Innovation as a Catalyst for New Jobs: SBA's Innovation Initiatives
Summary
The printed record of a July 14, 2021 hearing of the Subcommittee on Economic Growth, Tax, and Capital Access of the House Committee on Small Business, published as Small Business Committee Document Number 117-025. Chairwoman Sharice Davids presided and gave the first opening statement, saying federal research and development investment fell from a peak of 30 percent of federal spending in the 1960s to 12 percent today. She called for strengthening programs of SBA's Office of Investment and Innovation. Rep. Dan Meuser's opening statement cited worker shortages, inflation and proposed tax increases as pressures on small businesses. Witnesses came from KU Innovation Park, the Innovation Advocacy Council, FrostDefense Envirotech Inc. and Clearly Clean Products, LLC, and the appendix lists their prepared statements.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
Full text
[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
INNOVATION AS A CATALYST FOR NEW JOBS:
SBA's INNOVATION INITIATIVES
HEARING
BEFORE THE
SUBCOMMITTEE ON ECONOMIC GROWTH, TAX, AND CAPITAL ACCESS
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
JULY 14, 2021
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 117-025
Available via the GPO Website: www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
45-124 WASHINGTON : 2021
-----------------------------------------------------------------------------------
HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA VELAZQUEZ, New York, Chairwoman
JARED GOLDEN, Maine
JASON CROW, Colorado
SHARICE DAVIDS, Kansas
KWEISI MFUME, Maryland
DEAN PHILLIPS, Minnesota
MARIE NEWMAN, Illinois
CAROLYN BOURDEAUX, Georgia
TROY CARTER, Louisiana
JUDY CHU, California
DWIGHT EVANS, Pennsylvania
ANTONIO DELGADO, New York
CHRISSY HOULAHAN, Pennsylvania
ANDY KIM, New Jersey
ANGIE CRAIG, Minnesota
BLAINE LUETKEMEYER, Missouri, Ranking Member
ROGER WILLIAMS, Texas
JIM HAGEDORN, Minnesota
PETE STAUBER, Minnesota
DAN MEUSER, Pennsylvania
CLAUDIA TENNEY, New York
ANDREW GARBARINO, New York
YOUNG KIM, California
BETH VAN DUYNE, Texas
BYRON DONALDS, Florida
MARIA SALAZAR, Florida
SCOTT FITZGERALD, Wisconsin
Melissa Jung, Majority Staff Director
Ellen Harrington, Majority Deputy Staff Director
David Planning, Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Sharice Davids.............................................. 1
Hon. Dan Meuser.................................................. 3
WITNESSES
Mr. E. LaVerne Epp, Executive Chair, KU Innovation Park,
Lawrence, KS................................................... 6
Mr. Benjamin Robert Johnson, Chairman, Innovation Advocacy
Council, Westerville, OH....................................... 7
Dr. Gabriel R. Burks, Vice President and Head of Research and
Development, FrostDefense Envirotech Inc., Champaign, IL....... 9
Mr. Jeffrey Maguire, Managing Partner and Co-Founder, Clearly
Clean Products, LLC, South Windsor, CT......................... 11
APPENDIX
Prepared Statements:
Mr. E. LaVerne Epp, Executive Chair, KU Innovation Park,
Lawrence, KS............................................... 25
Mr. Benjamin Robert Johnson, Chairman, Innovation Advocacy
Council, Westerville, OH................................... 29
Dr. Gabriel R. Burks, Vice President and Head of Research and
Development, FrostDefense Envirotech Inc., Champaign, IL... 43
Mr. Jeffrey Maguire, Managing Partner and Co-Founder, Clearly
Clean Products, LLC, South Windsor, CT..................... 46
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
The cost of `tax and spend' by Rep. Dan Meuser............... 50
University City Science Center............................... 54
INNOVATION AS A CATALYST FOR NEW JOBS: SBA's INNOVATION INITIATIVES
----------
WEDNESDAY, JULY 14, 2021
House of Representatives,
Committee on Small Business,
Subcommittee on Economic Growth,
Tax, and Capital Access,
Washington, DC.
