The Big Story: Hearings cast spotlight on capital access obstacles
Lawmakers heard from entrepreneurs and investors this week as they examined key issues impacting startups’ ability to access capital. The House Financial Services subcommittee held two hearings covering multiple legislative proposals, including efforts to expand the pool of accredited investors and changes to the structure of certain investment funds. Those changes, if enacted, would bring much needed diversity to the startup ecosystem’s investor pool and boost funding opportunities for underrepresented entrepreneurs.
The Subcommittee on Capital Markets of the House Financial Service Committee’s first hearing on the accredited investor definition reflected a longtime priority of members of the startup ecosystem. Only accredited investors can invest in certain private securities offerings—like those issued by startups when they raise capital—so a narrow definition restricts who can invest in startups. Women and people of color are those too often locked out by the high income and net worth requirements, preventing them from opportunities to build generational wealth and have equitable opportunities in the innovation ecosystem.
At the hearing, Rep. French Hill (R-Ark.) read a statement into the record from Engine network member Tani Chambers—Founder and CEO of the startup RAVN, a wealth-planning platform for specifically women from underrepresented groups. Her statement highlighted what policymakers would accomplish by opening up investor participation and capital access, pointing out that “with increased access for diverse investors, startup funding itself will become more diverse, enabling scores of underrepresented founders to better launch and grow their startups, strengthening the innovation ecosystem.”
That hearing was followed by a second focusing on barriers to capital formation and referenced multiple legislative proposals, including one that would increase the number of permitted investors in certain funds that pool capital together to invest in startups, meaning the funds could accept more and smaller investments. This would lower barriers to individuals—especially those from underrepresented communities—becoming investors, and lead to more startups from those communities being funded. Witness Deborah Gladney, CEO and co-founder of the startup Worktorch, told the committee that, while she and her sister eventually became “the first black women in Kansas to raise over $1M in venture funding...we are still seeing a lot of firsts for minority and rural entrepreneurs. Access to capital is literally stunting the ability for many businesses like ours to grow.”
Ensuring that all entrepreneurs are able to access funding with limited regulatory hurdles and free of discriminatory practices is critical for a level playing field in the startup ecosystem. Congress must continue to shine a light on the barriers startups face, particularly those led by underrepresented founders, and enact legislation to unlock capital for all founders.
Policy Roundup:
Biden addresses tech issues in State of the Union speech. During his State of the Union address Tuesday evening, President Biden touched upon a variety of tech policy priorities that impact startups, including capital access, access to talent (like non-compete agreements, independent contractors, and immigration reform), Internet availability, competition, data privacy, and more. Each of these issues impact a startups’ ability to raise money, hire staff, reach customers, and other critical startup activities—and indeed deserve attention from policymakers.
States advance proposals requiring age verification. Lawmakers in Utah are fast-tracking efforts aimed at protecting minors online that could require, among other things, that companies verify their users’ age, including through things like collecting drivers licenses. The efforts come among similar pushes passed and proposed in other states, before Congress, and from the President to regulate how children and young adults can interact online. The bills have laudable goals, but as we explore in a new blog this week, could negatively impact startups, while simultaneously failing to protect kids.
How USPTO can support startups, all innovators. This week, Engine submitted comments to the U.S. Patent and Trademark Office (USPTO) on how it can truly support high-tech, high-growth startups and drive innovation to positive impact. We provided perspectives and offered concrete suggestions for the agency’s draft strategic plan, outlining measures USPTO should take to ensure everyone benefits from its work—including IP owners, but also innovators who have not (yet) applied for patents or registered trademarks, entrepreneurs who never intentionally interact with the patent system, small businesses who suffer in the face of wrongful infringement allegations, and the broader public.
Republican officials urge Supreme Court to reject student debt relief. Conservative groups and Republican officials are urging the Supreme Court to annul President Biden’s debt relief plan, as justices prepare for oral arguments later this month. The amicus briefs opposing debt relief follow multiple supporting the president’s plan filed last month from educators, advocates, legal scholars, racial justice groups, and others arguing that the plan is within the law and will help burdened individuals better contribute to society. As Engine has long-stated, student debt hinders the ability of would-be founders to innovate freely and contribute to our innovation ecosystem, and absent a plan to address the student debt crisis, the U.S. innovation ecosystem could suffer.
States threaten DACA protections, immigrant innovators. Earlier this month, nine Republican-led states asked a federal judge in Texas to end protections for DACA recipients, claiming the program is “unlawful.” The states, in part, are seeking to halt current recipients from being able to renew existing work permits and deportation protections. This is the latest in a series of court challenges attempting to roll back DACA protections, leaving current Dreamers with uncertain futures. Without congressional action to protect DACA recipients, thousands of individuals will likely face deportation, including many foreign-born entrepreneurs and STEM talent who contribute to the country’s innovation ecosystem.
Startup Roundup:
#StartupsEverywhere: Cleveland, Ohio. As part of her work, Dr. Chelsea Monty-Bromer was working with a team of researchers to develop new technology to assist veterans with prosthetic limbs. The result of that work was new technology that became the basis of her company, SweatID where she is the Founder & Chief Technology Officer. We spoke with Chelsea to learn more about SweatID’s product, her experience raising capital from public and private sources, and her experience navigating intellectual property systems here and abroad.
