
places great places to start businesses. Business leaders and 
successful entrepreneurs are stepping up and bringing their 
capital, know-how, energy, and networks back into their 
communities and cities to help rebuild and revitalize areas 
that particularly need help. We heard a great success story 
from Dan Gilbert, the founder and chairman of Quicken Loans at 
our policy forum where he is really pumping billions of dollars 
back into Detroit and making that a great place for people to 
live, and obviously, for new entrepreneurs.
    There is great news on the broadband front. A whole lot of 
things that are going on. We just need more of this activity to 
happen. And certainly, Congress has a role to play in terms of 
tax, regulatory, and healthcare reform as well. So I look 
forward to discussing these things with you and the Committee.
    Chairman CHABOT. Thank you very much. We appreciate it.
    Mr. Schocken, you are recognized for 5 minutes.

                   STATEMENT OF JOE SCHOCKEN

    Mr. SCHOCKEN. Good morning, Chairman Chabot, Ranking Member 
Velazquez, and members of the Committee. My name is Joe 
Schocken, and as the president and founder of Broadmark 
Capital, I spent my entire career on new company formation, 
capitalization, and development.
    I am very pleased this Committee is willing to tackle this 
vitally important subject of reversing the entrepreneurial 
design. At the same time, we also need to accelerate our 
economic growth, create high wage jobs, build an economy that 
offers opportunity for all, and can compete effectively in the 
face of increasing globalization and automation.
    The solution to these problems is to unleash the power of 
our innovation economy. That is where all the new net jobs get 
created, and the good news is that there are some pretty simple 
answers. The answers come from the Jobs Act, which I had the 
honor of working with members of Congress and the Obama 
Administration to pass. I say pretty simple because that law 
passed with broad bipartisan support, and it showed that some 
minor policy tweaks will produce the capital that unleashes the 
innovation economy and does it without creating problems. So 
here are some immediate solutions that we should all be able to 
agree on to remedy this decline.
    First, fix general solicitation. Seventy billion dollars of 
capital was raised in the first 27 months following the Jobs 
Act, almost all of which went into additional capital, into 
small companies and new projects spurring job growth, and that 
was done under the severe regulatory burden of third-party 
verification. Go back to the previous standard of self-
certification, which was never a problem, and the $70 billion 
number will grow instantly and exponentially.
    Next, fix equity crowdfunding. Crowdfunding is an important 
and useful tool, especially for attracting capital to our 
struggling inner cities and capital-starved regions. It has 
failed because the SEC's unworkable regulations have limited 
its potential.
    Make it simpler and more attractive for small companies to 
do IPOs. Costs and regulatory burdens continue to make the 
traditional IPO path unattractive for small companies. The Jobs 
Act took a small step to correct this and we need to do more. 
Expand the pool of accredited investors by allowing people to 
become accredited through educational and employment 
qualifications. Finally, here is a novel idea; let early stage 
companies raise additional capital by selling their net 
operating losses. Let them leverage their hard-won capital in 
many cases that will make a difference between success and 
failure.
    These are simple, short-term fixes that will have a major 
and quick impact on reversing entrepreneurial decline and 
create real growth in the American economy. But we also need to 
address the bigger, harder, long-term systemic issues that 
impede our innovation economy. For that, we should create a 
commission on the innovation economy. Bring in the best and 
brightest venture academic, legal, and experienced 
entrepreneurs to advise the Congress, White House, and the 
agencies. A bill to do this is being introduced in both houses 
and we encourage its immediate adoption. This commission should 
be tasked with addressing some of these difficult, long-term 
systemic issues, such as bringing back the small regional IPOs. 
We used to have small IPOs for the regional manufacturers and 
retailers which would create regional jobs and spread economic 
growth more equally across the country. Spread venture capital 
more evenly across the country, and expand opportunities for 
women and minorities. The regional gender and racial imbalance 
is a real problem and contributes to the economic and political 
stress in this country.
    The number of venture firms in this country is down by 50 
percent, starving the innovation economy of the $5 and $10 
million A round financings designed to bring the experience and 
management expertise of venture professionals to follow the 
initial seed and angel financings. Our leaders are just 
beginning to acknowledge the problems created by a 50 percent 
decline in the number of public companies. Increasing the 
number of public companies would boost jobs, enhance 
transparency, lower the cost of capital, and make pricing more 
efficient.
    So there is a formula for reversing our entrepreneurial 
decline. Move quickly to solve the easier, near-term issues and 
create a commission of the best and brightest around the 
innovation economy to solve the tougher long-term issues. The 
American innovation economy has long been the envy of the 
world. The countries that are envious now are investing deeply 
to compete with us and we need to respond.
    Thank you for taking the time to address this vital issue. 
I look forward to working with you on solutions, and I am 
pleased to answer any questions.
    Chairman CHABOT. Thank you very much.
    And I will begin with myself and recognize myself for 5 
minutes.
    Dr. Crawford, I will start with you first. So just how 
great is Miami University of Ohio?
    Mr. CRAWFORD. Well, since you asked.
    Chairman CHABOT. No, my real question. As an entrepreneur 
yourself, what were some of the biggest lessons that you 
learned as a co-founder of two startup companies?
    Mr. CRAWFORD. Thank you for the question. I there were 
several areas. I was a physicist, number one, and when I 
started my first company I thought, you know, I can do quantum 
mechanics, therefore, I can do accounting. And boy was I wrong. 
And so I really learned how to actually pull together a team 
and bring unity around something that is very transdisciplinary 
and requires all types of expertise. And you just simply cannot 
do it on your own.
    The second area was just how much inertia is out there in 
the marketplace, and you fight against change, and if it is 
disruptive change, it is even more difficult to kind of move 
the needle forward. But as one of my mentors put it, if there 
is no inertia, you probably do not have a very good idea, which 
was actually absolutely right.
    And the third area I think, just on the personal side, as a 
physicist, you can kind of over engineer everything, and so the 
mentorship on really how to bring simplicity to your project, I 
think, is very important. And so, but what I did learn overall, 
when you look at entrepreneurship and you look at it from your 
company's perspective or building it through the university is 
just how important the partnerships are. If you do not have 
that ecosystem, if you do not have the infrastructure in place 
that you can go to the intellectual property attorney, the 
corporate attorney, you can go to the venture capital or the 
angel investment firm or your local state for seed funding, you 
just cannot make it all work. So the most important I would say 
learning is how to actually develop those partnerships and move 
forward in a more strategic way with both your state and the 
country.
    Chairman CHABOT. Thank you very much.
    Ms. Kerrigan, I will go to you next.
    In your written testimony, you stated that risk aversion 
after the financial crisis has become an issue preventing 
Americans oftentimes from taking on risk and starting new 
businesses. What solutions would you suggest to potential 
entrepreneurs to ease their anxiety in starting a business? How 
would you address that?
    Ms. KERRIGAN. Well, I think it all starts with the economic 
climate and, you know, bringing back sort of robust economic 
growth in the country. I think once there is that traction and 
there is sustainable growth, you are going to have more private 
sector investment. You are going to have more job growth, more 
quality job growth. I mean, things will just brighten up 
overall. And so if you have that breakthrough, sort of that 
light in the economy where there is sort of more competence and 
more optimism, I think it will bring more people off the 
sidelines and take those risks.
    I talked about the Millennial generation, and particularly 
I think in my written testimony, why this generation might be 
so risk averse, but I was very heartened to see an American 
Small Business Development Center survey that they just 
released in May of 2017, that found that 50 percent of 
millennials planned to open businesses in the next 3 years. 
Wow, that would be terrific, you know, for our economy. So we 
need to enable that. We need to encourage that. But the two 
things, the two barriers that stood out at me are issues that 
this Committee has dealt with, access to capital being a key 
issue. And the other which was a surprise; they do not know 
where to go to start a business.
    So I think really building out the ecosystem. Making sure, 
you know, the policy environment has to be right, access to 
capital, access to markets, and then access to education and 
information that people have that can successfully start and 
scale their business.
    Chairman CHABOT. Thank you very much.
    Mr. Schocken, are there any particular regulations that you 
would like to see revised or removed that would especially help 
entrepreneurs or small businesses generally?
    Mr. SCHOCKEN. Well, Mr. Chairman, I would go back to my 
testimony. We suggested a series of minor regulatory changes 
that would have a dramatic impact on the innovation economy. 
They build on our learnings from the Jobs Act. I mean, take 
general solicitations. Seventy billion dollars. You create a 
general solicitation in the Jobs Act and $70 billion of capital 
was directed into new companies and new projects across the 
country. And that is with basically one-and-a-half hands tied 
behind our back because of this third-party verification 
requirement.
    So Congress has accepted the notion of general 
solicitation. The SEC wrote a set of regulations that 
effectively fixed a problem that did not exist. There was no 
third-party verification before required for these securities, 
and you will not find anything in the literature that said it 
was a problem. The problem got created, and even with that 
major impediment to capital formation, $70 billion of new 
capital. And lack of access to capital is one of the most 
significant factors in impeding the innovation economy. So I 
have given you an outline of a couple of easy things to fix and 