The Subcommittee met, pursuant to call, at 1:10 p.m., in
Room 2360, Rayburn House Office Building and via Zoom, Hon.
Sharice Davids [chairwoman of the Subcommittee] presiding.
Present: Representatives Davids, Newman, Bourdeaux, Chu,
Evans, Mr. Kim, Meuser, Ms. Young Kim, and Van Duyne.
Chairwoman DAVIDS. All right. Good afternoon, everybody. I
am calling this hearing to order.
Without objection, the Chair is authorized to declare a
recess at any time.
This is a remote hearing on innovation as a catalyst for
new jobs, SBA's Innovation Initiatives Committee on Small
Business, and this is the Subcommittee on Economic Growth, Tax,
and Capital Access.
So we have called the hearing to order.
Let me begin by saying that the standing House and
Committee rules and practice will continue to apply during
remote proceedings. All members are reminded that they are
expected to adhere to these standing rules including decorum
when they are participating in any remote event.
With that said, the technology we are utilizing today
requires us to make some small modifications to ensure that
members can fully participate in these proceedings.
House regulations require members to be visible through a
video connection throughout the proceeding, so please keep your
cameras on. If you have to participate in another proceeding,
please exit and log back in later.
In the event a member encounters technical issues that
prevent them from being recognized for their questioning, I
will move to the next available member of the same party and
the I will recognize that member at the next appropriate time
slot provided they have returned to the proceeding.
Should a member's time be interrupted by technical issues,
I will recognize that member at the next appropriate slot for
the remainder of their time once their technical issues have
been resolved.
In the event a witness loses connectivity during testimony
or questioning, I will preserve their time as our staff
addresses technical issues. And I may need to recess the
proceedings to provide time for a witness to reconnect.
And then finally, remember to remain muted until you are
recognized so that we can minimize any background noise.
In accordance with the rules, staff have been advised to
mute participants only in the event there is an inadvertent
background noise.
Should a member wish to be recognized, please unmute
yourself and seek recognition at the appropriate time.
I will now move to my opening statement.
For many years, America's innovative spirit has certainly
propelled our nation to become the world's preeminent economic
power. Our economic dominance in part was driven by Federal
investment and research and development by prioritizing
innovation, the federal government has financed inventions and
discoveries that have benefitted the economy and improved lives
across the globe.
Innovations have also increased productivity, made American
workers more efficient and lowered the price of goods and
services. Unfortunately, since the 1970s, America has lost its
footing as the world's most innovative nation. In fact, in the
2021 Bloomberg Innovation Index, the U.S. fell outside of the
top 10 entirely. This slowed pace of innovation has profound
implications leading working Americans to experience wage
stagnation or outright age reduction when adjusted for the cost
of living. High barriers to entry are also stifling our
entrepreneurial ecosystem. Over the years, geographic and
demographic gaps have formed excluding many folks from creating
new products or starting new businesses.
Where a person is located heavily influences their economic
opportunities. Economic clustering has limited the ability of
Americans living outside of a handful of major metropolitan
areas to develop new products. Women and minority groups are
also frequently at a disadvantage when it comes to launching
startups. On average, minority and female entrepreneurs have
less access to capital and are more likely to rely on personal
funds to finance their business. Minority entrepreneurs are
approved for credit for their businesses at lower rates than
that of their peers and are less likely to receive the full
amount of their loan request.
It is clear that too many Americans are being denied the
opportunity to create new business. Boosting innovation and
making the innovation ecosystem more inclusive will be critical
for rebuilding our post-pandemic economy. Achieving these goals
is going to require a sustained Federal investment and
improving our innovative capacity.
