The Big Story: Congress digs into recent bank failures
This week, committees in both chambers held hearings to examine recent bank failures, including the collapse of Silicon Valley Bank (SVB)—a key financial institution in the startup ecosystem. The collapse of SVB in particular devastated many across the innovation ecosystem, sending companies scrambling to withdraw funds and make payroll, uncertain if their full balances would be secured.
During the hearings this week, lawmakers heard from the former CEOs of SVB, Signature Bank, and First Republic Bank and honed in on the events leading up to the collapse, including mismanagement on the part of the banks’ leadership and how leaders could avoid another future detrimental blow to the banking sector. While SVB represented a beacon for many founders—fostering relationships for founders, particularly founders of color, and serving as a critical source of venture debt—the hearings largely focused on the actions of former SVB CEO Gregory Becker, who blamed the collapse on the media and the government allowing inflation to soar, calling the events leading up to the collapse “unprecedented.” Policymakers, however, claimed mismanagement, arguing there was more SVB could have done in preparation for tackling the collapse and mitigating the fallout.
SVB provided banking services for almost half of U.S. venture-backed tech companies. And while the bank had benefitted from a thriving startup ecosystem, surging interest rates and rising inflation put the bank in a precarious situation after buying a significant amount of government bonds. With most of the bank’s deposits exceeding the FDIC level for insured funds, SVB was unable to raise the capital needed to cover deposits, leading to its collapse. SVB’s collapse sent shockwaves through the U.S. startup ecosystem and beyond—in particular for companies founded by underrepresented entrepreneurs who already face significant barriers to accessing capital within the startup ecosystem.
Join us in urging Congress to pass a fix for R&D expensing. A recently-implemented tax change is forcing startups to capitalize and amortize research and experimentation expenses, as opposed to the immediate expensing they were able to do previously. This change, which disproportionately impacts small businesses and startups, is a significant blow to startup cash flow. Join Engine and other startups in a letter to Congress urging lawmakers to revert to immediate expensing. Read the letter and sign on here.
Policy Roundup:
Supreme Court declines to reinterpret key Internet law. The Supreme Court this week declined to reinterpret Section 230, a foundational Internet law that lets platforms of all sizes host and moderate content without having to worry about ruinous lawsuits over user content. The rulings came in cases against Google and Twitter that tried to hold the companies liable for allegedly hosting and recommending terrorist content. The cases, especially Gonzalez v. Google, garnered dozens of amicus briefs, many of which explored the value of Section 230, including to startups and creators.
Companies struggle to navigate state age-gating laws. Internet companies are attempting to navigate a new wave of state laws that require them to verify the age of their users and treat young users differently. A handful of states have passed—and more have considered—either “age-appropriate design” requirements or age verification and parental consent and access requirements, creating unclear compliance requirements and likely requiring companies to collect and hold additional data to verify all users’ ages.
Student loan repayments set to resume this year. Federal student loan repayments are set to resume later this year after multiple pandemic-era extensions from the Biden administration. This comes amidst other efforts to ease the hardship imposed by the student debt crisis including efforts to cancel up to $20,000 in student debt per borrower, which has been challenged in the Supreme Court with a ruling expected in the coming weeks. As Engine has long-stated, student debt, which has spiraled in recent years, is shouldered by millions of individuals in the U.S. and serves as a barrier to innovation, preventing would-be founders from pursuing entrepreneurship as a career path. Policymakers must work to alleviate this burden for innovation to remain a cornerstone of the U.S. economy.
Congress holds hearings on AI. In three separate hearings this week, members of Congress raised several policy questions that would impact the use of artificial intelligence, including by startups. At hearings in front of the Senate Judiciary subcommittee on technology, the House Judiciary subcommittee on intellectual property, and the Senate Homeland Security Committee, lawmakers heard how government uses and could govern AI, including proposals to create a government agency that gives companies licenses to use AI, rightsholders’ complaints about the use of copyrighted materials in AI training datasets, and proposed requirements for risk assessments and transparency disclosures.
Crypto industry threatens to leave U.S. over SEC action. Leaders in the crypto industry are warning that their companies might relocate abroad to avoid aggressive regulatory action by the Securities and Exchange Commission in the absence of clear rules about how the securities law framework applies to cryptocurrencies. Many crypto companies are considering operating in places like Europe and Dubai which have legal frameworks that are easier to navigate.
Startup Roundup:
#StartupsEverywhere: New York, New York. Mavity offers businesses a unique chance to find and hire a dream team of creative professionals at a fraction of the traditional cost and time. We talked to Co-Founder and CEO Tomás Uribe about his Colombian background, his experience with the U.S. immigration system, and the impact of having an international workforce.
