Tag: Startup

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Government and Policy McNair Center

Congress Turns Its Attention to Entrepreneurship and Innovation—But Does It Take Effective Action?

U.S. Capitol west side by Martin Falbisoner

AnnesGraphLegislation passed during the first three months of  the 115th Congress pays disproportionate attention to entrepreneurship and innovation. McNair Center research shows that in a typical congressional session, less than 2 percent of legislation introduced is relevant to E&I issues. As of March 23, three of the ten bills that have become law during the 115th Congress directly address entrepreneurship and innovation.

A focus on entrepreneurship and innovation issues does not alone make for effective policy. Of the three E&I bills that have become law, only one, the Tested Ability to Leverage Exceptional National Talent (TALENT) Act supports a proven program, the Presidential Innovation Fellows. The other two laws, the Promoting Women in Entrepreneurship Act and the Inspiring the Next Space Pioneers, Innovators, Researchers, and Explorers (INSPIRE) Act, are devoid of meaningful changes to public policy.

TALENT Act: Codifying a Proven Program

The TALENT Act is the most likely of the three bills to have real world impact. This bill, sponsored by Majority Leader Kevin McCarthy (R-CA23), codifies the Presidential Innovation Fellows program begun as an executive order under President Obama. This bill was part of McCarthy’s Innovation Initiative, a suite of legislation introduced in the 114th Congress. In an interview with Fortune, McCarthy described his goal for the initiative as, making government “effective, efficient and accountable.”

The McNair Center’s Julia Wang explains that Innovation Fellows are embedded in government agencies, working to effect internal change. Projects include making information about clinical trials for cancer drugs available to patients in a searchable website as part of the Cancer Moonshot, developing an interagency data portal for child welfare and creating Uncle Sam’s List, which enables government agencies to in-source services from other federal agencies.

Promoting Women in Entrepreneurship and Innovation

The lag in women’s participation in entrepreneurship and innovation is a matter worthy of public policy attention as the McNair Center’s Tay Jacobe details; however, the Promoting Women in Entrepreneurship Act and the INSPIRE Act do little to address these issues.

Women in the NSF I-Corps

nsf-i-corps-oct-20111
The 2011 pilot I-Corps program was a mixed gender group, although women do appear to be in the minority.

The Promoting Women in Entrepreneurship Act directs the National Science Foundation to “encourage its entrepreneurial programs to recruit and support women.” The NSF’s premier entrepreneurship program is the Innovation Corps (I-Corps). I-Corps uses Steve Blank’s Lean Launchpad method to train NSF-funded scientists to turn their research findings into entrepreneurial ventures. Scientists who successfully complete the I-Corps program can receive additional support for their ventures. NSF’s Small Business Innovation Research/Small Business Technology Transfer (SBIR/SBTT) programs financially support I-Corps.

When the bill was debated during the 114th Congress, the bill’s sponsor, Representative Elizabeth Esty (D-CT5), and the bill’s cosponsors did not present any evidence that the current NSF programs were failing to enroll women scientists and engineers. A picture of the 2011 pilot I-Corps program on Steve Blank’s blog shows a mixed gender group, although women do appear to be in the minority.

Several premier research universities, including Rice University, host I-Corps programs. The federal government requires that all participating universities are in compliance with Title IX, which prohibits sex discrimination in educational programs, in order to receive funding.

Hidden Figures No More: Women in STEM at NASA

The INSPIRE Act directs NASA to continue support of three current initiatives. All of these programs seek to encourage girls and young women to pursue careers in STEM. Two of these initiatives—NASA Girls and NASA Boys and Aspire to Inspire—provide interested students with virtual contact with NASA mentors. The third—the Summer Institute in Science, Technology, Engineering, and Research (SISTER)—is a week-long program for middle school girls at Maryland’s Goddard Space Flight Center.

Sponsored by Representative Barbara Comstock (R-VA10), this legislation directs NASA to continue supporting these programs, but does not mention expansion. The INSPIRE Act did not appropriate funds to support these programs, but funds were appropriated for NASA’s Office of Education in the agency’s fiscal 2017 budget, which became law on March 21.

President Trump’s budget proposal for fiscal year 2018 eliminates funds for the NASA Office of Education , although NASA Acting Administrator Robert Lightfoot promises that the agency will  “continue to use every opportunity to support the next generation through engagement in our missions and the many ways that our work encourages the public to discover more” even if funds are not appropriated for the Office of Education.

The INSPIRE Act requires NASA to submit a plan to Congress on outreach to women. This will encourage communication between female K-12 students and retired astronauts, scientists, and engineers. In the floor debate, both Comstock and cosponsor Esty cited the importance of visible role models in motivating  young women to pursue STEM.

Nonetheless, the bill’s narrow scope will limit the effects of the INSPIRE Act. If Congress removes NASA Education Office funding in fiscal year 2018, INSPIRE, which received bipartisan support, will only result in a report on educational activities that the agency would have difficulty funding.

Impact

All three acts passed Congress with bipartisan support. This suggests a shared interest in furthering government innovation and expanding access to careers in entrepreneurship and STEM. This support also implies that political leaders are prioritizing action on the rapidly expanding high-tech, high-growth sector. This sector now accounts for one fifth of the U.S. economy.

Would Congress be willing to go beyond the limited scope of these bills to effect truly innovative public policy? Past congressional sessions have devoted little attention these issues. However, Majority Leader McCarthy’s Innovation Initiative, including all three of the discussed bills, suggests that this neglect will not continue.

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McNair Center Weekly Roundup

Entrepreneurship Weekly Roundup 3/10/17

Weekly Roundup is a McNair Center series compiling and summarizing the week’s most important Entrepreneurship and Innovation news.

Here is what you need to know about entrepreneurship this week:

A Tale of Untapped Potential: Cincinnati

Eliza Martin, Research Assistant, McNair Center for Entrepreneurship and Innovation

McNair’s Martin focuses on Cincinnati’s entrepreneurial ecosystem this week. While this midwestern city might appear a surprising or unlikely choice, many of Cincinnati’s entrepreneurs have thrived in recent years due to the city’s ample resources. For starters, the city is home to ten Fortune 500 companies, including Macy’s and Kroger. Its large corporations offer an invaluable network of resources and access to capital for aspiring entrepreneurs.

Furthermore, the University of Cincinnati, which boasts a marketing program that ranks among the top five in the nation, and Xavier University both offer university accelerator programs designed to support young entrepreneurs as they look to launch a business plan. In addition to university accelerator programs, entrepreneurs in Cincinnati also have the option of applying to three other accelerators within the region, The Brandery, UpTech and Ocean Accelerator.

Although Cincinnati is home to a variety of different VC funds and investment options, like CincyTech and Cintrifuse, the city closes significantly fewer deals on average per year than the likes of Austin or Denver. Martin explains this smaller number of deal closures as a function of lower levels of VC activity and fewer funding rounds. To compete with major entrepreneurial hubs, Cincinnati must increase its VC presence even further.

Wanted: More Women Entrepreneurs

Taylor Jacobe, Research Assistant, McNair Center for Entrepreneurship and Innovation

In her latest post for the McNair Center, Jacobe analyzes how improving female representation in entrepreneurship could boost economic growth in the U.S. Currently, women-owned businesses account for only 16 percent of employing companies. While women entrepreneurs tend to perform as well as, if not better than, their male counterparts, many cite lack of access to capital and limited mentorship opportunities as major obstacles to success.