The CBO, Congressional Budget Office, reports that Federal
investment can promote long-term economic growth, yet the
Federal investment and research and development that we have
seen has been steadily declining from its peak of 30 percent of
Federal spending in the 1960s. Today, only 12 percent of all
Federal spending and 2 percent of gross domestic product goes
toward innovation. An investment in innovation is an investment
in our country's future so it is vital that we are spending
adequately at the Federal level. It is critical that we empower
existing programs at the SBA to better reach and serve startups
and entrepreneurs.
For example, SBA's Office of Investment and Innovation, the
OII, leads programs that provide high growth small business
with access to capital and R&D funding to develop their
products. These SBA programs are training entrepreneurs and
providing them with mentoring and technical assistance so they
can launch America's next great companies. Funding from
programs under OII's umbrella has helped develop successful
companies like 23 and Me, Qualcomm, Symantec, and Da Vinci
Surgical Systems. And I hope that today's hearing is going to
allow us to examine these programs and find ways to improve
SBA's innovation initiatives to help create more startups that
will benefit Americans and support our economy.
As our country recovers from COVID, boosting innovation is
going to be vital to getting our economy back on track. By
focusing on expanding innovation to underserved entrepreneurs,
Congress can certainly unleash economic potential that has long
gone untapped.
I am going to take this time now to yield to Ranking Member
Meuser for his opening statement.
Mr. MEUSER. Thank you, Madam Chairwoman. Thank you very
much for holding this hearing today. Thanks to all for
participating.
Small businesses, entrepreneurs and startups are resilient
organizations that continue to innovate and adapt to the
everchanging marketplaces. Prior to COVID-19 pandemic, small
business entrepreneurs were opening new factories throughout my
district and throughout the commonwealth and the country. Along
main street, hiring more workers, creating new jobs.
Manufacturing the next great American products and services
really with rapid speed. This was, prior to COVID, in large
part due to the pro-growth policy agenda that created an
empowering environment and empowering innovators and
entrepreneurs to reduce regulations and independence in running
a small business. After such a harrowing year for public health
that resulted in state and local lockdowns, capacity
restrictions and so many numerous challenges for small
businesses, I do believe the entrepreneurship of the economy
can thrive again if we make the right decisions to help create
the environment to empower that growth.
A recent survey of more than 2,500 Goldman Sachs 10,000
Small Business participants found that 78 percent of small
businesses believe 2021 will be better than 2020. That is good.
But only 36 percent believe it will be better than the economy
they knew before COVID-19 hit. That is not so good and
hopefully, perhaps that is where we come in.
The pandemic impacted businesses differently based on
industry, longevity, location and other factors. However,
meeting small businesses' workforce and capital needs will be a
key to the continued recovery in all sectors.
I believe this can be an American decade if we do, in fact,
help unleash the power of the American innovators and
entrepreneurs but we cannot do that under the yoke of
untargeted unemployment compensation supplements, government
mandates that do not make sense to business, higher taxes, and
runaway inflation which just adds a cost to everyone.
To this point, I recently wrote an op ed on the cost of Tax
and Spend which I have submitted for the record. Unemployment
incentives continue to plague small businesses with an
unprecedented worker shortage. The U.S. Chamber of Commerce
poll of the COVID-19 unemployed found that roughly 49 percent
of Americans who became unemployed during the pandemic said
they are not actively or not very actively looking for work.
And 61 percent of respondents say they are in no hurry to
return to work. There are various factors for this. We know
with the randomness of school closures and just the fear of
COVID and other societal factors, the NFIB June Jobs Report
found that 46 percent of all small business owners reported job
openings they could not fill. So that is the bottom line.
As we continue to see small businesses place help wanted
signs in their doors, and very often that help wanted sign is
followed by $20 per hour or $19 an hour or $22 an hour, this is
a prime reason innovation and productivity is being limited
further and is on the decline.
Small businesses across the nation are also feeling----
Madam Chair, how am I doing on time?
Chairwoman DAVIDS. For your opening statement, I do not
think that you have a----
Mr. MEUSER. I see. All right. Thank you. I do not want to
go too long.
