The Bay Area is known around the world for its entrepreneurial spirit--a place where companies can begin in small garages and end up as giants like Apple and Google. There is nothing more representative of the American dream than entrepreneurship.
However, we live in a time when that dream seems to be slipping through our fingers. In the past decade, the risks and costs associated with start-ups have deterred way too many aspiring individuals from entrepreneurship. In a competitive global economy, we must encourage entrepreneurship in the United States by reducing cost, promoting innovation, and attracting venture capital.
Join me in support of entrepreneurship!
Roadmap to Entrepreneurial Revitalization
RIDE THE WAVE OF COVID-19 STARTUP BOOM
As counterintuitive as it sounds, the COVID-19 pandemic has actually rejuvenated American entrepreneurship. According to a Peterson Institute report, business startups in the U.S. grew from 3.5 million in 2019 to 4.4 million in 2020, a 24% increase. The trend can be attributed to two reasons. Firstly, the changing customer preferences during COVID-19--online shopping, healthcare preference, digitalization--offer new opportunities for entrepreneurship in retail and tech industries. Secondly, the economic downturn and rising unemployment rate forced many into entrepreneurship by necessity.
According to the creative destruction theory, firm deaths and start-up booms go hand-in-hand. This is, again, not to say that we should ignore the needs of pre-existing businesses. What it does say is that supporting start-ups leaves us with the possibility of newer, younger businesses that will make existing industries more efficient--not to mention the possibility of creating entirely new industries. This is crucial since the U.S. market has become increasingly concentrated in a few firms over the past three decades through merger and acquisition as well as government subsidy--at the cost of market competition, dynamism, and productivity. WE MUST RIDE THIS WAVE OF ENTREPRENEURIAL EXPLOSION TO ECONOMIC RECOVERY AND INNOVATION.
WHY SHOULD I CARE,
EVEN IF I'M NOT AN ENTREPENEUR?
Entrepreneurs are spearheading our nation’s economy by improving productivity, spurring innovation, and creating new employment opportunities. When entrepreneurs falter, so does the economy. Many economists have attributed the slowing growth of the U.S. economy in recent years to declining entrepreneurship. The U.S. GDP has expanded at a rate of 3.5 percent per year on average after WWII, but since 2008, this number has dropped to around 2.2 percent--more than a percentage point slower. This gap means that over a 25-year period, the U.S. would lose at least $110 trillion in economic output; revitalizing entrepreneurship would be the key to closing this gap. In addition, entrepreneurs make great personal sacrifices, often giving up jobs with higher wages for new business ideas and opportunities. In short, a nation that fails to support entrepreneurship is a nation that refuses to reward innovation.
AFFORDABLE HEALTH INSURANCE
The lack of affordable healthcare has deterred many entrepreneurs--I know this because it was one of the biggest obstacles my start-up faced in its early days. That is why I support the Primary Care Enhancement Act, which would provide more affordable and flexible high-quality healthcare to 23 million Americans--including entrepreneurs--by correcting an outdated aspect of the U.S. tax code that currently classifies Direct Primary Care (DPC) as insurance rather than medical care.
LOW-RENT OFFICE SPACE
The pandemic has resulted in office vacancy rates that are alarmingly high across the United States. At the end of March 2021, around 16.2% of America’s offices remained vacant, forcing landlords across the country to repurpose the space. I believe that there is a win-win solution to this problem: landlords can lease their empty offices to start-ups rent-free, in exchange for property tax credits. Through a joint operation between the Department of Housing and Urban Development and the Small Business Administration, we can develop grants for states and local governments to institute this policy and help both the landlords and the entrepreneurs. Other spaces can be converted into startup incubators, accelerators, and other mentorship programs. This would encourage large enterprises to collaborate with startups, giving startups access to funding and the large enterprises’ corporate capabilities and networks.