According to a study from the National Women’s Business Council, women entrepreneurs start their businesses with 50 percent less capital than men. A survey conducted by the Kauffman Foundation revealed that 79 percent of women entrepreneurs drew from their personal funds when launching their business. Perhaps more telling, women are three times less likely than men to receive funding from angel and seed investors for their startups. By tackling gender bias in VC firms and other barriers to capital, public and private initiatives can better integrate women into America’s entrepreneurial ecosystem.

As Snap Ascended, These Rival Apps Faltered

Joanna Glasner, Reporter, TechCrunch

According to TechCrunch’s Glasner, VCs love messaging apps for a number of reasons: “massive scalability, low startup costs, loyal users and the potential to mint billions without having to turn a profit.” Messaging apps present a huge potential for success for investors in the modern age, exemplified by Snap’s recent IPO and WhatsApp’s acquisition by Facebook for $17 billion in 2014. Despite this rosy picture, many VC-backed startups that were messaging apps have fallen through the cracks over the years. TechCrunch recently took a closer look at how much capital has been invested into messaging apps only to find that VCs have poured hundreds of millions of dollars into companies that haven’t raised a funding round in two years. Glasner concedes that it is too early to dismiss these once promising startups as failed investments. Regardless the outcomes of these startups, prospects of success in the messaging app arena are daunting.

Y Combinator Opens Registration for Its Free Startup School Online Course

Ken Yeung, Contributor, VentureBeat

Y Combinator,one of the most successful seed accelerators in the U.S., has funded over 1,464 startups since its founding in 2005. Known for its excellent track record of spotting tech giants (Dropbox, Reddit and Airbnb, to name a few), its companies have a total valuation of over $80 billion. The famous accelerator recently announced that it would be opening up its Startup School event to the masses through a massively open online course (MOOC). The 10-week online course will offer entrepreneurs, who are not enrolled in Y Combinator’s core program, access to online courses taught by successful entrepreneurs, venture capitalists and industry greats. Lessons will focus on important topics in the startup business, such as “idea generation, product development, growth, culture building, fundraising and more.” Y Combinator partner Jessica Livingston told VentureBeat  back in 2015 that the accelerator’s mission was “to help startups at whatever stage they’re in become billion-dollar companies.”

Lemnos Just Raised a $50 Million Third Fund to (Mostly) Focus on Hardware

Connie Loizos and Katie Roof, Contributors, TechCrunch

San Francisco-based VC firm Lemnos was founded in 2014 as a firm focused on seed-staged investment into hardware companies. Successful companies like Fitbit, Oculus, Square and GoPro have boosted investor confidence in hardware companies in recent years. Lemnos recently announced that it will discontinue its incubator program to focus solely on investing in promising software development and hardware startups. The announcement marks a new stage in the VC firm’s short history, as Lemnos used to invest exclusively in hardware companies. When asked about possible investment opportunities moving forward, Lemnos executives told TechCrunch that they were very excited about the field of robotics.

This Program Uses Lean Startup Techniques to Turn Scientists into Entrepreneurs

Greg Satell, Contributor, Harvard Business Review

In 2011 the National Science Foundation (NSF), headed by Subra Suresh, founded I-Corps, a program designed to help transform scientists into entrepreneurs. The idea for the program originated when Suresh noticed that many of the scientific discoveries, made possible with NSF research grants, were not breaking out of their academic silos and into the marketplace. Harvard Business Review’s Satell describes the program as an initiative by NSF to “foster better links between government and industry.” Errol Arkilic, director of I-Corps, initially reached out to Steve Blank to help design the program, which is now an 8-week course for graduate students. The curriculum adopts the philosophies of Blank’s lean startup movement. Blank stresses the importance of developing products that actually address consumer needs; early on, Arkilic realized that many aspiring scientist-entrepreneurs create solutions to problems that consumers don’t want. Upon completion of the entrepreneurship training, participants partner with VentureWell, a nonprofit accelerator.

As of last May, I-Corps successfully trained over 700 teams. In aggregate, I-Corps teams have raised over $80 million from government grants and VC firms. Significantly, 90 percent of the program’s participants say that I-Corps changed their approach to conducting research and writing grant proposals. In response to the program’s success, the Department of Energy and the Department of Defense implemented programs that resemble the I-Corps model.

When Will All the Unicorns Exit? VC Liquidity Lagging behind Expectations

Mikey Tom, Senior Financial Writer, PitchBook

PitchBook’s Tom explains that “for the VC model to work, huge rounds need to lead to huge exits.” However, while 2015 was a year of unicorn funding rounds, 2016 did not bring large exits. In fact, VC-backed exits reached their lowest point in six years in Q4 of 2010. Part of the decline in exits could potentially be explained by an increased buildup of capital in private markets; abundance of VC in private markets might lead startups to wait longer to go public or get acquired. Another important statistic revealed by PitchBook’s analysis of VC liquidity in 2016: the median size of corporate M&A deals increased – by a lot. The total exit value of corporate M&A deal reached its second highest level in the decade, indicating larger and fewer acquisitions. On the other hand, the amount of capital raised and the number of completed IPOs in 2016 reached lows not observed since 2010 for VC-backed firms.

These Are the 50 Most Promising Startups You’ve Never Heard Of

Ellen Huet, Reporter, Bloomberg

Bloomberg recently released a list of the 50 most promising U.S. startups. Market researcher Quid generated the list by looking at over 50,000 startups and considering factors, such pace of funding, industry and history of the company’s founders.All 50 startups were founded within the last six years, and they represent a variety of industries. Startups involved in online security, fraud detection, AI, autonomous driving and AR drew the most capital. VC firms Andreessen Horowitz and Sequoia Capital each invested in six startups that made the cut.

 

The Weekly Roundup will return on March 24.

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McNair Center Startup Ecosystems

A Tale of Untapped Potential: Cincinnati

When you think of an emerging entrepreneurial ecosystem, you probably think of Austin, Texas or Boulder, Colorado, not a moderately sized city deep in the heart of the Midwest. But Cincinnati’s entrepreneurship ecosystem is positioning itself as a good place to start a high-growth, high-technology startup firm.

Picture of Cincinnati Skyline, Creative Commons

The Fortunate 500 companies that call Cincinnati home, such as Kroger, P&G and Macy’s, have been investing in their local ecosystem through a nonprofit organization. The resulting increase in resources and capital in Cincinnati’s entrepreneurship scene has led industry commentators, including TechInsurance and Entrepreneur.com to enthusiastically expound the city’s positive trajectory. In this blog post, I explore the driving forces behind Cincinnati’s transformation and ask whether it is real.

History of Entrepreneurship

Local and state governments have historically helped maintain the Cincinnati ecosystem. Individual grant programs provided the Cincinnati Children’s Hospital Medical Center, University of Cincinnati and the Cincinnati Regional Chamber with funding for high-tech projects. However, until recently, the Fortune 500 companies have been largely absent from Cincinnati’s entrepreneurship ecosystem, and there was no depth to the ecosystem’s support and service organizations. For example, less than a decade ago, there was not a single startup accelerator anywhere in the region.

Accelerators in Cincinnati

The past few years have seen an emergence of a spate of entrepreneurial resources available in and around Cincinnati. Accelerators  – 12 to 16 week entrepreneurship boot-camp programs for startups that typically end with a pitch day – now span the tristate area of Ohio, Kentucky and Indiana.

Cincinnati now boasts The Brandery, UpTech, OCEAN, First Batch, Founder Institute, a minority business accelerator housed in the Cincinnati chamber of commerce, and two university affiliated accelerators. There are also several incubators in the local area.