But we are dealing with stretched budgets, higher cost of
goods and supply shortages. Inflation is, of course, being
something that is of great concern as stated, raising the costs
of businesses. Business owners as early as this past April to
May found that 80 percent of their cost of supplies are up
compared to pre-COVID levels; 22 percent say that there are
costs of increase by 25 percent or more. This is very
concerning to the fundamentals of our economy and to the
vibrancy of small businesses.
As small businesses are reopening their doors to only be
met with labor shortage and inflation, there simply cannot be a
worse time to raise taxes on the American worker. President
Biden's promise to repeal President Trump's Tax Cuts and Jobs
Act would immediately raise taxes on small businesses by
increasing marginal income tax rates and eliminating the 20
percent small business deduction. By eliminating the TCJA, this
would also decelerate the bonus depreciation. Limiting the
ability for businesses to deduct on their capital investments
in a 10-year window. It will be extended far past that.
As well, capital gains is a big issue for small business.
It directly impacts returns an entrepreneur will find in their
work but also in the value of their companies. So investing in
new ideas and gaining that access to capital would be mitigated
and would have a higher level of risk and uncertainty. So
reducing potential returns through higher capital gains tax
does disincentivize investment and creates additional barriers
to access to capital.
So we must grow our opportunity for our nation's
entrepreneurs, not government. The SBA's resource partners and
innovation programs that are congressional authorized remain
important and serve as a valuable tool to small businesses.
However, we must continue to examine these programs closely to
ensure they are effectively and efficiently serving small
business entrepreneurs, delivering the value that small
businesses need but also preventing waste, fraud, and abuse.
I spent my fair share of time in the small business world,
happened to grow a small business. I do know that is where you
can learn the most by dealing directly with small business or
being a small businessperson yourself, we as part of this
Committee and as members of Congress in helping do all we can
to create an environment for recovery and for long-term growth
of small businesses certainly need to listen intently and
respond favorably and that is why I am very pleased that this
Committee has been pulled together and we have those testifying
that we do.
So with that, Madam Chairwoman, I yield back. Thank you.
Chairwoman DAVIDS. Thank you, Mr. Meuser. The gentleman
yields back.
I would like to take a moment just to explain how the
hearing is going to proceed. Each witness will have 5 minutes
to provide a statement and each Committee member will have 5
minutes for questions. Please ensure that your microphone is on
when you begin speaking and then return to mute when you
conclude your remarks or questions.
With that, I will go through and introduce all of the
witnesses. Mr. Meuser will introduce a witness as well, and
then we will get started.
So our first witness today Mr. E. LaVerne Epp, Executive
Chair of the KU Innovation Park. As the leader of the KU
Innovation Park, Mr. Epp has experienced and received several
rounds of SBA growth accelerator fund competition awards. His
work has helped many small businesses and entrepreneurs in my
home state of Kansas here to achieve their dreams. And I am
really excited to have them join us to share his expertise
today. Welcome, Mr. Epp.
Our second witness is Mr. Benjamin Johnson, the Chairman of
the Innovation Advocacy Council (IAC). The IAC works to educate
policymakers on issues related to innovation, economic
development, entrepreneurship, and technology. Welcome, Mr.
Johnson.
And then our third witness is Dr. Gabriel Burks, the Vice
President of FrostDefense. Mr. Burks's company is participating
in the Enterprise Works Growth Accelerator, a recipient of the
SBA Growth Accelerator Fund Competition Award. And I am excited
to learn more about your company and how the growth accelerator
has helped in its development. Welcome, Mr. Burks.
And I will now yield to the Ranking Member to introduce our
final witness.
Mr. MEUSER. Thank you, Chairwoman.