also outlined some long-term issues that I think are terribly 
important.
    Chairman CHABOT. Thank you very much. My time is expired.
    The Ranking Member is recognized for 5 minutes.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman.
    Mr. Schocken, can we go back again to the concentration of 
capital, access to capital, in terms of geographic areas? Not 
only about debt financing but venture capital. How do you see 
or what role can we play in addressing that issue? It is one 
that constantly, you know, we bring up to the Small Business 
Administration, even the VC program that we have at SBA, is 
doing a poor job in reaching every corner of America, 
particularly rural America and minority and women-owned 
businesses.
    Mr. SCHOCKEN. You could not be more correct. And let me 
begin with a really startling statistic. Since the 2008 
recession, 50 percent of new business formation in the United 
States has come from .64 percent of the counties in the United 
States. Fully 50 percent of new businesses came from 20 of 
3,100 counties across the United States. That is a total 
concentration of economic growth in just a very small set of 
areas.
    Let me give you one other statistic. Fifty percent of all 
venture capital last year went to one state. So this problem is 
a really serious problem. And as a business guy, it does not 
come easily for me to suggest that there is a Federal role 
here, but I am going to suggest that I think there is. We used 
to have an SBIC program, where the SBIC sponsored venture 
capital funds around the country. We in the industry viewed it 
as a successful program. It was viewed as unsuccessful because 
the bonds were not paid off by the investments that were made. 
And my view is the study that proved that was a poorly done 
study because, in fact, the debts were not paid back, but in 
doing that calculation, nobody bothered to take into account 
the taxes that had been generated by those companies and by 
those employees. And so I think part of the answer to your 
question is bring back that SBIC program.
    Ms. VELAZQUEZ. Thank you. Thank you.
    Mr. Crawford, would you like to comment?
    Mr. CRAWFORD. Thank you. Could you repeat the question, 
please?
    Ms. VELAZQUEZ. Let us talk about the changing face of the 
economy. More women are creating jobs and business formation 
and minority businesses. How can we improve access to capital, 
not only debt financing, but venture capital?
    Mr. CRAWFORD. Sure.
    Ms. VELAZQUEZ. You see the role that $2 billion in VC did 
to--the kind of impact that it had in your program.
    Mr. CRAWFORD. It has, and I would say another thing. Coming 
from my perspective at a university as well is that some of the 
ideas that we have are very early on. They are very embryonic 
in a sense, and so we have to kind of get them to the level 
where you can even be in a series A kind of round. And so 
personally, I have been the beneficiary, and I know many other 
people who have on the SBIR programs and the STTR programs, so 
that early kind of see nondilutive capital through grants I 
think is a great way to take some of those early, those big 
ideas that we have to get to the next stage and get to the 
prototyping stage and how that would work out I think would be 
great from that perspective.
    And also, I do like your idea of just reimbursing students 
for debt if they go into small business and so forth. That is 
just a fantastic idea.
    Ms. VELAZQUEZ. Thank you.
    Mr. CRAWFORD. And I hope you move that forward.
    Ms. VELAZQUEZ. Thank you.
    Ms. Kerrigan, tax reform remain a high priority, but also 
an elusive one, even in this Congress. So members on this 
committee understand the importance of keeping the interests of 
small firms and entrepreneurs in mind as we approach tax 
discussion. How could simply updating thresholds and adjusting 
them for inflation annually help create a better 
entrepreneurial environment?
    Ms. KERRIGAN. I think that is a great question. For 
example, if you look at the--and I am talking about the tiniest 
businesses here. They just start up and if you look at the 
self-employment threshold, for example, where you start paying 
self-employment tax at $400, that has not been updated since 
the 1950s. And if that had kept pace with inflation, whatever 
they do, that would be over $6,000 right now, and there is a 
lot of complexity with that. It is a big turn off, particularly 
for young entrepreneurs. I am talking about people that start 
businesses that are 15, 16 years old. This is the Tax Code. 
This is what I am going to have to deal with. So that is just 
one idea I think of a threshold that the Congress can look at 
and to update and to modernize.
    Ms. VELAZQUEZ. Mr. Chairman, I yield.
    Chairman CHABOT. Thank you. The gentlelady's time is 
expired.
    The gentleman from Missouri, Mr. Luetkemeyer, who is the 
Vice Chairman of this Committee, is recognized for 5 minutes.
    Mr. LEUTKEMEYER. Thank you, Mr. Chairman. And thank all of 
you for being here today.
    As the ranking member indicated, there are a number of 
concerns that we have with regards to small businesses. We have 
talked about taxes, regulations, broadband last week, and then 
access to capital is what has been discussed with the two 
previous questioners. And to me, this is a really key situation 
because you may have a great idea, but until you can get the 
money to put it in place to operate your business, you are 
stuck.
    And so it is interesting, Mr. Schocken, you mentioned that 
50 percent of all venture capital went to one state last year. 
Can you explain why? Have they just got all the brainpower 
there to come up with all the ideas or is that where they have 
all the money? Or they have both? Or how does this all work?
    Mr. SCHOCKEN. Well, first of all, 50 percent went to one 
state and just as consequential, there has been a 50 percent 
decline in the number of venture firms in this country. There 
has not been a decline in the amount of capital managed in the 
industry. So the number of firms is down by 50 percent. What 
that means is the firms are making fewer, larger, and later 
stage investments, and those are concentrated in just a couple 
of these markets. And that is one of the most important long-
term systemic issues that we should be addressing.
    Mr. LEUTKEMEYER. One of the things that you also mentioned 
in your testimony was with regards to regional IPOs. Can you 
elaborate a little bit? That is kind of an interesting concept 
to me. I would like to delve into that just a little bit. Can 
you talk about it a little bit?
    Mr. SCHOCKEN. When I grew up----
    Mr. LEUTKEMEYER. That makes two of us.
    Mr. SCHOCKEN. The way I grew up in this industry, we had 
small regional IPOs. Today, every IPO, virtually IPO is $100 
million or larger, and there are many small companies across 
this country, small, regional manufacturers, craft brewers, 
small manufacturing companies. The $25 million IPO has gone 
away.
    Mr. LEUTKEMEYER. And the reason for that is?
    Mr. SCHOCKEN. Well, there are lots of reasons for it. My 
suggestion is we create this commission to figure out what the 
reasons are, but you lost the regional investment banking 
firms. You used to have regional investment banking firms 
across the country. Now you have got a couple of major national 
banking firms. And so because of that concentration of capital 
in larger firms, because of regulatory requirements, because of 
costs, because of decimalization, there are a whole series of 
reasons why the regional IPOs have gone away. And one of our 
most important tasks should be to bring back those regional 
IPOs. That is one of the ways to create jobs around the 
country. I am not sure I have got the magic answer for that 
one, but it is such an important issue. It should be one of the 
major long-term systemic issues that we address.
    Mr. LEUTKEMEYER. Well, I deal a lot with community banks 
and banking folks in general with one of the other Committees I 
serve on, and one of the things that we have seen is we really 
have got kind of a two-tiered economy going right now where we 
have the big banks and big companies doing well and you have 
the small banks and small companies that are kind of 
struggling. And a lot of it goes back to regulatory costs of 
compliance that the small banks are having to deal with and 
then they pass those costs on to their small lenders, to the 
small borrowers, and it makes it more difficult, number one, to 
afford the loan, and number two, the regulatory environment 
makes it more difficult for the small banks that should give a 
loan to small businesses as well. So it is kind of a one-two 
punch there.
    The problem is if we do not have a way to generate some 
economic activity and some access to capital for entrepreneurs, 
we are going to dry up as a country. We wonder why our 
employment numbers are stagnating, and we had this discussion 
this morning with some folk at the Fed. And it is pretty simple 
to me. The small businesses are where the generation of jobs 
are, and if you do not have small businesses, you do not 
generate the jobs.
    I know one of the other things I want to talk about, and 
you had mentioned crowdfunding in your testimony. And also, I 
know we had somebody I think testify in this Committee that 
PayPal now has small business online lending. There are a lot 
of other options out there. How viable are those options for 
entrepreneurs?
    Ms. KERRIGAN. I know Mr. Schocken said crowdfunding has 
been a disaster, Title 3 crowdfunding, but there is a positive 
story to tell here. There have been 400 offerings to date in 
Title 3 crowdfunding, and that was sort of, you know, Title 3 
was really meant to focus on these startups, on these smaller 
businesses. And you do have some businesses that have been 
successful at raising a million plus. There is also a diversity 
of businesses that are raising money through crowdfunding. I 
think food and beverage is the top category. You have 
entertainment and media, transportation. So I think the early 
signs are really good. And also, PricewaterhouseCoopers just 
released a survey. They said women were better at crowdfunding. 
So this is, I think, really very positive. It comes down to, I 
think, some regulatory relief. The SEC and perhaps things that 
Congress can do to make this right. You know, lift some of the 
costs on those small businesses who want to use crowdfunding 
through their CF filing and all the compliance they have to do 
and make it more practical. And I think you can really build 
from some of these successes that you see. And also work 
against, or help in terms of this concentration, this density 
of capital as well, using these platforms that businesses 
everywhere can use.
    Mr. LEUTKEMEYER. Thank you very much. My time is expired. 
Thank you, Mr. Chair.
    Chairman CHABOT. Thank you very much. The gentleman's time 
is expired.
    The gentleman from Illinois, Mr. Schneider, who is the 
Ranking Member on the Subcommittee on Agriculture, Energy, and 
Trade, is recognized for 5 minutes.
    Mr. SCHNEIDER. Thank you, Chairman. I want to thank 
Chairman Chabot and the Ranking Member Velazquez for holding 
this hearing, and thanks to you for all you do for joining us 