The Brandery

The Brandery, located in Cincinnati and founded in 2010, was inspired by successful accelerators such as Austin’s Capital Factory and Boulder’s TechStars. The Brandery offers a three-month program for seed-stage companies that use Cincinnati’s existing strengths: branding, marketing and design. Companies receive $50,000 in seed funding, office space, branding identity, legal support and more in return for 6% equity stake in the startup.

The Brandery has a portfolio of twenty-nine startups. Notably, the Brandery accelerated FlightCar, “a marketplace that allows owners flying out of an airport to rent out their cars to arriving travelers” that was acquired by Mercedes Benz and Skip, “a mobile checkout solution that allows you to scan items as you go through the store and skip the checkout line.” The Brandery has been ranked a top-ten U.S. accelerator.

UpTech and Ocean Accelerator

Launched in 2012, UpTech is a Greater Cincinnati tech accelerator program for data-driven startups. Located across the river from Cincinnati in Covington, Kentucky, UpTech was established as an effort by Northern Kentucky University College of Informatics and the Greater Cincinnati community. Up to ten startups per cohort participate in a six-month accelerator program and receive up to $50,000. UpTech differs from traditional accelerators in that it draws its hundreds of support staff from community volunteers and interns from Northern Kentucky University. Successful UpTech startups include online walking-tourism planning platform, Touritz, and software and data management company, Liquid.

The third and newest accelerator in Cincinnati is three-year-old, faith-based OCEAN Accelerator. Ocean runs a five-month program that provides mentorship, monetary support in the form of a $50,000 note, branding and legal advice. OCEAN claims to be the the only faith-based accelerator in the nation, and its curriculum features weekly bible studies. Alumni of Ocean include Casamatic, a real estate technology company that increases buyer engagement, and Cerkl, a startup that provides personalized email campaigns.

University Resources

The University of Cincinnati and Xavier University both have academic accelerator programs. The University of Cincinnati’s Technology Accelerator for Commercialization provides full-time faculty and staff with the opportunity to develop intellectual property at the University of Cincinnati. In order to be eligible for the TAC program, the technology must be developed at the University of Cincinnati and have a focus on commercialization. Start-up companies are not eligible for the TAC program.

Xavier University offers a business program aimed to boost the Greater Cincinnati economy. Called X-LAB (short for Xavier Launch A Business), the seven-year old competition provides want-to-be entrepreneurs – particularly including students – opportunities to launch a business. The Williams College of Business supports the winners by providing the business expertise of its professors, executive mentors and MBA students.

Seed-Stage Funding

Cincinnati has had stable seed-stage investors for some time. These include CincyTech and Queen City Angels, as well as some early stage venture capitalists and some nonprofits that provide grants to startups. In recent years, CincyTech and Queen City Angels appear to have had some successes and grown considerably, which bodes well for the future of the ecosystem.

CincyTech

1074px-Over-the-rhine-mapCincyTech, a public-private partnership focused on seed stage investments, was the first effort by the local government to jump-start entrepreneurship. Established in 2001, CincyTech’s mission has been to strengthen the regional economy through the creation and expansion of technology companies in Southwest Ohio. CincyTech is now investing out of its fourth and largest fund, a $30.75 million seed-stage fund, which is bigger than its first three funds combined.

CincyTech garnered considerable national attention after providing Lisnr, a company that has invented an ultrasonic technology for transmitting data through sound, with Stage A capital. Lisnr came to fruition aboard the 2012 StartupBus, a competition where participants launch a company in 72 hours on a bus headed to Austin for the South by Southwest Festival. Since Lisnr’s establishment, they have received $10 million in Series B funding from Intel Capital and garnered accolades from CNBC’s Disruptor 50 list, Cannes Lions International Festival for Creativity and Fast Company’s Innovation by Design Awards.

Queen’s City Angels

Likewise, Queen City Angels is the region’s longest running angel group and is currently investing out of its largest fund of $10 million. Queen City Angels provided the initial stage funding for Assurex Health. Now ten years old, Assurex grew out of research at Cincinnati Children’s Hospital Medical Center and the Mayo Clinic. Its singular product is the GeneSight Test, which analyzes twelve genes that influence mental health and psychoactive drugs that treat a spectrum of mental health disorders. Myriad Genetics purchased Assurex Health in April 2016 for $225 million with another $185 million to come when performance stipulations are met.

Coordinating the Ecosystem

Two organizations provide the glue for Cincinnati’s entrepreneurship scene. StartupCincy is a grassroots organizations that first registered its domain name in 2010. Cintrifuse is an example of a successful municipal government intervention in an entrepreneurship ecosystem.

StartupCincy

StartupCincy  describes itself as “the driving force behind [Cincinnati’s] new economy…a rallying cry.” In addition to maintaining a long list of upcoming network, education, accelerator and developer events in the city, Startup Cincy connects venture capitalists and angel investors to startups. StartupCincy is credited by the Cincinnati Business Courier as “one of the most influential groups leading the renaissance of Cincinnati’s startup community.”

Cintrifuse

However, the most important element of Cincinnati’s ecosystem is probably Cintrifuse. Established in 2011 with the goal of creating a sustainable technology driven economy for the Cincinnati metropolitan area, Centrifuse primary manages a fund of funds. This fund of fund has created a network of venture capital funds, including Allos Ventures, Mercury Fund and Sigma Prime Ventures, that invest in Cincinnati startups.

For big companies, like Kroger, USBank, the Greater Cincinnati Foundation and Duke Energy, investment in Centrifuse isn’t just about financial returns. Corporate investors get access to new companies and new ideas, while the startups receive mentorship and connections that help them access potential partners and customers.

Cintrifuse also provides co-working space in Over-the-Rhine, a neighborhood of Cincinnati, and entrepreneur-focused educational programs. More than four hundred companies have gone through Cintrifuse’s programs, and both CincyTech and the Brandery are located in Over-the-Rhine just feet away, providing unique collaboration opportunities.

Cincinnati’s Venture Capital Woes

CincinnatiFirstRound
Author’s calculations based on data from SDC Platinum VentureXpert

Despite all of its great resources, Cincinnati is still not producing enough successful startups to be considered a mature and effective ecosystem. Although there is no consensus among experts, ecosystems that close around thirty to thirty-five deals a year are markedly more stable. Cincinnati falls far below this. While the number of first rounds has been increasing, it appears that the city’s ecosystem may be leveling out at an average of just five first rounds per year.

CincinnatiVC
Author’s calculations based on data from SDC Platinum VentureXpert

The largest barrier to Cincinnati’s emergence as an entrepreneurial ecosystem is probably the quality of its deal flow. Despite the recent increase in startup activity, Cincinnati’s venture capital investment peaked in 2002 at $343 million. The recent maximum was $235 million in 2014, with 2016 reverting to pre-2010 levels. Since the turn of the millennium, the venture capital investment has averaged just $139 million per year. Mature ecosystems, like Austin or Denver, are much bigger.

Untapped Potential

Cincinnati’s entrepreneurship ecosystem is small but does genuinely seem to be growing in an exciting way. From 2000 to 2009, Cincinnati saw an average of around two new venture capital deals each year. From 2010, when the Brandery opened its doors, to the present, the number of Cincinnati based startups receiving venture capital for the first time has more than doubled to almost five each year.

There have been many factors at play: more venture capital, more seed stage investment, more mentorship and engagement with established firms, the arrival of accelerators, a co-working space, and specialist training and professionalization programs, and, just possibly, that the Over-the-Rhine neighborhood has achieved a critical mass of startups in close proximity. These factors appear to be working together to reinforce each other and grow the region’s startup ecosystem and the local economy. Cincinnati is surely a startup city to watch!

