The Big Story: House passes capital formation bills
The House passed several bills this week to improve capital access for startups, including by providing educational resources on capital raising options for underrepresented small businesses and another to broaden the pool of potential startup investors. Many potential investors—especially those from rural areas or underrepresented groups—have been traditionally excluded from investing in startups by securities rules. One of the bills, The Equal Opportunity for All Investors Act of 2023, aims to rectify this by using an exam to expand eligibility, in lieu of wealth or income requirements. By increasing the pool of would-be startup investors, the bill stands to improve the diversity of startups securing funding.
The accredited investor definition determines who can invest in private securities, like those offered by startups. It was established with the goal of investor protection, but in practice, it stands in the way of many would-be investors—including those with extensive knowledge of the startup ecosystem—from investing in startups. Currently, the definition limits eligible investors to those with an income of $200,000 annually ($300,000 for household income), or a net worth of $1 million or more. As a result, those in rural areas or who hail from historically marginalized communities are less likely to meet the definition, making for fewer investors from those communities, and therefore fewer startups led by underrepresented founders receiving funding.
Engine and hundreds of members of the startup ecosystem have repeatedly called on policymakers to fix this issue, and passing this legislation marks an important step towards building better equity and inclusivity within the startup ecosystem. But this bill creating an alternative path of investor accreditation is only one of several other proposals policymakers need to move forward. Lawmakers should continue to work to bring many of the proposals they have already marked up to the House floor and the Senate must subsequently act to send the critical pieces of legislation to the president’s desk.
Policy Roundup:
Debt ceiling agreement reached shy of deadline. Congress came to an agreement this week to lift the national debt ceiling and avert a default on the nation’s debt that threatened an economic downturn that could have plunged millions of businesses into financial uncertainty and wreaked havoc on the startup ecosystem. Suspending the debt limit allows Congress to borrow and meet its obligations, but the deal also includes stipulations, including capping non-defense spending. While the deal is a welcome move, it does also confirm the reinstatement of student loan payments by the end of this summer and prohibits a further extension of the payment pause. Student loans act as barriers for would-be innovators, especially impacting those from underrepresented groups, and without action to address the student loan crisis, many Americans will remain unable to pursue entrepreneurship.
Op-ed highlights need for federal privacy framework. Engine startup network member Camila Lopez—co-founder of Florida-based PeopleClerk—emphasized the importance of Congress passing a federal privacy law that works for startups like hers. In her op-ed, Camila explores the difficulties of navigating scaling a business amidst a rapidly growing patchwork of state privacy laws. Camila was also part of a coalition of startups that earlier sent a letter to Congressional leaders calling on them to “pass a uniform, consistently-enforced, comprehensive data privacy law to create certainty” for startups.
DACA battle returns to court. The fate of the Deferred Action for Childhood Arrivals (DACA) program was back in court on Thursday, jeopardizing the ability of recipients to stay in the U.S. and threatening to further shrink already-too-small STEM talent pools. The federal judge hearing the case has ruled against the program in the past and is likely to move to dismantle the program which has enabled hundreds of thousands of recipients to live and work in the U.S. DACA recipients make critical contributions to the U.S. startup ecosystem, both as founders and startup employees, thereby bolstering innovation and the overall U.S. economy.
U.S., EU officials talk AI tech regulation. This week, EU and U.S. officials moved toward a voluntary “code of conduct” to guide AI development and deployment. The joint framework was discussed during a meeting of the Transatlantic Trade and Technology Council and would create non-binding standards to assess risk and promote transparency. The discussion comes amid efforts from policymakers on both sides of the Atlantic to regulate the emerging technology.
Updated broadband coverage map documents digital divide. The Federal Communications Committee unveiled an updated broadband map, which will be used to guide the disbursement of millions in broadband infrastructure grants. The new map showcases millions of broadband access sites and sheds light on the areas that currently lack sufficient broadband access. As policymakers continue to discuss—and gear up to deploy—broadband support, it is critical they keep in mind how important reliable, affordable Internet access is to the success of innovators across the country.
Startup Roundup:
Recognizing the contributions of AAPI entrepreneurs. This week marks the end of Asian American, Native Hawaiian, and Pacific Islander Heritage Month.
Innovators from AAPI communities are constantly creating solutions to problems across the country. Asian American, Native Hawaiian, and Pacific Islander women, for example, are rapidly dominating the entrepreneurial scene—and are becoming the fastest-growing demographic of entrepreneurs in the U.S. And according to the Asian/Pacific Islander Chamber of Commerce, more than two million businesses are owned by AAPI community members. But systemic barriers can still prevent AAPI entrepreneurs from thriving. Through our #StartupsEverywhere profile series, we’ve sat down with several AAPI startup founders and startup supporters to hear what they believe policymakers can do to support them.
For example, Maurice Ng, Co-Founder and General Partner of Tings Capital—a minority-owned venture capital fund based in New York City—explained in a conversation with Engine, that he faced constant barriers when he immigrated to the U.S., which trickled into launching his company. Maurice also mentioned a “lack of resources tailored towards immigrant communities”—including with respect to raising capital and building a network of support—was a detriment to his initial journey.
And Joey Mak—the Executive Director of Chicago:Blend, a non-profit ecosystem partner that bridges gaps for underrepresented funders and founders—agrees that equitable access to the startup ecosystem should be at the top of policymakers’ minds. Joey cited the Illinois Growth and Innovation Fund (ILGIF) as an example of what can happen when local lawmakers prioritize diversity and inclusion in the innovation space, and that the more state and federal communities galvanize innovative inclusivity, “the more we can advance this mission.”
There are several ways policymakers can support a more equitable and inclusive innovation ecosystem.