Our next witness is Jeffrey Maguire. Jeffrey Maguire is
Managing Partner and Co-Founder of Clearly Clean Products, LLC,
which invented, patented, and manufactures 100 percent
recyclable food trays. Mr. Maguire also was a co-founder of
Tabby Tools, which manufactures tile installation tools that
are available nationwide through Lowe's home improvement
stores. Additionally, he is a certified public accountant and a
graduate of the University of Connecticut. This morning I did
have the opportunity to tour Mr. Maguire's company at Clearly
Clean's Frackville campus, their office in my district, and
certainly saw firsthand the level of innovation, their
technologically advanced manufacturing of their high quality
and environmentally friendly products. Clearly clean is an all
Made in America manufacturer that creates ecofriendly products
with features that surpass non-sustainable alternatives which
is very important, I think. The company holds the world's only
patents of 100 percent recyclable PET. That is polyethylene
terephthalate--perhaps I pronounced that right--overwrap food
trays with a rolled edge. Since acquiring the first of many
patents on a rolled edge tray in 2016, Clearly Clean has grown
from three people to more than 200. Most of that growth has
been in the last 3 years. Clearly Clean has been named the
fastest growing manufacturer in Northeast Pennsylvania 2 years
in a row and received the Ameristar Award and the Dupont Award
for packaging innovation. Mr. Maguire, good to see you again.
We all really appreciate you being here. Thank you for taking
the time out from your busy day and from your business to
answer our questions.
And with that, Madam Chairwoman, I thank you and I yield
back.
Chairwoman DAVIDS. Thank you, Mr. Meuser.
And thank you all again for being here and for your
patience as we were getting everything going.
We are going to go ahead and kick things off now. I will
begin by recognizing Mr. Epp for 5 minutes.
STATEMENTS OF E. LAVERNE EPP, EXECUTIVE CHAIR, KU INNOVATION
PARK; BENJAMIN ROBERT JOHNSON, CHAIRMAN, INNOVATION ADVOCACY
COUNCIL; DR. GABRIEL R. BURKS, VICE PRESIDENT/HEAD OF RESEARCH
AND DEVELOPMENT, FROSTDEFENSE ENVIROTECH, INC.; JEFFREY
MAGUIRE, MANAGING PARTNER AND CO-FOUNDER, CLEARLY CLEAN
PRODUCTS LLC
STATEMENT OF E. LAVERNE EPP
Mr. EPP. Thank you. Good afternoon, everybody. And thank
you for inviting me to offer comment about small business and
innovation. And a special thank you and a warm Jayhawk greeting
to Chairwoman Davids. Congresswoman, we appreciate your service
to our state.
You have all read and received my written testimony which
describes the KU Innovation Park and the important role the SBA
and particularly the growth the Accelerator Fund competition
plays in supporting our work in innovating new technologies and
starting companies. I will talk about some of those unique
attributes that make that fund so important. But first I would
like to begin with a brief story.
Several years ago, a private, not-for-profit foster care
agency in Kansas approached my colleagues at the KU Innovation
Park. As part of its work in placing foster children, the
agency developed an algorithm which through the identification
of a field of dominant characteristics was able to match foster
children with foster parents in homes. Match.com for foster
kids. The effectiveness of these matches was validated by
research conducted by KU's distinguished School of Social
Welfare. What followed was the development of ECAP, Every Child
A Priority, a software platform. It was an innovative solution
that reduced replacement of foster kids, the cost of multiple
placements, and in the process improves the lives of children.
A new small business was born.
Today, Foster Care Technologies has engineered over 25,000
placements in numerous states and counties across the country.
The company was created, capitalized, and managed by the KU
Innovation Park and its small team of professionals. These
resources were funded in part through the SBA and the Growth
Accelerator Fund competition.
Over the last 6 years, the Innovation Park has received
over $200,000 through the Accelerator Fund competition. We have
another pending grant today. We have used those funds to
provide impact assistance to entrepreneurs who discover new
technologies and then commercialize them. Innovating, producing
jobs has become a catalyst for creating small businesses. Small
businesses like ClaraBio Tech, another company that was created
in the laboratory of former KU professor of chemical and
petroleum engineering who, through her remarkable career, has
become a prolific inventor. ClaraBio's technology helps enable
medical breakthroughs using exosomes by solving the critical
issues of purification and isolation. The applications of this
technology are enormous, including early cancer detection. And
with the help of the Innovation Park and our tea, the company
recently achieved a major capital raise. The Growth Accelerator
Fund competition was part of this important underwriting,
giving the company resources and funding to acquire that
capital.