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McNair Center Women

Wanted: More Women Entrepreneurs

Introduction

The increase of women in the workforce in the twentieth century drove U.S. GDP growth to new highs. However, as U.S. growth slowed, so did the rate of women entering the workforce. Pushing for equal representation in fields where women have been historically underrepresented may be the key to stimulating our economy.

Women’s entrepreneurship is one of these fields. Lauded by the Kauffman Foundation as an “economic tailwind that will give a boost to twenty-first-century growth” in the global economy, there is a lot of excitement surrounding the potential of women in entrepreneurship. By looking at characteristics of successful women entrepreneurs, we may gain a better understanding of how to make entrepreneurship more accessible to women.

Characteristics of Successful Women Entrepreneurs

The Kauffman Foundation and Stanford University uncovered some interesting results by surveying 350 founding CEOs, presidents, chief technology officers, and leading technologists of tech startups founded between 2002 and 2012. First, women in tech entrepreneurship are highly educated. Ninety-four percent have at least a bachelor’s degree and 56 percent have graduate degrees. Their educational training centers around business, the liberal arts, and STEM. Female entrepreneurs clearly represent a highly educated slice of the population. In comparison, only 33 percent of women in the United States possess a bachelor’s degree or higher; further, only 12 percent of women possess a graduate degree.

Performance

Research shows that female entrepreneurs experience success. On average, female entrepreneurs of all types (not just tech industries) perform seven percent better on the Kauffman Opportunity Entrepreneurship Share than male entrepreneurs. The KOES tracks the percent of new entrepreneurs who come from prior employment each year; these entrepreneurs leave their jobs to start businesses because they identified market opportunities. This indicates that women are better at identifying the market “gaps” where entrepreneurs thrive. Furthermore, women start their equally successful companies with 50 percent less capital than their male counterparts.

Nonetheless, some research finds that women entrepreneurs perform worse than men. Studies by Fundera found that women-owned businesses earn 30 percent less annual revenue than men. This could be creating a vicious circle, though; when companies make lower revenue, it is harder to access credit, making it more difficult to increase revenue in the future.

Gender Gaps

If women entrepreneurs tend to experience success, why are there so few women involved in entrepreneurship as a whole? Female-owned businesses only represent 16 percent of employing firms. Even then, these firms tend to be small, usually with employee counts in the single digits. Among high-growth, high-technology firms, women represent a mere 10 percent of founders.

https://www.flickr.com/photos/ges2016/27831680936
Penny Pritzker (U.S. Department of Commerce Secretary), Ruth Porat (CFO and Senior Vice President of Google and Alphabet Inc), and Ann H. Lamont (Managing Partner at Oak HC/FT) speak at the Global Entrepreneurship Summit in June 2016

Female entrepreneurs cite lack of available financial capital, lack of mentors or advisors, and the high requirements for time and effort as some of the toughest challenges in starting their businesses. Seventy-nine percent of women surveyed by the Kauffman Foundation reported using their own personal funds to start their business.

Male founders are more than three times as likely as female founders to secure financing through angel donors or VCs. Research at Babson College indicates that this difference may be linked to gender discrimination: “Because women entrepreneurs do not conform to the ‘role’ of the entrepreneur in the high growth venture, role incongruity may lead to greater perceived risk on the part of venture capital investors.”

Supporting Female Entrepreneurs

If women entrepreneurs are unable to secure funding on an equal basis with men, it may be impossible to ever see equal gender representation in entrepreneurship. We need to address gender-based biases of VC firms and other investors. Recruiting more women to the venture capital industry could help reduce unintended gender discrimination when making investments. Employee bias training programs may also help in this process.

Private and nonprofit efforts to encourage women’s leadership and entrepreneurship can be helpful as well. Initiatives like Women’s Entrepreneurship Day, the Women’s Entrepreneur Festival, and the Microsoft’s Women Think Next network are all examples of non-governmental programs that try to address women’s representation issues. Lean In Circles—small support groups made up of women in local communities and around the world— also serve as valuable tools to promote women’s economic involvement.

Government programs may also be successful in jump-starting greater women’s involvement in entrepreneurship. The City of Atlanta provided 15 women entrepreneurs the opportunity to incubate their businesses for 15 months through their the Women’s Entrepreneurship Initiative in 2016. On a federal level, implementation of more programs like the State Department’s African Women’s Entrepreneurship Program may benefit women, especially those in minority groups. One of the greatest challenges for women entrepreneurs is finding mentorship opportunities; local and state government initiatives to pair mentors with women entrepreneurs could help address this problem.

The U.S. economy is at a tipping point. In early 2016, Forbes magazine pointed out that female entrepreneurs are an “under-tapped force that can rekindle economic expansion.” However, despite strong evidence for growth potential and data supporting female entrepreneurs’ power, many barriers still exist. Through integration of more women into entrepreneurship ecosystems, we can achieve a brighter economic future for all.

Related Posts

To learn more about treatment of women within top tech companies, see the McNair Center’s blog post here.

To learn more about women in STEM fields, see the McNair Center’s blog post here.

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McNair Center Weekly Roundup

Entrepreneurship Weekly Roundup 3/3/17

Weekly Roundup is a McNair Center series compiling and summarizing the week’s most important Entrepreneurship and Innovation news.

Here is what you need to know about entrepreneurship this week:

Crowdfunding

Tay Jacobe, Research Assistant, McNair Center for Entrepreneurship and Innovation

This week, McNair’s Jacobe analyzes a relatively new phenomenon in capital fundraising: crowdfunding. Crowdfunding enables startups and entrepreneurs to raise capital for their businesses, without going through more formal sources of funding like angel investors, bank loans and VC funds. Although Indiegogo and KickStarter are by far the largest and most successful crowdfunding websites, many additional crowdfunding platforms have emerged in recent years. In 2015, the crowdfunding industry was valued at roughly $17.25 in comparison to $58.8 billion for VC funds.

While startups may find success in raising cash on crowdfunding sites, there is still no guarantee that the startup will be successful. This uncertainty holds for VC-backed startups as well, but unpredictability becomes a particular concern for crowdfunding-backed startups; the success rate of Kickstarter’s startups stands at 35.72 percent.

According to a study conducted at the Wharton School, a differentiating factor between startups that go through successful crowdfunding campaigns is strategic and longterm planning. Jacobe believes that “crowdfunding has potential to shake the dynamics of investment in the coming decades.” In order for crowdfunding to reach its full potential as an alternative platform for entrepreneurs to raise capital, policymakers should implement regulations that support and empower the crowdfunding environment

Startups Seeking Funding Should Consider Corporate Venture Capital Arms

Richard Harroch, Contributor, Forbes

In recent years, many large corporations, like Google, Nokia and Qualcomm, have been sprouting “venture capital arms.” Venture capital arms or corporate venture arms are VC funds that are separately owned or subsidiaries of a parent company. According to Forbes’ Harroch, corporate venture arms typically participate in seed, Series A and Series B investment rounds. These funds often look out for startups that offer the parent company a strategic or synergistic edge.

Among other positive outcomes, the corporate venture model benefits startups by providing credibility, a larger consumer base, access to an expansive network of resources and connections and strategic and industry-specific guidance. However, as pointed out by Michael Yang, the Managing Director for Comcast Venture, “there is no shortage of capital for the best startups.” Because the most promising startups can easily choose from a wide range of investing options, corporate arms distinguish themselves from traditional VC funds by leveraging their in-house expertise and ability to benefit companies post-investment.

Venture capital arms are a strategic and financially attractive option for many large corporations. Parent companies gain access to new and disruptive technologies, potential industry partners, budding industry talent, insight into alternative business models and additional sources of cash inflow.