today to share your thoughts.
    We have talked a lot about the fact that entrepreneurship, 
small business startup, new business startup numbers are down, 
and dramatically down, and have been declining for a while, and 
reversing this decline obviously is something very important to 
grow our economy because as was noted, two-thirds of the jobs 
in this country are created by these small businesses.
    From the beginning, if these businesses are going to 
succeed, they need to have the resources, the access to 
capital, the access to talent, the skillset that will create 
these well-paying jobs, to create more investments, to create 
the virtual circle. Mr. Schocken, as you touched, we have moved 
away from the regional development and we have this great 
concentration in a few places. But I also think we need to 
invest in education and schools. And Dr. Crawford, you talk 
about in college, and I love the fact that we are permeating 
the entrepreneurial spirit into every class but we need to get 
that into high schools and middle schools, I think, and create 
it earlier. Because if you think about what is an entrepreneur, 
or the definition of an entrepreneur. There are many academic 
definitions. For me, it is someone who has a vision, a dream, 
and the will and passion to pursue that dream, to take that 
risk, and there is an element of risk-taking. But 
entrepreneurs, as is my experience from 20 years in the 
business working with entrepreneurs has demonstrated, they also 
have blind spots. And I do not mean that in a bad way. These 
are people who do not see barriers, who do not see stop signs, 
who are not willing to accept no from people who cannot say yes 
and go out and try to do that. But that spirit seems to be 
declining. My worry is we are seeing a diminishing of that can-
do attitude, belief in the American economy that defined the 
20th century as the American century. If we are going to make 
the 21st century an American century as well, among the many 
other things we have to do, I believe it has to be driving this 
entrepreneurial spirit across the entire country.
    So I did not know the number about. Was it .064?
    Mr. SCHOCKEN. .64.
    Mr. SCHNEIDER. .64 percent of the counties. And you hear 
this discussion of the struggling rural economy. Well, if we 
can start up businesses in these rural economies, if we can 
create, and I have had the privilege of introducing 
legislation, promote the hubs and the ecosystems and create the 
incubators that will help companies go from the idea to start 
up, to step out, to success. And I did not mean to give a 
speech but I am passionate about this.
    Chairman CHABOT. It was a fine speech, by the way.
    Mr. SCHNEIDER. Thank you.
    So Dr. Crawford, I will start with you, this idea of 
installing the spirit. You are a physicist; I am an engineer. 
That science helps, but you talked about the fact that you do 
not know, did not know about accounting but you thought you 
could do it. How do we help these people? And it is not just 
young people, it is people of all ages, to get over the hump 
that maybe I do not know how to do it but I know how to learn 
and I know how to ask questions. How do we get that spirit 
instilled?
    Mr. CRAWFORD. Well, I think you are exactly right. I really 
do believe that entrepreneurship is a mindset. It is sort of 
how you tackle and solve problems. It is not necessarily a 
discipline in and of itself. But one of the areas which I see, 
both at the college level and as you mentioned, the high school 
level, is that I do not think that we prepare students how to 
fail and then how to kind of move forward with failure. So if 
you want to be naive and move forward and break down walls and 
bust it down rather than trying to go over, you really need to 
try things and fail and then how to kind of repurpose yourself 
and redirect and know it is a stepping stone and a way in which 
you will pivot and go in a new direction. I think high school 
is a good place for that. I think college is an exceptionally 
great place for that because you are surrounded by mentorship 
and you are surrounded by people that can help you sort of get 
through the messiness of entrepreneurship.
    So I am in complete agreement with you. But the one thing I 
would say and it sounds kind of funny, but we really need to 
teach our youth how to fail and how to move forward because 
that is all about the entrepreneurial mindset. When you hear 
successful entrepreneurs, they do not be successful on their 
very first time. It is two, three, four times. And they talk 
about that failure. How do we teach it and learn it? How do we 
pool that creativity?
    Mr. SCHNEIDER. It is the difference between failure and 
defeat. John Wooden, the great basketball coach said, ``I never 
lost a game. I just ran out of time.''
    Mr. CRAWFORD. Exactly.
    Mr. SCHNEIDER. And I think failure is that lesson.
    Mr. Schocken, the last few moments I have, is the culture 
of failure is unacceptable affecting the ability for small 
firms, new businesses to raise capital, because the idea of we 
have to succeed becomes such a paramount issue for them?
    Mr. SCHOCKEN. The problem for the innovation economy is 
access to capital and regulations. If we solve those problems, 
we will get back to creating the kind of vibrant economy where 
there is success and failure becomes less of a factor. We have 
got to create the jobs.
    The other reason we have to create these jobs is you are 
all dealing with the onsets of globalization and automation and 
you know what is coming down the road. That genie is out of the 
bottle.
    Mr. SCHNEIDER. I do not think we are at the onset; I think 
we are in the midst of it and we need to beat it.
    Mr. SCHOCKEN. We are, and it is only going to accelerate. 
And therefore, unleashing the innovation economy to create the 
jobs that are needed is absolutely essential. And as someone 
who has worked in this industry my entire career, the answer is 
around access to capital and some minor regulatory reform. That 
is how you make this industry succeed and that is how you 
address these economic disparity issues.
    Mr. SCHNEIDER. I am out of time, and thank you for the 
extension. I yield back.
    Chairman CHABOT. The gentleman's time has expired.
    The gentleman from Iowa, Mr. Blum, who is Chairman of the 
Subcommittee on Agriculture, Energy, and Trade is recognized 
for 5 minutes.
    Mr. BLUM. Thank you, Mr. Chairman. Thank you to our 
panelists for being here today.
    Mr. Schocken, I am very intrigued by your ideas of simpler 
IPOs and other means of financing startups. My little software 
company in Iowa that started as three people in a basement went 
public in the mid-90s and we were one of those $30 million IPOs 
you referred to. Piper Jaffray out of Minneapolis and William 
Blair out of Chicago were our co-lead underwriters and I will 
never forget the days of sitting in a high-rise in Chicago at 
Sidley Austin, a law firm of 2,000 attorneys. Good firm. But at 
$1,000 an hour per attorney, there were probably 10 of them in 
the room. We were running up a bill of $10,000 an hour. And in 
the process that it took to put together a prospectus and a red 
herring and initially go public was fascinating but 
overwhelming, I think, to most small entrepreneurs. Can you 
give me some ideas? The regional IPO is an excellent idea. I 
could not agree with you more. Do you have other ideas about 
financing options? I know there is--well, I used to call them 
vulture capitalists. I know there are venture capitalists out 
there, which we managed to go public without using their 
services, but other ideas you have? Because it intrigues me and 
it is much needed. I could not agree with you more.
    Mr. SCHOCKEN. Thank you. And congratulations on that 
success.
    Mr. BLUM. Thank you.
    Mr. SCHOCKEN. That is a good story. I love to hear those 
kind of stories.
    You know, what happens when there is an economic event, the 
laws tend to overreact, and it is the smaller companies that 
get punished when that happens. And you will remember what 
happened at the end of the 1990s when the tech bubble burst and 
the reaction congressionally was Sarbanes-Oxley. And what 
happened was they swept the small companies in under the bigger 
companies in terms of regulatory requirements for doing IPOs. 
And those have just become so costly and so burdensome. The 
accounting requirements and the undertakings required, where 
your small company would have been subject to the same kind of 
accounting and legal standards as the Boeings and Exxons of the 
world.
    Mr. BLUM. That is crazy.
    Mr. SCHOCKEN. Yes. And so we took a step towards resolving 
that problem in the Jobs Act by creating a couple of minor 
benefits for the smaller companies. Unfortunately, it has not 
been as useful for bringing back the IPOs as we would have 
hoped, and the reason for that is because of low interest 
rates. Low interest rates have been drawing so much capital 
into private equity that private equity has turned out to be a 
very strong competitor to going public. But at the same time, 
we have got to really answer this question--how do you bring 
back the smaller IPOs? Because there are lots of great little 
companies that, you know, for which a $25 million IPO means 
another 200 or 400 employees. And it is one of the ways of 
solving this problem of the regional concentration. And there 
are answers to that. And that is why I designed, you know, in 
my testimony, here are some easy, short-term fixes that we can 
do, but then here are some longer term systemic issues that 
really need attention. And to me you do those two things and 
you will unleash this innovation economy. But you have got to 
bring back those $25 million IPOs as one of the answers.
    Mr. BLUM. We did this in Iowa, by the way, and I tried to 
coin the phrase ``Silicorn Valley.'' I do not know if it stuck 
or not, Mr. Chairman.
    Question for Mr. Crawford. Are the young people, the 
Millennials, young people in general, becoming risk averse?
    Mr. CRAWFORD. It is a great question. I think it goes back 
to some of the earlier comments that we had about failure and 
if you are ready to really work in that kind of environment 
where you may fail three or four times before you succeed. I am 
not necessarily convinced that they are risk averse, but I must 
say that there is one thing. When we trained these 
entrepreneurial kids at the university level and, you know, we 
would love for them to go out and start small businesses and so 
forth, but what we do see is that the bigger companies, the 
Fortune 500s and so forth, are not gobbling those kids up 
because they really see those entrepreneurial skills as being 
very viable to their larger organization in an entrepreneurial 
way that they can walk and get through things. And so I think 
it is hard to say whether it is risk averse or not because even 
though they may not end up in a small company or a small 
startup, they are able to go work in some of the bigger firms 
these days which are becoming more entrepreneurial in and of 
itself.
    Mr. BLUM. I have 8 seconds left. We cannot do another 
question. I yield my 5 seconds back. Thank you.
    Chairman CHABOT. The gentleman yields back. Thank you very 
much.