The Accelerator Fund's unique attributes serve small
businesses like Foster Care Tech and ClaraBio. The fund is
valuable because of its flexibility and minimal burden on
entrepreneurs themselves. It is valuable because it is
relatively free of restriction, allowing multiple uses with
minimal tracking and reporting. And the Accelerator Fund
competition is valuable because it supports organizations like
the KU Innovation Park who work closely with early stage
companies and develop intimate understanding of their needs and
potential, usually at critical junctures in the company's life
cycle. Companies like Foster Care Tech and ClaraBio are alive
today in part because of the Growth Accelerator Fund
competition.
Thank you to each of you for recognizing the value of small
business and the innovations that lie at the heart of their
creation. They are worthy of your support and I thank you.
Chairwoman DAVIDS. Thank you, Mr. Epp.
Mr. Johnson, we are going to go ahead and go over to you.
You are now recognized for 5 minutes.
STATEMENT OF BENJAMIN ROBERT JOHNSON
Mr. JOHNSON. Thank you very much. Good afternoon,
Chairwoman Davids, Ranking Member Meuser, distinguished members
of the Committee. My name is Ben Johnson, Chair of the
Innovation Advocacy Council, a National Coalition for
Innovation Based Economic Development. I am honored to join you
here today.
My work with small businesses started 17 years ago in
Southern Indiana. Coaching entrepreneurs and making loans to
businesses like painting, landscaping, catering services that
lifted families out of poverty. And for the last 16 years in
St. Louis, I have seen how growing an industry cluster around a
community's innovation strengths can help transform a regional
economy.
But today I represent a broader network. The IAC is the
policy arm of SSTI, which represents more than 150
organizations across 44 states, including state and local
economic developers, universities, nonprofits, and small
businesses, all dedicated to creating a better future through
science, technology, innovation, and entrepreneurship.
Based on the successes of our members, I would like to
present three principles that drive impactful economic
development, especially through tech-based small business
growth.
One, job creation is best fostered through locally designed
strategies that capitalize on unique regional strengths. Two,
the needs of innovation-based businesses, and therefore the
tools and talents necessary to support their growth, are
different than traditional microenterprise or so-called main
street businesses. And three, programs specifically targeting
innovation businesses, like SBA's growth accelerators and
regional innovation clusters, are necessary complements to
other existing supports for traditional small businesses,
especially in rural communities and among women and minorities.
On principle one, my full-time job is with BioSTL, a
consortium of 50 corporate, philanthropic, academic, and public
sector leaders dedicated to leveraging St. Louis's research and
industry strengths in medical and agricultural sciences. We
capitalize on those strengths to build homegrown startups,
attract innovation from across the globe, and harness
entrepreneurship to foster a wholly inclusive ecosystem
bridging urban and rural economies.
In other communities, the strategies and sectors differ
based on the assets and history and geography and population
and even personality of each region. While the shorthand often
is to build the next Silicon Valley, successful regions
recognize there is only one Silicon Valley and the right mix of
business supports and the right organizations to deliver them
vary depending on the needs of the unique market.
Second, innovation-based businesses create high-quality
jobs and result in a higher standard of living. They modernize
and diversify regional economies and they solve global
challenges, like feeding a growing population, curing disease,
addressing climate impact, and ensuring national security. But
they are different. They vary in the type of support they need
to mature a technology from idea to market. In capital raised,
they often take longer to reach revenue and, so, traditional
models of bank and even SBA financing often do not apply. And
they vary in that their industry-specific networks must be
deeper and more defined than the broad networks generally
applicable to all types of business.