Tech Startup Market Sinks to Lowest Point in Three Years

Sarah McBride, Journalist, Bloomberg

Stock markets have been enjoying a post-election rally amid expectations of infrastructure spending, decreased regulations and corporate tax cuts. Since January 26th, the Nasdaq Composite Index soared 13% percent and the Dow Jones Industrial Average broke the 20,000 mark.

However, Bloomberg’s McBride points out under-performance by one key segment of the market: private technology startups. While private tech startups are also likely to benefit from the Trump administration’s proposed tax cuts and deregulation, stricter immigration rules for the H-1B visa program could prove harmful. Bloomberg’s U.S. Startups Barometer measures startup deal-making in the U.S. at 37 percent below its level from December, putting the startup sector at its lowest point since April of 2014.

Although private market deals tend to reach a lull at the beginning and end of the year, deal flow in 2017 seems unusually low when compared to previous years. According to McBride, many VCs are now facing “the prospect that they had overpaid for many investments” in previous years, “particularly the coveted unicorn startups valued at $1 billion or more.”

Fortunately, the recent slow in deal flow is not symptomatic of a lack of capital; according to the National Venture Capital Association, U.S. venture funds raised $41.6 billion in 2016, “ the most since the dot-com days of 2001.” Despite the current trend, McBride expects more VC-backed private technology firms to go public.

And in startup news…

More bad news: JackThreads, Stayzilla shutting down

Dana Olsen, Financial Writer, PitchBook

Pitchbook’s Olsen reports on recent layoffs by VC-backed startups. In 2016, many startups halted operations and trimmed down their work forces. Last year, employees at many startups like Sonos, Pebble, Shyp, Optimizely, Yik Yak and Github faced waves of layoffs. Unfortunately, layoffs in the startup sector seem likely to continue into 2017. Munchery, Joyable, JackThreads and Stayzilla are four startups that have already instituted mass layoffs ahead of March. According to Olsen, VC-backed Stayzilla and JackThreads are also considering shutting down operations due to unsound financial practices and lack of profitability.

SoftBank set to invest more than $3 billion in WeWork

Brian Sullivan, Reporter, CNBC

WeWork is reportedly set to receive over $3 billion in investment from Japanese VC firm, SoftBank. WeWork, founded in 2010 in New York City, provides coworking spaces, networking opportunities and educational services to entrepreneurs, small businesses and freelancers. Since opening its original office location in New York City in 2010, WeWork has expanded its operations nationwide and globally, with a new location likely to open in downtown Houston later this year, The startup currently offers over 150 coworking spaces, with locations in most major U.S. cities and over 15 countries.

At the time of its last investment, WeWork was valued at approximately $17 billion. With the deal, WeWork’s valuation would surpass $20 billion. In recent years, this successful startup has accumulated over $1 billion in capital from prominent VC firms like Goldman Sachs, Benchmark and Hony Capital.

SoFi Raises $500 Million Led by Silver Lake for Global Expansion

Selina Wang, Reporter, Bloomberg

Founded in 2010, San Francisco-based Social Finance Inc. (SoFi) provides modern underwriting services. Using SoFi, customers can purchase financial products, such as student loan refinancing, mortgage loans, personal loans, wealth management and life insurance online.

In its latest funding round, SoFi raised over $500 million, drawing investments from SoftBank, GPI Capital and some sovereign wealth funds, but PE firm Silver Lake Partners led the charge. The recent funding round will support SoFi’s efforts to break out into international markets and expand its financial product offerings. Many SoFi executives have expressed interest in providing customers with an larger set of personal financing tools, such as mobile deposit.

Categories
Government and Policy McNair Center Small Business

Crowdfunding

What is crowdfunding?

Crowdfunding is constantly evolving and hard to define. Elizabeth M. Gerber at Northwestern University defines crowdfunding as “an open call over the Internet for financial resources in the form of a monetary donation, sometimes in exchange for a future product, service or reward.” Due to the ease and availability of crowdfunding sites, crowdfunding has changed the way entrepreneurs source funds.

A typical modern crowdfunding campaign begins with a page on a crowdfunding website. The page describes the concept of the project, the fundraising goal and the rewards for backers. Videos, sketches and graphics demonstrate the potential of the idea. From there, backers can donate money in exchange for tiered rewards, usually depending on the amount of money contributed.

History

The first popular online crowdfunding platform, AristShare, launched in 2003 as a way for musicians to receive funds to produce new music. Artists could offer incentives to investors, like exclusive access to content or previews. This reward-based structure made the deal appealing to both artists and contributors.http://i.vimeocdn.com/video/590376642_1280x720.jpg

After the success of smaller, niche-based crowdfunding sites like AristShare, larger and broader sites took hold of the crowdfunding scene. Two of the most successful, Indiegogo and Kickstarter, were founded in 2008 and 2009, respectively. Kickstarter boasts that since their founding, more than 12 million people have contributed funds to entrepreneurs, pledging more than $2.9 billion. Indiegogo is similarly successful, raising more than $1 billion from 11 million backers.

A crowdfunding project meeting its goal does not always mean that the project will be successful in the long run. Crowdfunding campaigns can be successful if their product seems exciting to backers, but if their business plan is not sound, then it is hard to maintain success beyond the initial crowdfunding. For example, one of Indiegogo’s most popular campaigns, a high-tech smartphone concept called the Ubuntu Edge, was unable to go into production due to financial issues even though the project had raised the second highest amount of money in Indiegogo’s history.

In 2015, Crowd Expert estimated that the crowdfunding industry was worth approximately $17.25 billion. In comparison, Venture Capital in 2015 was estimated at $58.8 billion.

Successes and Failures

The most basic measure of success for crowdfunding campaigns is whether the project reaches its goal. Research from Ethan Mollick at the Wharton School of the University of Pennsylvania indicates that being successful in a crowdfunding campaign requires strategic planning. “Crowdfunding projects mostly succeed by narrow margins, or else fail by large amounts,” Mollick asserts. Kickstarter’s records back up this claim. Kickstarter’s success rate is only 35.72 percent, meaning that only about one third of projects reach their goals.

Researchers at Northwestern attempted to understand the dynamics of successful crowdfunding campaigns. Using data from previous Kickstarter projects, they used machine learning to try to predict the success of projects. Their algorithm analyzed different factors of project pages, considering aspects like number of sentences in project description, length of campaign, goal of project and number of rewards available, among others. The accuracy rate for this research was 67 percent. This research shows that although some factors can success in some cases, there is no exact recipe for a successful campaign. The researchers explained, “There is a possibility of the existence of a hidden variable that would help us classify better.”

Nonetheless, certain crowdfunding projects receive immense support and go on to experience long-term success through being acquired, undergoing an IPO or surviving as an independent business. The most successful Kickstarter campaign of all time, a smartwatch called Pebble Time, was able to raise over $20 million even though the initial goal was only $500,000. Pebble produced and shipped over 2 million watches before shutting down operations in December 2016, selling its key assets and intellectual property to Fitbit. Indiegogo has also seen projects that turned into profitable businesses, like the Flow Hive and the SONDORS Electric Bike. Both of these startups have grown since their campaigns and expanded their product lines.

Economic Implications

Crowdfunding might be an effective way to use private action to stimulate the economy and help small businesses and startups. For individuals who have difficulty initially accessing angel investment, venture capital or bank loans, crowdfunding can provide an alternative. A successful crowdfunding campaign can enable small businesses to access these more traditional types of funding later in their lifetimes.