    The gentleman from New York, Mr. Espaillat is recognized 
for 5 minutes.
    Mr. ESPAILLAT. Thank you, Mr. Chairman, and Ranking Member 
Velazquez. In the 13th Congressional in New York, we are 
working to increase access to necessary capital for all our 
entrepreneurs. Just last week, the ranking member--thank you. 
Is this better? Okay.
    Yes. Just last week, Ranking Member Velazquez and I had a 
Small Business Summit, which was focusing on connecting small 
businesses owners with agencies both at the Federal, state, and 
city level, to assist them in their role to starting and 
growing a small business. And we noticed that a good number of 
the folks that participated were young people with questions 
regarding establishing and supporting their small businesses. 
And no doubt, this has shown that there is a high interest 
still in young entrepreneurs in succeeding. Yet, they are 
failing, as you have mentioned, in accessing capital, finding a 
pathway to the necessary capital that will make their business 
successful and sustainable. And in a time where we work in the 
technology and research fields, it this is quickly advancing. 
Yet, IPOs are down. We need to be focusing on how to better 
supply our entrepreneurs with the capital they need to succeed 
and ultimately create jobs and grow our economy.
    But you mentioned that some of the hurdles that some of 
these small entrepreneurs are the overregulation often 
overburden small businesses, and particularly startup 
businesses, and the tax inequities that exist, they are saddled 
with these tax inequities. They are unable to like get some 
oxygen out of the tunnel and continue to move forward.
    So as we move as a Congress in this session to consider, 
potentially consider, hopefully, some tax reform legislation, 
what real, precise recommendations do you have for tax reform 
that will help small businesses? It will be a real travesty if 
we engage in tax reform and only like the big corporations walk 
out of here with their pockets full and small businesses, 
again, continue to struggle with overregulation and tax 
inequities. What real recommendations do you have for easing 
the pain with regards to tax inequities and regulation itself? 
Any one of you?
    Ms. KERRIGAN. Sure. And thank you for pulling together that 
summit with business owners or potential business owners and 
entrepreneurs because, you know, as I mentioned in my 
testimony, many of them do not know where to go. I know the SBA 
administrator is out traveling the country and sort of 
promoting the SBA as a resource and getting the word out about 
that. But certainly, we have a long way to go in terms of 
telling them where to turn.
    I think on tax reform, look, I think from a small business 
perspective is very simple. I mean, we do have to keep small 
businesses at the center of tax reform, so we need to lower 
individual rates along with corporates rates. We need to lower 
taxes, definitely a more simplified system, and again, 
updating, I think, some of these thresholds is going to matter 
to small entrepreneurs. And complexity, I think, is really the 
key thing that has to be addressed. So if you get rid of a lot 
of the loopholes. For example, allow for full expensing. I 
mean, again, it all boils down to simplicity and these lower 
rates that again are going to make the system I think more 
competitive. So simplify, lower rates. There are a lot of great 
ideas out there. Updating, modernizing, and just certainty in 
the Tax Code as well, not changing it all the time I think is 
very, very important from a small business perspective.
    Mr. SCHOCKEN. And if I could?
    Mr. ESPAILLAT. Yes, go ahead. Yes, Mr. Schocken?
    Mr. SCHOCKEN. So, first of all, I gave you a suggestion in 
my testimony when I said allow these young companies to sell 
their net operating losses. They have to work terribly hard to 
raise capital. Those losses that sit on their balance sheet do 
not do them any good. If they could sell that, that would be a 
way of really leveraging the equity they have created. And I 
know from my own experience in many cases that would make the 
difference between success and failure. The first thing I would 
say.
    The second thing I would say for the kind of businesses 
that you are talking about, equity crowdfunding is just 
enormously important. If someone is going to start a business 
and their friends and their cousins and the people in other 
states that they know will want to own a portion of that 
business. The ability to invest in that business, whether it is 
a neighborhood bakery, a small manufacturing company, to raise 
that money via equity across the country under equity 
crowdfunding under a reasonable set of rules different than 
what we have today would make an enormous difference.
    And the third thing, you have got to somehow simplify the 
regulations. People want to start their businesses. They want 
to bake their breads. They want to deliver, they want to do 
whatever they want to do, and they get just buried under the 
city, the state, the county, and all the various regulatory 
requirements. Make that simple for small businesses. You are 
correct wanting to keep these benefits away from big 
businesses. I agree with you, whether it is selling the net 
operating losses or whether it is simplifying, you can do that 
for the small businesses and it would make an enormous economic 
difference in this country.
    Chairman CHABOT. The gentleman's time is expired.
    Mr. ESPAILLAT. Thank you so much.
    Chairman CHABOT. Thank you.
    The gentleman from South Carolina, Mr. Norman, who used to 
be the new guy on the Committee but now he has been around a 
couple of weeks, so he is an old hand now, is recognized for 5 
minutes.
    Mr. NORMAN. Thank you, Mr. Chairman. Thank each one of you 
for coming.
    In our role in Congress, there is no shortage of the need 
for public-private partnerships, but in many cases you see 
where the public is the one that gets the short end of the 
stick. What would you say that we could put in, safeguards that 
we could put in, benchmarks to make sure that any dollar that 
the taxpayer invests, there is a return on investment. And 
failure is a great teacher. But from our role, what would you 
say we do to make sure that there is a return on investment, 
that it is a smart investment, and not dole out to either one 
state or one group? This is for each one of you.
    Mr. SCHOCKEN. Well, earlier I had said that one of the 
ideas for dealing with driving capital into rural and other 
counties across the country is to reestablish the small 
business investment program at the SBA. So specifically to your 
question, how do you avoid losses by the government, the answer 
is to have each of those investments be partnered with private 
venture capital or private equity firms where the government is 
not making the win-lose decisions on each investment, but they 
are doing it in partnership with private capital. And that 
discipline would have an enormously positive impact on 
government money being invested in the correct companies that 
have a chance to succeed.
    Ms. KERRIGAN. That sounds good to me.
    Mr. NORMAN. As a follow-up, you know, typically the SBA, 
they are the last to get paid. The repayment of equity comes 
back from the private investors.
    Mr. SCHOCKEN. No, no, the SBA gets paid back first. 
Absolutely.
    Mr. NORMAN. In every case?
    Mr. SCHOCKEN. Well, under the original SBA program, the SBA 
was the debt. The win that was there was for the private 
investors but the government always got their money back first. 
I was trying to address your question, how do you avoid the 
government making the wrong decisions? And I think the way to 
do that is through what you would call a public-private 
partnership that each of these investments are only in 
investments that are vetted by private capital, where they do 
the due diligence. And let us say the government is 40 percent 
of the investment and private capital is 60 percent of the 
investment. The government gets its money back first. The 
government is the lender in this situation. The upside, the 
real potential is to the private capital but the government 
gets its capital back first. That is exactly how you should 
design a program like that.
    Mr. NORMAN. I agree.
    Ms. KERRIGAN. Generally, I will just say this, being that I 
really am not an expert in public-private partnerships, but 
going back to our gap analysis reports that I talked about, we 
looked at private sector investment. And over the past decade 
there has been a dearth of $1.5 trillion. We really have a 
problem with private sector investment in this country. So the 
more that we can encourage investment on the private side, 
perhaps the less we need it on the public side. So I think 
policies really need to get back to encouraging private sector 
investment incentives, and that is going to happen through tax 
reform. I think it is going to happen through regulatory relief 
across the board, including in the financial services sector. 
We just need more people investing more of their dollars. I 
mean, letting go and investing not only in our startups and our 
small businesses, but our economy, their own companies to 
really get the economy going again.
    Mr. CRAWFORD. I agree. I think the companion-type of grants 
that they are talking about, how to bring the public and 
private together, could also work at the research level as well 
with some of the Federal Governments and their research 
enterprises, to bring those early seed ideas out of the place 
and having them, sort of the due diligence done by the private 
side as well as the private side. And I think the big question 
is also where are you going to put your dollars on the Federal 
side? Where is the risk assessment going to be? Is it going to 
be where the ideas are so early on and you are only going to 
get one out of 10, or are you going to be down further on in 
the series B and C rounds of venture capital where you are 
going to have a much higher probability of success?
    Mr. NORMAN. Thank you, Mr. Chairman. I yield my time.
    Chairman CHABOT. Thank you very much. The gentleman yields 
back.
    The gentlelady from Florida, Ms. Murphy, who is the Ranking 
Member of the Subcommittee on Contracting and Workforce is 
recognized for 5 minutes.
    Ms. MURPHY. Thank you, Mr. Chairman. And thank you all for 
being here today. Fascinating testimony.
    Mr. Crawford, I really enjoyed reading through your 
testimony, as well as hearing you talk about Miami University 
and all of the initiatives that you have launched to help build 
the next generation of entrepreneurs and innovators. And my 
colleagues on this Committee have heard me talk about similar 
incubators and apprenticeship programs that have been launched 
by universities and colleges in my district in Florida, 
specifically at the University of Central Florida, Rollins 
College, and Valencia College. So I completely agree with you 
that universities play a vital role in the startup ecosystem. 
And if that sounded like a shameless plug, it was.
    My first question is for either Dr. Crawford or Ms. 
Kerrigan.
    You know, as we look at the future of work and think about 
the startup ecosystem, the way that the workforce is engaging 
