The Big Story: New Engine report assesses the nation’s startup ecosystem. Engine, with support from the Charles Koch Institute and data prepared and analyzed by Startup Genome, released a new report this week examining trends in the startup ecosystem. The report—"The State of the Startup Ecosystem”—evaluates startup fundraising trends, assesses individual U.S. ecosystems, analyzes startup exits, and contextualizes the capital needs of investor-backed startups.
The report finds that the U.S. startup ecosystem is thriving. As we noted in a blog post following the report’s release, “[f]rom seed and angel rounds, to Series A, to venture capital as a whole, the number and value of startup fundings has grown over the past decade.” The report also explores the relationship between exits and investment and examines startup trends outside the top U.S. tech ecosystems to highlight startup activity across the country. The data in the report are among the most comprehensive available, but are limited to investor-backed startups. This means startups that raise funds through other methods aren’t captured. Better data is still needed about these startups.
Despite the big-picture success of the startup ecosystem, the report underscores the need for policymakers to appreciate the budgetary limitations of the average startup when considering policy changes. Data in the report show that the average seed-stage startup is working with about $55,000 per month, leaving founders with slim margins when it comes to dealing with unexpected costs. Increases in compliance, regulatory, and legal costs on top of these budgetary limitations could have a disastrous effect on early-stage companies, hampering their ability to grow, create jobs, and achieve long-term success.
It’s critical for policymakers to have an accurate understanding of the state of the startup ecosystem—as well as the needs of the broader entrepreneurial community—as they work to craft any tech-related policies. We hope our report will serve as a jumping off point for more in-depth conversations about ways of fostering a healthy startup ecosystem.
Policy Roundup:
New legislation would boost investments in the development of U.S. technologies. A bipartisan group of policymakers—led by Senate Majority Leader Chuck Schumer (D-N.Y.) and Sen. Todd Young (R-Ind.)—introduced legislation this week that would invest $100 billion over a five-year period to help prioritize research into advanced technologies. The bill, known as the Endless Frontier Act, also authorizes the use of an additional $10 billion to create at least ten regional technology hubs to serve as centers for the research and development of advanced technologies. As we noted earlier this month after a Senate Commerce Committee hearing on the proposal, the investments proposed by the Endless Frontier Act would help spur on the creation of new innovative U.S. startups.
Biden administration considering adjustments to Opportunity Zone program. The White House is reportedly considering steps to reform the Opportunity Zone program, which provides tax incentives for startups and other companies that relocate into designated economically depressed regions of the country but has reportedly benefited only a fraction of designed census tracts. Last month, a coalition of business groups and organizations—including the U.S. Chamber of Commerce and the Economic Innovation Group—sent a letter to President Biden suggesting a variety of steps that can be taken to strengthen the program.
EU proposes curb on AI, facial recognition technologies. The European Union officially proposed legislation this week that would limit the use of facial recognition technologies, ban the use of certain artificial intelligence systems, and create a list of “high-risk” uses of AI that would be subjected to additional regulatory scrutiny. Companies that develop AI technologies and fail to comply with the proposed regulations could face fines of up to six percent of their global annual revenue.
GOP lawmakers introduce counteroffer to Biden’s sweeping infrastructure plan. A group of Senate Republicans this week unveiled a $568 billion infrastructure plan in response to President Joe Biden’s recently announced $2 trillion infrastructure proposal. The GOP lawmakers framed their proposal—which would, in part, allocate $65 billion for broadband expansion efforts—as a starting point to more in-depth negotiations with the Biden administration, although Democrats largely dismissed the measure as unserious. As we noted earlier this month, the White House’s infrastructure proposal—known as the American Jobs Plan—would allocate $100 billion to help narrow the nation’s digital divide and would also distribute funding in a way that ensures underrepresented entrepreneurs are receiving equitable support.
Startup Roundup:
#StartupsEverywhere: Kansas City, Missouri. Mycroft AI offers open-source voice assistant technology that can be integrated into all types of third-party hardware, from desktop computers to automobiles. We recently spoke with Joshua Montgomery, the Founder of Mycroft AI, to learn more about the need for patent reforms to reduce abusive litigation, the intersection between user privacy and open-source AI development, and how Mycroft AI will contribute to the growing voice assistant market.
Startups saw record investments in the first three months of 2021. U.S. startups raised a record $69 billion from investors in the first quarter of 2021, according to PitchBook Data Inc., with the average startup valuation across all funding stages also reaching a new high. First quarter investments were 41 percent more than the previous record, which was set in the fourth quarter of 2018. These numbers highlight the continued success of startup investment underscored by our new report.