A study in 2015 in the Thunderbird International Business Review qualified crowdfunding as a Fast-Expanding Market. FEMs are characterized by youth, rapid growth and highly lucrative results. Crowdfunding encourages virtual “formation of clusters of expertise and capability,” encouraging collaboration across the world. Adding to the “efficiency and productivity in the community value chain,” researchers also speculate that crowdfunding has the potential to bring Small and Medium-sized Enterprises (SMEs) out of sluggish growth rates.

Crowdfunding Policy

Equity crowdfunding allows investors to purchase a small equity or bond-like share in a business.

In 2011 and 2012, mainstream media brought attention to the Facebook Problem. Facebook filed complaints regarding the threshold on private investors that a company could have without registering with the Securities and Exchange Commission. Facebook considered the threshold, 500, far too low. In response, the SEC’s JOBS act in 2012 raised this threshold to 2000. Although this policy change initially intended mainly to help companies like Facebook, it inadvertently affected equity crowdfunding positively. The regulations allowed more investors per equity crowdfunding campaign.

In May 2016, another SEC regulation update gave equity crowdfunding sellers and investors even more leniency. The new policy exempted small crowdfunding operations from certain SEC regulations on investing. To qualify for exemption, issuers may only raise up to $1 million in crowdfunding per year; investors can only contribute a certain percentage of their income per year. The SEC also regulates the extent to which crowdfunding portals can involve themselves in users’ crowdfunding transactions. Although equity crowdfunding may help small businesses get initial capital, it may affect the firm’s ability to raise follow-on funds later in the process.

Nonetheless, there are still other crowdfunding policy issues that the SEC may need to address. The updated regulations place a financial burden on portals, holding them liable in certain cases of issuers not keeping promises. They may also pay too little attention to the size of businesses/individuals that use crowdfunding to raise funds.

Conclusion

Crowdfunding has potential to shake the dynamics of investment in the coming decades. We need to ensure that the regulations surrounding this market are desirable for investors, issuers and crowdfunding portals.

Categories
McNair Center Weekly Roundup

Entrepreneurship Weekly Roundup: 2/24/17

Weekly Roundup is a McNair Center series compiling and summarizing the week’s most important Entrepreneurship and Innovation news.

Here is what you need to know about entrepreneurship this week:

Austin’s Venture Capital

Eliza Martin, Research Assistant, McNair Center for Entrepreneurship and Innovation

In her latest post for the McNair Center, Martin follows up on her previous analysis of Austin’s booming entrepreneurial ecosystem. Martin highlights Austin’s decreases in VC investment and deal closures from 2016 as signs of a slowing in growth. According to a report released by PitchBook, 2016 brought substantially fewer deal closures than 2015 for Austin startups. Martin suggests that increased perceived risk among investors and a recent decline in startups are byproducts of an over-investment into Austin startups in previous years.

Still, Martin remains optimistic about the health of Austin’s entrepreneurial ecosystem going forward, predicting that the city “ will see investment increase again after VC investment balances out.”

Big Food Looks to Startups for Ideas, Innovation

Annie Gasparro, Reporter, Wall Street Journal

When the Kellogg’s and General Mill’s of the food industry realized that they couldn’t quell rising consumer obsession with healthy and unprocessed products, they started investing in food startups.

In recent years, many prominent names in the food processing and consumer goods industry began creating VC funds to invest food startups. According to CircleUp, a company that acts as an investment marketplace for food startups and PE firms, big players in the consumer good industry saw roughly $18 billion of their market share swept away by smaller competitors between 2011 and 2015. These partnerships are also mutually beneficial. Emerging food startups gain access to resources and credibility, and larger corporations receive valuable insight into the successful marketing strategies and recipes of their new competitors.

Why Some Startups Succeed (and Why Most Fail)

Patrick Henry, Founder and CEO of QuestFusion, Contributor, Entrepreneur

In his article for the Entrepreneur, successful entrepreneur and startup consultant, Patrick Henry, analyzes startup failures and successes. Henry reinforces the relevance of his post by citing an article by FastCompany, which states that 75% of venture-backed startups fail. Henry frames the question in two ways: what makes startups fail, and what makes startups succeed? Citing studies from StatisticBrain, CB Insights and Compass,

Henry attributes most business outcomes to company leadership. More often than not, successful startups have CEO’s or c-suite members with general and industry-specific business knowledge. Think Google’s Eric Schmidt, Ebay’s Meg Whitman or Apple’s Steve Jobs. Commons reasons for startup failures, such as raising too much capital too quickly, running out of cash or ineffective marketing, signal poor decision-making at the management level. Company founders should consider adding “seasoned” business veterans who the possess “domain expertise” to best support their strong technical team and existing product design.

According to Henry, startups should not undergo more than two pivots. Pivots are changes “in course of direction that result in a material change in the product-market strategy.” While young businesses should be equipped to adjust to market fluctuations, they should avoid being so flexible that they lose sight of their founding mission.

The Megatrends of Entrepreneurship are Key to Job Growth

Wendy Guillies, Contributor, Forbes

Wendy Guillies, President and CEO of the Kauffman Foundation, discusses the megatrends of entrepreneurship.

The first major trend involves demographics. Despite America’s growing diversity, the country’s entrepreneurial population has remained largely stagnant. Women and other minorities remain largely underrepresented in business ownership. According to Kauffman Foundation data, minorities and women are half as likely as their counterparts to own a business that employs people.

The second key trend focuses on geography. Entrepreneurial activity is becoming increasingly concentrated in urban centers. According to Guillies, this phenomenon is largely a function of population shifts, as more and more people relocate to cities. From the 1980s to 2017, the share of small businesses based in rural communities dropped from 20 to 12 percent. “Increasing urbanism” also has spurred the spread of entrepreneurial activity from the major coastal hubs, “ driving geographical equality.”

The third trend involves job creation and technology. According to Guillies, “in the past, as companies scaled their revenue, jobs scaled in an almost linear fashion.” Now, this is no longer the case. For example, in 1962, when Kodak reached $1 billion ($8 billion today) in sales, the corporation employed over 75,000 people. When Facebook surpassed similar sales targets in 2012, the company employed a mere 6,300 workers. Despite promoting capital efficiency, digitization has slowed job creation from the startup sector, However, there is a significant upside to these web-based technologies: such platforms lower many of the barriers to market entry for small businesses.

According to Guillies, “these three megatrend…are sources of both concern and optimism.” If entrepreneurs and policymakers can better understand and take advantages of these trends, they can “enhance job opportunities for the benefit of us all.” For instance, if minorities alone started as many businesses as non-minorities, the economy would add more than 9.5 million jobs.

QA with Jared Bakewell on the 2017 Annual State of Entrepreneurship Address

Silicon Prairie Team, Silicon Prairie News

The 8th Annual State of Entrepreneurship Address took place this past weekend in Washington D.C. Jared Bakewell, CEO and Co-founder of Proseeds, an Omaha-based startup, recently sat down with the Silicon Prairie Team to discuss the event’s key takeaways. The Kauffman Foundation’s Guillies delivered the address,and she focused on the three major trends of entrepreneurship.

In the interview, Bakewell stressed a general consensus among the event’s attendees, which included entrepreneurs, venture capitalists, and politicians: government policy should remove early barriers to success for startups and small businesses. For entrepreneurs in the midwest and rural areas, access to capital is a concern.Currently, most of the nation’s VC flows toward the coastal hubs. Additional concerns for startups looking to expand operations are instabilities in both healthcare and immigration policy. Bakewell optimistically concluded the interview, adding that many of the attending politicians appeared open to the suggested solutions to these challenges.