with the workplace is changing, particularly in the startup 
ecosystem. And even I think the dynamics and demographics of 
the workforce is changing. So right now about a third of the 
workforce is millennial. By 2020, I think about 50 percent of 
the workforce will be millennials. And we are moving away from 
sort of the idea of working for one large corporation for the 
period of your entire life. When it comes to benefits and the 
other sorts of programs that are normally provided through that 
type of employment, what do you think we could do? What can 
Congress do to adjust to these changes in what work will look 
like, particularly as it relates to the startup ecosystem?
    Ms. KERRIGAN. I mean, that is a great point because, I 
mean, I think you are talking about the gig economy; right?
    Ms. MURPHY. Yes.
    Ms. KERRIGAN. And really, this desire to do your own thing. 
I mean, there are some people that really like that arrangement 
a lot, but they really do wish they would have the benefits 
that go along with full-time work.
    I think there is a lot that can be done, you know, 
hopefully or potentially on the portability front. And I would 
encourage the Congress to look at things a little more 
innovatively as well. Say for example that you do have an 
independent contractor who wants to be independent and wants to 
stay independent and perhaps is working for a larger enterprise 
or a larger business, is there any way that they can tap into 
their benefits without losing that independent contractor 
status? If both of them agree, he wants to be or she wants to 
be independent but I value this person, so is that a 
possibility, sort of looking at the independent contractor test 
and making that a little bit more flexible? I mean, that is one 
idea that I think of right now.
    Mr. CRAWFORD. And I do think it is interesting. I mean, on 
the front end, when you graduate college and you get out there 
and benefits and so forth are not a big deal, we see the kids 
that are going out to San Francisco and Silicon Valley and they 
will spend every last penny of their disposable income on rent 
and it does not matter to them, and we have seen the uptick in 
the crowd of 55-plus and the entrepreneurship, so they are more 
stable and they can actually get out there. And I think one of 
the questions is when you graduate school, you go off and work 
3 to 5 to 8 years, how do we get those folks back in after they 
have worked at a big company and how to get them back in to the 
startup economy? And I think that is when benefits play a big 
role. If people have families and so forth, other 
responsibilities, and so how you could kind of be innovative on 
that front as a Congress in terms of pulling them back in or 
how we call it in Cincinnati, the boomerang effect where we can 
pull the 30-somethings back into the entrepreneurial economy.
    Ms. KERRIGAN. And I think anyway, we can allow independent 
contractors to either, you know, if they are joining some type 
of business group or some type of association, or some type of 
entity, you know, where they can pool, whether it is health 
care, whether it is retirement benefits, or et cetera, I think 
that would be a great solution as well. I know that would take 
some regulatory changes at the Federal and probably state level 
as well. But I think having those places where independent 
contractors can go where they can, again, use sort of the 
collective power of all of them to negotiate for better prices 
for healthcare, et cetera, or to share their risks I think 
would be ideal.
    Ms. MURPHY. That is great. And just another sort of follow-
up question. There has been some talk about how the Millennials 
do not really know where to go, the know-how for starting up a 
business. I know we try to address it a bit in some of the 
universities and school systems, but there are also SBA 
entrepreneurial development programs, and this Committee has 
done a lot to try to enhance those programs. How do you think 
we can enhance the programs so that they are meeting the needs 
of Millennials entrepreneurs and that they are more accessible 
or readily available or they know more about them?
    Ms. KERRIGAN. Well, yeah, I think, you know, in terms of a 
lot of the programs at the SBA or educational programs that the 
SBA provides, you know, both nationally and then within the 
SBD, I think we really need to look at this and see the way 
that Millennials and younger people are getting their 
information is that is there that connectivity? And so I think 
that is critical. How do we reach them? So I think all the 
programs we need to look at to sort of go where these people 
get their information. And using more social media, using sort 
of the next thing that comes along. I know it continually 
changes in terms of the platforms that they use, but I do think 
that we need to get a little bit more innovative in terms of 
how we reach, but also the programs. Are we staying relevant in 
terms of what is happening in the marketplace and the training 
that is actually provided?
    Ms. MURPHY. Great. Thank you.
    Chairman CHABOT. Thank you. The gentlelady's time is 
expired.
    The gentlelady from North Carolina, Ms. Adams, who is the 
Ranking Member of the Subcommittee on Investigations, 
Oversight, and Regulations is recognized for 5 minutes.
    Ms. ADAMS. Thank you, Mr. Chairman. Thank you, Ranking 
Member Velazquez. And thank you all for your testimony and 
being here today. I spent 40 years on a college campus, small 
campus in Greensboro, North Carolina, Bennett College. So we 
were always looking for new ways to do things. But I want to 
thank you, Mr. Crawford, for serving in the capacity that you 
do and what you do for students. And I wanted to ask you what 
you would recommend to those colleges or universities with 
smaller budgets, lower endowments to cultivate business leaders 
and to promote entrepreneurship among the graduates.
    Mr. CRAWFORD. Well, I think the entrepreneurship programs 
in many ways, when you get faculty members that are 
entrepreneurial, them and of themselves, and students that are 
entrepreneurial, they will actually create the programs, just 
like they were a true entrepreneur out in the marketplace. And 
so in many cases, I think when you have that kind of 
entrepreneurship on campus, you can kind of do things on a 
shoestring and so forth. And so, I think the way that we have 
done it at Miami and the way that my past experiences at other 
fine institutions, has really been through the partnerships 
that we created, both for the city and the state and the 
Federal Government and so forth, because the resources go a lot 
further. And universities, you should never underestimate that 
you have what the marketplace wants and that is talent, talent, 
talent. And so to use that talent as a way in which you can 
offset or fund entrepreneurship programs through those 
relationships with corporate and industry.
    Ms. ADAMS. Thank you. So your institution was successful in 
developing your ecosystem. Did Miami have any contact with 
Small Business Administration in setting up your programs?
    Mr. CRAWFORD. Yeah, historically it has. Yes. And then 
also, you know, we do work with our students, too, to get the 
word out on the various programs for the SBA and so forth, and 
the other programs that are available through the Federal 
Government for those startup companies.
    Ms. ADAMS. So did they offer their services or did you 
partner with them? Did you see them out?
    Mr. CRAWFORD. I think we sought them out on the front end, 
and then of late we have been doing a lot more work also with 
our local chambers and the ones in the state and how we 
actually get the word out. And then working with the Minority 
Accelerator Chamber also to women and minority-owned 
businesses. And so we have been making the connections not just 
at the Federal level but all throughout the state.
    Ms. ADAMS. Thank you.
    Mr.--is it Schocken?
    Mr. SCHOCKEN. Schocken.
    Ms. ADAMS. Schocken. The difficulties that minority-owned 
and women-owned businesses encounter trying to obtain capital 
for their businesses is well documented. However, venture 
capital seems to be particularly difficult to obtain. One 
report suggests that women-owned businesses drew only 5 percent 
of all U.S. venture capital. In your testimony, you outlined 
recommendations to address the geographic concentration of 
venture capital and the concentration of control of venture 
capital, but do you have any recommendations to address venture 
capital's lack of investment in minority and women-owned 
businesses?
    Mr. SCHOCKEN. Thank you. Great question. And I have two 
answers to you. The first answer is cut the innovation economy 
loose. Do the kind of access to capital proposals that we have 
made because it will benefit everybody in that ecosystem. That 
is the general answer.
    The specific answer is that we have this tremendous 
concentration of venture in this one state and this lack of 
venture capital availability to minorities, to women, and 
geographically around the country. In my view, that is a role 
for the Federal Government, and in my view, you bring back the 
SBIC program and you specifically target it to those states, 
regions, women, and minorities that have had such difficulty 
accessing capital. It is such an important issue, and clearly 
the private marketplace is not able to answer it themselves. It 
is, therefore, in my opinion, and I am a business guy, this 
does not come naturally to me, it is a correct and proper role 
for the Federal Government to step back in, and I think that is 
the answer.
    Ms. ADAMS. Great. Thank you very much.
    Mr. Chairman, I am going to yield back.
    Chairman CHABOT. Thank you. The gentlelady yields back.
    And the chair would note that we have been joined by Chad 
Pergram, who not only is a Capitol Hill correspondent for FOX 
News, but more importantly, Dr. Crawford mentioned the 
internship program, and Chad heads up the Inside Washington 
program, which many Capitol Hill offices have taken advantage 
of over the year, and the Small Business Committee actually has 
an intern at this time, Nick Tracewell, who is also in the back 
of the room here. So we are definitely benefitting from Miami's 
program here and gave FOX News a plug, I guess. That was not 
the intention. We wanted to recognize how it is working here on 
Capitol Hill.
    I apologize to Mr. Lawson. I am not taking up any of this 
time, but I did want to get that in before he went on. So thank 
you.
    Our final questioner, I think, is the gentleman from 
Florida, Mr. Lawson, who is the Ranking Member of the 
Subcommittee on Health and Technology, is recognized for 5 
minutes.
    Mr. LAWSON. Thank you very much, Mr. Chairman. And I would 
like to welcome a Hurricane to a section of Florida, up in 
Tallahassee. We always enjoy bringing the Hurricanes up and 
sending them back where they belong in South Florida. And I see 
a Florida State tie over there.
    But my question centers around 36 years ago I was going 
into small business and I was trying the only access. I think 
it was $10,000 or $15,000 to go into--I was leaving coaching at 
FSU and said I am going into small business. And so, as a 