PROTECT HOME-BASED ENTREPRENEURSHIP
For years, overzealous local zoning rules have significantly restricted home-based businesses. For instance, in Palo Alto, home-based business owners must live within the same building . This means that Google, HP, or Apple’s humble beginning in the garage would be deemed illegal today. I believe that through Federal deregulatory preemption, we can liberalize the local zoning rules to make home-based business a possibility for every entrepreneur.
INNOVATION AND TALENT
SECTION 382 EXEMPTION
In the R&D period, companies often lose money and accumulate tax net operating losses (NOLs) and credits, which can be used to offset the company's tax payments in other tax periods--a tax break of sorts. However, the IRS also created Section 382. a stringent rule that limits NOLs use when there is an ownership change. Thus, under Section 382, accepting critical equity investments can inhibit a start-up’s ability to utilize its NOLs in the future, discouraging venture capital investment in innovation. I believe that Congress should exempt start-ups from Section 382 to foster economic growth and job creation.
NUANCED PATENT REFORM
The rise of “Patent Trolls”--individuals or companies that thrive on purchasing patents and then threatening or bringing patent infringement litigation against alleged infringers--has been a serious issue to America’s innovation. However, previous attempts of patent reforms that my opponent sponsored would make litigation so punitive for the plaintiff that it would inadvertently discourage small start-ups from enforcing their patents against larger incumbents. Broad stroke legislations won’t solve the patent troll problem; instead, we must take a nuanced approach to it.
EXPAND OUR PIPELINE OF ENTREPRENEURIAL TALENT
Immigrants are the lifeblood of entrepreneurship in America. According to New American Economy, 44% of Fortune 500 companies were founded by immigrants or their children. However, the current H-1B visa (work visa) system is broken for both foreign entrepreneurs and foreign workers at start-ups. For the company founder, the H-1B visa does not cover the self-employed entrepreneurs--since it requires aa employer-employee relationship--and offers no path to a green card. For the company workers, getting a H-1B visa is often a constant struggle since it is capped at 65,000 annually, and startups have historically struggled to obtain H-1B visas for their workers. I believe that we need to create a new “start-up visa” for the global entrepreneurial talent. At the same time, we need to reform the H-1B system to ensure that other foreign talent won’t feel forced to work in big, established corporations just for the visa.
EXPAND THE QUALIFIED SMALL BUSINESS STOCK RULE
The Qualified Small Business Stock (QSBS) rule is, in short, a tax break for shareholders selling the stock of certain small businesses in the manufacturing, retailing, technology, and wholesaling industry after growth. For instance, if an investor acquires the stock of a qualified small business after September 27, 2010 and holds it for more than five years, there is no tax (income tax, alternative minimum tax, and the 3.8% net investment income tax) on the gain. The QSBS is therefore critical to attracting venture capital for small businesses, and I believe that expanding the rule would encourage entrepreneurship across the country.
ALLOW FOREIGN INVESTMENT INTO VENTURE CAPITAL FUNDS
Policies during the Trump Administration, such as the Export Control Reform Act of 2018 and Foreign Investment Risk Review Modernization Act (FIRRMA) added new restrictions to foreign investment. While national security considerations are important, we must find the right balance with economic growth.
ENCOURAGE CORPORATE VENTURE CAPITAL
In the past decade, more and more companies began setting up corporate venture capital (CVC) units. In 2018 alone, the number of active CVC business grew by 35%, rising to 773 units. The CVC acts similar to a venture capital investor, but with the added offer of collaboration to support the start-up’s growth. This enables the start-up to continue to reinvent the future by acting entrepreneurially, while allowing the corporate to pursue ideas and opportunities that would be difficult to address through its own entrenched ways of working and thinking. We need to continue supporting--not restricting--CVC to create a robust startup ecosystem where entrepreneurs and big corporations can work and grow together.
Titles listed for identification purposes only
"Greg has always been the voice of the small business and entrepreneur community. In difficult times like this, we need Greg’s leadership in Congress more than ever!"
Co-founder and CEO at Orai