IBM Watson joins Indiegogo to back a crowdfund-to-production service for entrepreneurs

Khari Johnson, Reporter, VentureBeat

Last week, IBM Watson and Arrow Electronics announced a new partnership with crowdfunding website, Indiegogo. IBM spokesman Deon Newman shared with VentureBeat that the partnership will expand Indiegogo’s operations from purely fundraising to also incubating and accelerating startups.

Indiegogo cofounder Slava Rubin reiterated the strategic shift, telling VentureBeat that the company plans on evolving its platform into “a springboard for entrepreneurs.” All startups that participate in the partnership’s services will gain access to IBM Watson’s Bluemix. Bluemix, along with IBM Watson’s other AI services, will offer smaller companies the opportunity to apply machine learning processes to their existing infrastructure. Some successful participants will even participate in Bluexmix’s global entrepreneur program and receive $50,000 in capital from Arrow.

Categories
McNair Center Startup Ecosystems

Austin’s Venture Capital

Austin, Texas
Austin, Texas

In my previous blog post, I discussed Austin, Texas’ strong history of entrepreneurship and the many resources in the ecosystem. Supportive Austin policies have resulted in the creation of the Entrepreneur Center of Austin, and resources like Capital Factory and Tech Ranch Austin have emerged. Austin’s entrepreneurial ecosystem appeared to be healthy.

A recent PitchBook Report discussing venture capital in Austin shows the ecosystem to not be as healthy as previously thought. In 2014, Austin saw 286 deals closed at a value of $1.4 billion. Similarly, in 2015, 296 deals closed or $1.3 billion. 2016 saw a substantial decrease in the number and value of deals closed with 199 deals closed at a value of $978 million.

Austin’s ecosystem reflects a nationwide trend in declining deals. According to PitchBook, the number of deals closed nationwide had been rising steadily since 2009, peaking in 2014 with 10,501 deals closed. 2015 and 2016 both saw decreases in the number of deals closed; 10,293 and 8,136 respectively. The 8,136 deals closed in 2016 is the lowest number of deals closed since 2012.

An insufficient supply of startups and an increased perception of risk are decreasing VC investment in the Austin ecosystem. Investors likely fear that the oversupply of capital that has been invested in the system in 2014 and 2015 has led to slumping returns, so they are pulling back their investments. Once VC investment balances out, it is likely that Austin will see investment increase again.

Outside investment in Austin-based companies soared in 2014 and 2015, as respectively, 396 and 370 investors from outside the Austin metropolitan statistical area invested in Austin-based ventures. In 2015, Austin had the most venture capital invested in its first financings with $324 million. However, venture capital activity in the United States overall has declined. Austin’s most prominent VC fund, Austin Ventures, closed in 2015. After the two-year boom period from 2014 to 2015, the rate of VC investing in Austin startups has slid considerably over the 2016 period.

Austin’s diverse ecosystem is an asset to the stability of VC investment in the area. While the majority of VC activity occurs in the software industry, the pharmaceutical and biotech industry also attract significant VC investment. In 2015, 12 deals were closed in health care devices and services, and in 2016, 11 deals. The opening of the Dell Seton Medical Center and Capital City Innovation, which will work to connect entrepreneurs with healthcare research, will likely contribute to increases in VC for health care devices and services.

According to a McNair Center Report, VC investment in Texas is falling. Yet Austin’s relatively low costs and the boom of angel/seed investment have given Austin a reputation as a thriving startup ecosystem in a state where VC investment is dropping. Despite decreases in a 2016 VC investment in the region, it is likely that Austin will see investment in crease again after VC investment balances out.

Categories
McNair Center Weekly Roundup

Entrepreneurship Weekly Roundup: 2/17/17

Weekly Roundup is a McNair Center series compiling and summarizing the week’s most important Entrepreneurship and Innovation news.

Here is what you need to know about entrepreneurship this week:

The International Entrepreneur Rule: The US Startup Visa

Ramee Saleh, Research Assistant, McNair Center for Entrepreneurship

During the last days of the Obama Administration, the United States Citizenship and Immigration Services (USCIS) passed the International Entrepreneur Rule. The legislation intends to attract international entrepreneurs to the U.S. by granting them “discretionary parole.”

Under the rule, entrepreneurs can apply for temporary five year visas, as long as they partially own a startup that has received at least $250,000 in VC funding from “established U.S. investors” or $100,000 from “government entities.” If a startup fails to meet these funding requirements, the applicant must prove that a “significant public benefit” would result from the his or her entry into the United States. Due to the strict standards, the Department of Homeland Security estimates the program to admit only 2,940 entrepreneurs annually.

Scheduled to go into effect July 17, the International Entrepreneur Rule is still subject to change by any reforms to the H-1B visa program by the Trump Administration.

With $6B in Deals in 2016, ID Management Is a Hot Sector You May Have Missed

Joanna Glasner, Contributor, TechCrunch

In 2016, startups involved in identity management collectively claimed over $6 billion in acquisitions from private equity buyers. Identity management startups also experienced successful funding rounds, raising over $200 million from VCs. These startups are responding to a growing need for improvements in health care IT and authentication. Last year,ECRI Institute, a global nonprofit focused on patient safety, listed “patient identification errors” as the second most important safety concern for health care organizations.

TechCrunch’s Glasner highlights tech unicorn Otka, an identification management and authentication platform provider, that has raised over $200 million from VCs. Otka is considering going public this year.

Lawmakers Try to Stop State-Sponsored Retirement Plans

Anne Tergese, Reporter, The Wall Street Journal

Last week, Republican Congressmen introduced measures to prevent small businesses from automatically enrolling employees in state or locally sponsored retirement plans. The bill comes as several states have enacted retirement savings programs that automatically deduct earnings from employee’s paychecks for deposit into individual retirement accounts.

These programs only affect residents who do not have access to a workplace retirement plan; AARP estimates that this number stands at 55 million people nationwide by. AARP executive vice president Nancy LeaMond has publicly stated that Congress should take steps to support, rather than end, these state savings programs.

Supporters of the bill believe that state-sponsored retirement plans “discourage small businesses from offering private-sector plans” by forcing employees “into government-run plans with fewer protections and less control over their hard-earned savings.”

Banks Are Finally Sprouting Anew in America

Rachel Witkowski, Reporter, The Wall Street Journal

In the past few months, the Federal Deposit Insurance Corporation received the greatest volume of applications for “startup banks” since the financial crisis.The increase reflects an improving economy and expectations for future deregulation of the financial sector.

Startup, or “community,” banks are traditionally viewed as banks that hold less than $1 billion in assets. According to Q3 FDIC data from last year, community banks are responsible for 43% of loans to small businesses. The Wall Street Journal’s Witkowski reports that many community bankers believe that “the decline in the number of banks has led to fewer lending options for startups and small businesses.” Supporters of deregulation believe that greater numbers of community banks spur economic growth and job creation.

Don’t Panic Labs Pioneers “Dev-for-Equity” Model to Help Startups

Christine McGuigan, Reporter, Silicon Prairie News

Don’t Panic Labs is an offshoot of the engineering arm of successful VC fund, Nebraska Global. Don’t Panic Labs adopts a “dev-for-equity” model, assisting startups and entrepreneurs with software and product development in return for company equity. The firm also provides software development services for publicly traded companies that do not require capital investment.

Despite serving established companies, Bill Udell, Integrator for Don’t Panic Labs, told Silicon Prairie News that the firm’s “DNA is in creating startup companies.” In 2016, the firm poured $396,000 of dev-for-equity investment into startups. Don’t Panic Lab focuses on product development and training for its clients’ in-house software engineers.