result, my question always centers around the access to capital 
because--and I really did not understand at the time. The only 
thing I had was an FHA loan for about $121,000 on a house, you 
know, and that was blocking me from getting access to the 
capital, even though the payment was only about $131 a month. 
And so how can we work together? I mean, do they work together? 
So 36 years later, I was still in the business until I got 
hauled off to Congress. So my concern is that the way I have 
this question here is how can communities, partners, including 
local government, entities, and banks guarantee that those who 
want to start small business have the resources to do so, 
including the main question is access to capital? And that is 
all I really needed. And they were asking me to get someone to 
stand for the loan. And I did not really have the access that I 
needed, but ever since then the main question has been how do 
people like myself those years back have access to capital to 
start a small business?
    Mr. SCHOCKEN. Well, if your question is how do we guarantee 
that access to capital, I do not think there is an answer.
    Mr. LAWSON. Okay.
    Mr. SCHOCKEN. But I would begin an answer by pointing to 
equity crowdfunding. That is specifically what equity 
crowdfunding was designed to do. For the smaller businesses, 
whether they are neighborhood bakeries or small manufacturers, 
that was the goal of equity crowdfunding, so that you could 
bring together people who could then own a stake in that 
business. That is an extremely important concept. You see the 
success of Kickstarter and Indiegogo where they can finance 
early-stage projects by providing t-shirts and merchandise. It 
shows the hunger around the country to back early-stage ideas. 
But until the Jobs Act passed and we legalized equity 
crowdfunding, there was no way to provide ownership in these 
new ideas to people who wanted to invest in those companies. 
And unfortunately, the regulations that were developed for 
equity crowdfunding has really made it not work. In this 
enormous economy, I think the number is $37 million and maybe 
$50 million nationally that has been raised around equity 
crowdfunding.
    And so to me the answer to your question is, first of all, 
fix equity crowdfunding. And the second answer is in each state 
there ought to be a major concerted effort to simplify the 
regulations required to start new businesses because, I mean, 
it is just daunting for entrepreneurs with all the various 
steps and regulatory things that they need to go through. Those 
are the two major barriers for getting new businesses off the 
ground.
    Ms. KERRIGAN. I agree on the fix crowdfunding front. You 
know, the early players that have been raising money, there has 
been some, I think, some very promising success. So we need to 
allow that, leverage that success, and really make that 
available to everybody, but we need regulatory fixes.
    The congresswoman, I know she asked about sort of the 
concentration in capital and how we sort of fix that as well. I 
know there is legislation that has also been introduced in the 
House to develop opportunity zones, if you will, that really 
would leverage private sector money out there. And allow for 
certain incentives or benefits, whether it is capital gains 
exclusion, if they are investing in those areas of the country. 
So I think there are a lot of different solutions and I do 
agree a lot happens at the lower local level, too, in terms of 
the regulatory front that we need to lower those barriers.
    Chairman CHABOT. The gentleman's time has expired.
    The ranking member is recognized for 5 minutes.
    Ms. VELAZQUEZ. Just one question.
    Chairman CHABOT. For one question, which may or may not 
take 5 minutes.
    Ms. VELAZQUEZ. Mr. Schocken, are you aware of any work, 
interagency work in terms of innovation economy? I know that 
the White House put together a working group that is basically 
comprised of CEOs, to address the issue of the innovation 
economy and what could provide answers to the lack of business 
formation in our country, if there is anything that is done by 
the SEC, for example, or even SBA that you are aware of?
    Mr. SCHOCKEN. Thank you. So first of all, the innovation 
name in that commission on the White House I think is an 
inaccurate name. That Innovation Commission was put together by 
the White House to bring in best business practices into 
government; it was not to address the needs of the innovation 
economy. And I agree with you; that is a very misleading name 
and kind of implies they are paying attention to the innovation 
economy and I think they are not. They did create a commission 
of businesspeople in the White House but that really deals with 
big business. And I think they were very smart to do that, but 
there is nobody on that commission that represents the small 
companies and the innovation economy, and they should have a 
similar commission for that.
    Now, to your question, no. I do not see interagency 
cooperation on this issue, and I think this issue is just 
hugely important. We have got this train coming through the 
tunnel right at us on globalization and automation. You have 
seen the studies, something like 20 million jobs are going to 
get destroyed by automation over the next 20-25 years. We have 
to replace those jobs. The only place you were going to be able 
to replace them is from the innovation economy. And so that is 
why we have proposed this commission on the innovation economy. 
Bring in the smart guys, the bankers, the lawyers, the 
academics who really understand the innovation economy and be 
there to give you, as the Congress, to give the White House, 
here are the easy, short-term things you can do. I have 
outlined five of those today that are pretty easy fixes that 
would have major impacts. But we also need to begin to address 
the major long-term systemic issues that I have also identified 
that nobody is paying any attention to. And that would be a way 
to bring all of these agencies, White House, Congress together 
and prioritize the innovation economy.
    Ms. VELAZQUEZ. Thank you. Thank you.
    Chairman CHABOT. Thank you. And I think I will recognize 
myself for one question just to kind of follow up on that.
    Ms. Kerrigan, let me ask you this. I think the impression, 
or perhaps misimpression has been given that the new 
administration, relatively new, they have been in office about 
6 months now, that they are not doing anything about small 
business. Now, I know we have a new Small Business 
Administrator, Ms. McMahon, who has testified before this 
Committee a couple of times and appears to be very serious 
about kind of shaking up the SBA and making it much more 
business friendly. Could you comment on your view as to what 
you have seen with respect to her?
    And secondly, one of the other things the administration 
has announced fairly early on is that they would like to get 
rid of two regulations for every new one that comes out of 
Washington because the small business community in particular 
has been burdened by being overregulated for many, many years 
now. So if you could comment on those two things, I would 
appreciate it.
    Ms. KERRIGAN. Sure. Well, I think there are two things. One 
is there are small businesses and the small business community, 
existing small businesses, and then sort of what is happening 
to encourage more startups. So sort of take those two things.
    I do think Administrator McMahon is doing a great job. I 
mean, she is traveling the country, talking to people, visiting 
her centers, talking to small business people to really see 
what needs to happen at the SBA in terms of their programs and 
services.
    Chairman CHABOT. Now, is she talking to Boeing and to the 
oil companies? Or who is she talking to?
    Ms. KERRIGAN. She is actually talking to roundtables of 
small business owners in these local communities, in addition 
to the staff themselves, to really understand sort of how the 
SBA works. You know, sort of the impression that small business 
owners have of the SBA. And she is doing this everywhere. And I 
think that is a really good idea to listen to the customers, if 
you will, to see what they need, if the SBA is relevant, what 
else it can do to help small businesses.
    So from a policy perspective, I think the executive orders 
that the President put forward are just really good ideas to 
look at sort of the regulatory environment in all of the 
departments in all the agencies and see what needs to be done 
to update, to streamline, to repeal, to clean out the 
regulatory underbrush. I know we are taking part, providing 
comments, going to meetings. The U.S. Treasury had a big 
roundtable, very diverse roundtable of stakeholders, in terms 
of what needs to happen from a financial service regulatory 
perspective. So I think all those things are positive, and 
hopefully, when the White House gets these ideas and 
recommendations, they will actually move forward on this.
    I agree though, I think the President, he has his larger 
business council. I think it is a great idea that he is 
listening to bigger businesses, but I think it would be a 
fabulous idea if he put together a startup council and listened 
to entrepreneurs, young entrepreneurs. I mean, they are the 
ones that are on the ground. They are going to have the 
innovative solutions to a lot of these countries' problems, and 
he will really get a sense of where the economy is. And I think 
that if you focus on entrepreneurship and small business and 
their policies, you will get the broader policies right.
    Chairman CHABOT. Thank you very much. We will make sure 
that that gets conveyed.
    Mr. SCHOCKEN. Mr. Chairman, if I could just for a moment, 
you raised the question of the SBA. And I would like to advance 
the idea that business and the innovation economy has changed 
so much that it is time to consider perhaps dividing the SBA. 
The SBA is designed to deal with small businesses, the 
franchisees and the local stores and that traditional part of 
the American economy. The needs of those businesses are 
dramatically different than the needs of the high growth 
innovation economy that is so important to job creation. And so 
you have got kind of a mixed mission for the SBA. And so let me 
just suggest considering really splitting the SBA into its 
traditional constituency and the needs of the high growth 
innovation economy.
    Chairman CHABOT. Thank you very much.
    We want to thank all the witnesses. I think you all three 
did a great job here this morning.
    Obviously, encouraging entrepreneurship is absolutely 
critical because an awful lot of the new jobs created in 
America today are created by entrepreneurs and small 
businesses. And the information that you have conveyed to us, I 
can assure you on both sides of the aisle, we will do 
everything we can to put it to good use. So thank you for 
sharing that with us.
    I would ask unanimous consent that members have 5 
legislative days to submit statements and supporting materials 
for the record.
    Without objection, so ordered.
    And if there is no further business to come before the 
Committee, we are adjourned. Thank you very much.
    [Whereupon, at 12:33 p.m., the Committee was adjourned.]
    