PitchBook Brings Company Financial Data to Its Mobile App

John Mannes, Writer, TechCrunch

MorningStar, Chicago-based investment research and management firm, acquired PitchBook in 2016. Pitchbook is an industry leader in providing investors with up-to-date coverage of VC, PE and M&A transactions. According TechCrunch’s Mannes, PitchBook, although known for its comprehensive coverage of tech firms, is also increasingly expanding its database to include coverage on non-tech companies as well.

PitchBook recently announced plans to add financial data for 226,000 private companies to its mobile app. The update will provide the database’s 7,000 active members with previously unavailable insight into the financials and revenue figures of private companies.

And in startup news…

Ford to Invest $1 Billion in Artificial Intelligence Start-Up

Mike Isac, technology reporter based in The Times’s San Francisco bureau, and Neal E. Boudette, Reporter, The New York Times

Many automakers are hoping to achieve some of the success that many Silicon Valley startups have found by investing in autonomous vehicle technology and ride-hailing services. Ford recently announced that it will invest $1B in Argo AI, startup focused on utilizing artificial intelligence to develop self-driving cars. Mark Fields, president and CEO of Ford, told reporters last week that the automaker hopes to become “part of the ecosystem of Silicon Valley.”

With the rise in popularity of “mobility services,” car ownership is growing increasingly unnecessary for consumers living in urban centers. Ford’s move suggests an industry-wide shift in strategy, as traditional automakers must adapt to shifting consumer attitudes. For instance, last year General Motors invested $500 million in ride-hailing startup, Lyft, and acquired Cruise Automation, a startup geared toward developing roadway technologies that support autonomous vehicles.

Fields explains the motives behind Ford’s investment: “If we can combine the best of a start-up and marry that with proper equity compensation, then that’s the best of both worlds.”

Categories
Government and Policy McNair Center

The International Entrepreneur Rule: The US Startup Visa

SAN FRANCISCO, CA - SEPTEMBER 7: Atmosphere during the TechCrunch Disrupt SF 2013 Hackathon inside The Concourse at San Francisco Design Center on September 7, 2013 in San Francisco, California. (Photo by Jeff Bottari/TechCrunch) *** Local Caption ***

The Obama administration proposed new provisions for immigrant entrepreneurs in August 2016. The administration designed the proposal to attract international entrepreneurial talent to the United States, especially in advanced technology fields. In mid-January, with only days left in President Obama’s term, the United States Citizenship and Immigration Services (USCIS) finalized the details of the “International Entrepreneur Rule.” It is scheduled to go into effect on July 17, 2017. Whether it goes into effect will depend on President Trump’s immigration plan, which may see changes in the current H1-B visa program.
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Overview

The International Entrepreneur Rule would allow USCIS to grant discretionary parole to international entrepreneurs for two and a half years . However, entrepreneurs may struggle to qualify for a parole grant unless they are already involved in a successful venture. The rule states that first-time applicants must own at least 10% of a U.S. startup that is less than five years old and play a significant role in its management.

Applicants must also demonstrate that their startup has high potential for growth and job creation. The two main avenues for satisfying this criterion are demonstrating that the company has received $250,000 or more in venture capital from “established U.S. investors” or at least $100,000 or more in funding from government entities. Applicants that do not meet these standards may still qualify if they can demonstrate “significant public benefit that would be provided by the applicant’s (or family’s) parole into the United States.”

After their initial parole is over, entrepreneurs may apply to extend their stay for an additional two and a half years. In order to receive an extension, entrepreneurs must show that their startups have “shown signs of significant growth.” A total of two parole grants is the maximum; there are no further extensions. If entrepreneurs wish to stay longer, they must find another method to secure a visa or a green card.

Analysis

When this rule was originally proposed by the Obama administration, it received early praise; Tim Ryan, the co-founder of Startup San Diego, applauded the proposal as a step in the right direction.

However, government agencies only expect this rule to impact a very limited number of entrepreneurs. The Department of Homeland Security estimates that a mere 2,940 international entrepreneurs will qualify annually. DHS also estimates they will bring approximately 3,234 dependents and spouses. In contrast, the USCIS approved 85,000 H1-B visas in the 2014 fiscal year.

The high level of investment required may serve as a hurdle for applicants. Y Combinator, widely considered the world’s best startup accelerator, only offers startups a maximum of $120,000 in investment funding. However, to qualify for the proposed International Entrepreneur Rule, USCIS expects companies to have at least $250,000. Not only that, but this money must come from investors with a record of repeated investment successes. Some policy advocates worry that there simply will not be enough reputable investors able to provide that level of funding. Moreover, even if some investors can fulfill the requirement, they may not all have the necessary experience to satisfy the rule.

The rule may help to keep entrepreneurial talent in the U.S., but will do little to attract new recruits. The applicant pool may be limited by the requirements that the company must be U.S.-founded and that the applicant have a significant role in the company. Because of these specifications, applicants must be individuals who are already in the U.S. Nonetheless, this rule may help international students at U.S. universities who are unable to acquire H-1B visas.

There is also an issue of time — entrepreneurs only have five years, maximum. The high levels of investment required for initial application and renewal may put strain on startups. TechCrunch puts the average time of an “IPO-track startup” at about seven years, although it can take up to ten years. Given this information, the parole periods may not be long enough to positively impact startups.

Ultimately, potential investors may view the startup visa as an undesirable risk. Investors will be aware of the possibility that a company, or at least its key members, could lose immigration status.

Lastly, it is unclear whether the Trump Administration will alter the details of the rule. A Department of Homeland Security spokesman informed CNN on January 23 that the DHS is still awaiting guidance on how President Trump’s executive order freezing new and pending regulations will impact the International Entrepreneur Rule’s implementation.

Learning from Other Countries

The U.S. is not the first to propose a visa for startup entrepreneurs. Many other countries have established their own processes for admitting international entrepreneurs, including the United Kingdom, Canada and France.

The U.K. allows individuals wishing to set up or take over a business within its borders to apply for a Tier 1 (Entrepreneurship) Visa which can be extended before they can apply for settlement or an indefinite leave to remain. The U.K.’s financial requirements for applicants are also more flexible than the U.S. requirements in sources and amounts of funding. The U.K. startup visa does not require that applicants start the business themselves. Instead, intention of starting a new business, taking over one or providing significant funding is enough.

Canada seeks to attract innovative talent by tying them to government-approved Canadian entities with a goal of facilitating long-term success. The Canadian Start-Up Visa Program focuses on the creation of new startups. Applicants must obtain at least one letter of support that details funding from a list of designated organizations. This includes venture capital funds, angel investor groups and business incubators.

France launched its French Tech Visa in 2016 to complement the “French Tech Ticket” program it began in 2015. The French Tech Ticket program selects 70 international entrepreneur teams and provides funding and support with a French incubator for a year. The French Tech Visa expands this program to attract foreign startup founders, exceptional talent, investors and angels by offering renewable visas.

The U.S. could look into incorporating aspects of these programs to compete for the top foreign entrepreneurs. For example, the entrepreneurs can only renew this visa once; perhaps lawmakers could extend its duration or allow additional renewals. The U.S. could also aid the integration of accepted businesses into the startup and tech communities. These changes, however, would be dependent on President Trump’s immigration policy.

Conclusion

Eligibility requirements of the International Entrepreneur Rule are rigorous, and the time period allotted by the visa is short. It is reasonable to assume that the proposed startup visa would have little, if any, economic impact. Moreover, if President Trump repeals the order, there may be little hope for a truly meaningful startup visa. While Trump vows to “establish new immigration controls to boost wages and to ensure that open jobs are offered to American workers first,” his exact plans for reforming H-1B visas, including the possibility of a startup visa, are unclear.