    
    
    
    
                            A P P E N D I X




[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                    TESTIMONY OF JOSEPH L. SCHOCKEN


             Founder and President, Broadmark Capital, LLC


              Before the House Committee on Small Business


                             July 19, 2017

    Good morning, Chairman Chabot, Representative Velazquez, 
and members of the Committee. My name is Joseph Schocken, and I 
am the founder and President of Broadmark Capital LLC, a FINRA 
member broker-dealer based in Seattle, Washington. I appreciate 
the opportunity to appear before you today to discuss the 
critically important objective of reversing the decline in 
entrepreneurship.

    Today's hearing could not be more timely or important. The 
United States is experiencing a serious decline in new company 
formation just as the economy struggles to absorb the impacts 
of automation and globalization. In fact, we now see companies 
disappearing at a faster rate than new companies are forming. I 
thank you for recognizing the significance of this trend and 
the need to take action.

    Automation and globalization have created great benefits to 
consumers and investors, and at the same time fundamentally 
disrupted and changed the way our economy works. This paradigm 
shift is permanent, ongoing, and accelerating. A recent study 
by Forrester Research, Inc. projects that automation and 
robotics will displace nearly 25 million jobs--17 percent of 
the American workforce--by 2027, and cause a net job loss of 
9.8 million, or 10 percent of the workforce, over that same 
time period. While automation and globalization produce 
economic gains, more mature companies tend to shed US jobs in 
the process of adopting new technology and expanding 
internationally.

    American workers are justifiably anxious about what this 
means for their futures, and their children's futures. How can 
people plan for retirement when they don't know whether their 
jobs will exist in three years? How can they save for their 
children's educations? How will the new generation joining the 
workforce be able to afford home ownership, or even health 
care?

    The solution lies in the Innovation Economy, which has and 
will continue to keep our economy resilient in response to 
these changes. Innovation has been responsible for the vast 
majority of American economic growth, and job creation, since 
the Second World War. Young businesses have been the source of 
all net new jobs and nearly 20 percent of gross job creation 
over the past 30 years. Furthermore, employee compensation in 
innovation-intensive sectors increased by 50 percent between 
1990 and 2007, a rate nearly two and a half times the national 
average.

    We are here today, however, because the Innovation Economy 
is in trouble. The White House too has recognized this problem, 
and even before his inauguration President Trump announced the 
establishment of a Strategic and Policy Forum to advise the 
Administration on government policy to promote economic growth 
and job creation. That forum, however, is led by the CEOs of 
large corporate employers, whose challenges and economic 
impacts are uniquely different from those companies in the 
Innovation Economy.

    Startups and small companies don't have the time or 
capacity to come to Washington to tell you what they need, and 
thus you don't have the feedback needed to make meaningful 
changes. The administration has recognized the value of a 
commission on economic issues; while this too is important, it 
currently reflects the interest of big business. I am therefore 
urging the formation of a Commission on the Innovation Economy 
to promote innovation and entrepreneurship. This Commission 
would collect and synthesize information and make bipartisan 
recommendations for minor, near-term regulatory changes as well 
as address the long-term systemic issues facing the innovation 
economy.

    This commission would address the two greatest challenges 
facing would-be entrepreneurs and startup companies: accessing 
capital and managing regulatory requirements.

    Access to capital has never been easy, but it has become 
especially difficult in recent years. New businesses must spend 
a great deal of time and energy on finding capital, rather than 
on executing their business plans, and too often this capital 
is simply unavailable. Both the number of venture capital firms 
and the number of public companies have declined by half over 
the past twenty years, and we see capital increasingly 
concentrated, both geographically and by company. Nearly fifty 
percent of venture money now goes to firms in the Bay Area, and 
in the second quarter of 2016, almost 40 percent of all venture 
money went to so-called ``unicorn'' firms, startup companies 
that already have a market value of more than a billion 
dollars.

    New companies must also wrestle with complex regulatory 
environments that are often designed for much larger, more 
mature companies. Even understanding compliance requirements 
often requires hiring personnel or outside expertise that 
startups cannot afford.

    I was honored to be part of the legislative process that 
produced the JOBS Act of 2012, which sought to address these 
concerns. The JOBS Act passed with broad bipartisan support, 
and has already revealed how small regulatory changes can make 
a difference. The regulatory relief provisions of the JOBS Act 
have led to new capital and job creation, with no negative 
impacts.

    Work, however, remains to be done. Our experience with the 
JOBS Act and the five years of market response since its 
passage suggest a path for further reform. This Congress has a 
real opportunity to apply the market feedback to refine the 
innovation economy's regulatory environment, and make an even 
greater impact for small businesses and entrepreneurs.

    In the near term, several minor policy tweaks would have 
real and immediate positive effects on our Innovation Economy.

    First, fix general solicitation. The ability to raise 
capital from accredited investors in an enormously important 
part of capital formation for early-stage companies. General 
solicitation under JOBS Act reform was expected to boost 
capital formation by expanding Regulation D; from September 
2013 through 2015, $70 billion of the $2.9 trillion raised 
under Regulation D used general solicitation. While only a 
small part of the total Regulation D funding, this produced 
capital which created new companies and jobs. This number, 
however, would be much higher without the burdensome investor 
verification requirement. The JOBS Act's changes to general 
solicitation have already had a positive impact, but minor 
regulatory changes could unleash this strategy's full 
potential.

    The SEC's regulations on third-party verification have had 
a chilling effect on capital formation. These regulations fixed 
a problem that did not exist. Congress should eliminate the 
requirement for investor verification and allow investors to 
self-certify under penalty of perjury, which would be a higher 
standard than applies to other private security offerings. This 
change alone would encourage capital formation and create 
millions of jobs.

    Even an SEC whitepaper from October 2015 raised early 
concern that the investor verification requirement may be 
stifling the success of general solicitation. Industry 
participants corroborated these findings at the SEC's 2016 
Forum on Small Business Capital.

    When Congress considered the general solicitation 
provisions of the JOBS Act, many academics, journalists, and 
though leaders at the SEC expressed concern about the 
possibility of investor fraud. In the spring of 2012, we saw 
articles in the business press with headlines that warned, 
``JOBS Act Will Open Door to Investment Scams.'' It is 
important and gratifying to note that these concerns about 
investor abuse never materialized. In fact, the SEC's Division 
of Economic Risk and Analysis last year observed ``no measured 
increase in the incidence of fraud in the new Rule 506(c) 
market.''

    Second, fix equity crowdfunding. Crowdfunding, perhaps the 
JOBS Act's boldest provision, has failed to meet expectations. 
A meager $38 million has been raised for 142 companies since 
May 2016. By comparison, $1.3 trillion was raised under 
Regulation D for more than 30,000 companies in the most recent 
calendar year reported by the SEC (2014).

    Despite the nominal dollar value, the SEC's research has 
shown that crowdfunding is providing a new source of capital 
for small businesses that may not have otherwise had access to 
capital. Crowdfunding brings capital to areas underserved by 
capital markets. Nearly forty percent of crowdfunding campaigns 
were in areas classified as inner city by the Initiative for 
Inner City Competitiveness, a non-profit dedicated to enhancing 
inner city property through private investment.

    The success of Kickstarter has demonstrated the need for 
this type of capital, and Indiegogo, a rewards-based investor 
website, has partnered with MicroVentures to provide both 
rewards-based and equity crowdfunding. Government policies 
should make it easier for entrepreneurs to attract traditional 
investment through funding campaigns.

    The rules for crowdfunding, however, remain overly 
burdensome for small entrepreneurs seeking modest amounts of 
capital. The audit requirements for crowdfunding are cumbersome 
for small businesses, as evidenced by the transactions to date, 
which have clustered just at the threshold for required audits. 
Raising this capital threshold will encourage more businesses 
to take advantage of crowdfunding. The rules should also 
provide for relief from penalties for startups acting in good 
faith.

    Third, make it easier for small companies to make initial 
public offerings (IPSs). Despite the intentions of the JOBS 
Act, high costs and regulatory burden keep the traditional IPO 
unattractive to small companies. These companies may have 
access to private sources of equity, but the IPO is what 
creates jobs. Investors in privately held companies prioritize 
return on investment, while investors in public companies 
expect growth. Growth creates jobs. Growth requires innovation.

    Next, expand the pool of accredited investors. Keep the 
current standards in place, but expand the qualification 
criteria to allow people to meet those standards through 
employment and/or education. Knowledgeable employees of early-
stage companies in high-growth industries may not have enough 
money to qualify under current rules; they should be allowed to 
invest in the companies they're helping to create, based on 
their education and job experience.

    The SEC is considering a proposal to tighten accreditation 
standards, which would be exactly the wrong decision. 
Tightening these standards could eliminate nearly 60% of 
accredited investors, who provide more than one trillion 
dollars of capital yearly, in private placements. Such a change 
would devastate capital formation in the innovation economy. We 
encourage you to support Congressional efforts that maintain 
current standards, and allow these standards to rise with cost 
of living adjustments.

    Finally, allow early stage companies to sell net operating 
losses to raise capital. If companies are permitted to treat 
net operating losses as an asset, they can leverage the risk 
capital invested in the company into additional cash--without 
further investor risk. Profitable companies would be able to 
provide significant new funding to early stage companies that 
are not yet earning a profit.

    The changes discussed above can be made before the 
establishment of a Commission, although the Commission's 
expertise and guidance would be valuable. That expertise and 
guidance, however, will be essential as policymakers examine 
and address the major long-term issues that impact the 
Innovation Economy. These include:

           The disappearance of small IPOs. Today's 
        IPOs start at $100 million, and the smaller IPOs have 
        disappeared. This is a major reordering of the American 
        economy, and requires policy changes beyond the small 
        fixes suggested above. The disappearance of small IPOs 
        is keeping job growth artificially low, and has 
        exacerbated the regional imbalance in entrepreneurship. 
        Regional and mid-sized businesses--small manufacturers, 
        retailers, and craft brewers, for example--used to be 
        able to make an initial public offering of $25 million 
        to fuel growth that created hundreds, even thousands of 
        jobs. When this source of capital disappeared, the jobs 
        disappeared as well. Reviving regional IPOs could make 
        a huge difference in parts of the country the economic 
        recovery has left behind. Regulation A+, mandated by 
        the JOBS Act, was intended to facilitate small 
        businesses' path to IPOs, but is still not the most 
        compelling option for financing. Structural issues have 
        magnified the headwinds facing small companies that 
        seek public capital. These include compliance burdens 
        that favor larger companies and the move to passive 
        investing and indexing, which means lower trading 
        volumes and valuations for equities outside of indexes, 
        and fewer retail brokers to sell an IPO.

           The decline in the number of public 
        companies. The precipitous drop in the number of public 
        companies is harmful to the economy in many ways. 
        Public companies enhance the transparency of capital 
        markets and broaden the investment choices for 
        investors' portfolios, and their lower cost of capital 
        implies more efficient markets. As I have noted, and 
        will repeat, IPOs are also true job-creating events. 
        Investors in public companies expect long-term, 
        continuing growth, and this growth creates jobs. SEC 
        Chairman Clayton has said that the agency is 
        encouraging more companies to go public, noting last 
        month that the current trend ``ultimately results in 
        fewer opportunities for Main Street Americans to share 
        in our economy's growth, at a time when we are asking 
        them to do more on their own to save and invest for 
        their future and their children's futures.''

           Geographic concentration of venture capital. 
        Fifty percent of all venture capital currently flows to 
        one state, California. This is a tremendous imbalance 
        that resonates throughout the country, and is already 
        causing systemic distortions in the job market. The 
        disparity in access to capital is a major contributor 
        to the divergence of wealth among regions throughout 
        the United States. Inventive ideas and people are not 
        confined to the coasts.

           Concentration of control of venture capital. 
        Venture capital has not only become concentrated by 
        region, but it now comes from fewer sources and is 
        allocated to fewer companies. The number of venture 
        capital firms has declined by 50%, while the amount of 
        venture capital in the market remains steady. Fewer 
        people and companies are controlling the same amount of 
        money, and it's most efficient for them to allocate 
        those funds to fewer projects in larger dollar amounts. 
        The five to ten million-dollar first round of 
        professional investment has largely disappeared. A 
        Commission would examine the reasons for this 
        concentration, consider various reform possibilities, 
        and make meaningful policy recommendations.

    The American economy has historically led the world in 
innovation and entrepreneurship. Today, however, the United 
States faces new levels of international competition as both 
allies and adversaries recognize the importance of encouraging 
innovation. As we seek to maintain our position in setting the 
global standards for fostering entrepreneurship, the United 
States can benefit from studying other nations' initiatives--
such as France's Station F, a new $265 million startup campus 
in Paris that brings as many as 1,000 founders of new companies 
together from around the world to share ideas and pool 
resources.

    If the United States is to remain the world leader in 
innovation, we must restore the American innovation machine. A 
bill to create a Commission on the Innovation Economy that 
would make recommendations for both short-term fixes and long-
term policy goals is about to be introduced in both houses. I 
want to thank the members on both sides of the aisle who are 
leading this effort. You know that enacting legislation is a 
time-consuming and laborious process. Action from the White 
House in this area would also be welcome; the administration 
could establish a commission similar to the Strategy and Policy 
Forum, but for smaller, younger businesses.

    A prospering Innovation Economy is the key to creating 
jobs, increasing wages, and reducing income inequality as 
companies compete for good employees. Again, I thank you for 
taking the time to address this crucial issue, and I look 
forward to working with you on solutions that will revive and 
encourage entrepreneurship. I would be happy to answer any 
questions you may have.



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