Third, I do not envy my peers at the SBA and its resource
partners. They must be generalists--triaging all types of
businesses from pharma companies to flower shops, and that is
where innovation focused programs augment the resources of SBA.
Programs like the SBIR and SBA's Fast Program and especially
growth accelerators and regional innovation clusters provide
communities with the perfect complements to SBA's array of
other activities. They are designed specifically to address the
needs of innovation businesses. Recognizing there is no
national economy; rather, a combination of regional economies
that differ in their strengths and needs and no one type of
organization positioned to support all the needs of all types
of business. Growth accelerators, as you heard, catalyzes a
wide array of small business supports. Clusters augments SBA's
broad activities with specific, deep domain expertise. Allowing
regions to define their own unique clusters enables growth of
distinct and diverse communities across the country--from
advanced wood products in rural Appalachia, Southeast Ohio; to
smart grids in Chicago; and unmanned aerial systems and
manufacturing in Kansas; to defense in Minnesota. Clusters are
a unique glue that bring people together, that align business
supports in a system and that augment the programs of SBA. But
these programs need additional support and direction from
Congress. Flexibility in the growth accelerator program to
allow for a wider range of project types. And, clusters should
be fully authorized, especially because a recent interpretation
from SBA narrowed the eligible applicant organizations.
Congress should provide clarity to establish a broad range of
eligible applicants and allow freedom for regions to define
their own types of support.
Thank you for the opportunity and I look forward to more
discussion and to questions. Thanks.
Chairwoman DAVIDS. Thank you, Mr. Johnson.
The Chair will now recognize Dr. Burks for 5 minutes.
STATEMENT OF GABRIEL R. BURKS
Mr. BURKS. All right. So I am Dr. Gabriel Burks, Vice
President of FrostDefense and Biotech, Inc. and post-doctoral
research associate in the Department of Material Science and
Engineering at the University of Illinois, Urbana-Champaign. I
am delivering this testimony today on behalf of FrostDefense
Envirotech Inc. positioning for more programs and Federal
investments that support innovation and entrepreneurship.
We are a national science foundation, SBIR phase one funded
startup company who specialize in the development of polymer
and analytics-based solutions to mitigate early spring frost
damage in vineyards and other fruit crops. Late spring frost
causes more economic losses to agriculture than any other
climate-related hazards, costing growers more than $10 billion
annually. And to quote one of our vineyard partners, ``We need
a frost prevention and risk management technology like we need
water for our vines and trees.''
Our solution offers growers a nontoxic, biodegradable and
environmentally--sustainable compound that delays bud break and
increases the freeze resistance of tender fruit tissues while
leaving a negligible carbon footprint.
So more generally speaking, I have three points for this
testimony. The first being innovation is expensive and we can
look no further than TVs and how their cost has changed
drastically over the past 10 years. But just as televisions
have, the cost for innovation also drops over time as the
technology becomes better and more developed.
Point two. Tech startup success is elusive with failure
rates as high as 63 percent but it has been shown that with
proper supports the chances for success are greatly increased
from these startups.
And the third point is that pivoting for early stage tech
startups frequently equates to success but funding and
resources must be as flexible as the startup environment itself
to serve the greatest benefit. What most people do not realize
is that all great ideas require refinement and polishing to
become viable solutions for society and that the problems that
society faces today tend to be extremely complex.
To give an example, our company tackles this problem
minimizing the impact of frost on delicate fruit crops. One of
the first questions we might have to ask is what crop? Every
crop has a unique nutritional requirement, growing topography,
growth rate, and response to environmental stimuli. Even
without a singular crop type, in our case grapes, each variety
also has great variance in those same factors.
Another question we might ask is what frost? How do we know
when and where a frost will occur in a given crop? And what
constitutes a frost for the plants? Some crops can be more or
less tolerant to these frost events than others.
And then the third question, what product addresses these
issues? You know, if it is a material solution like ours, you
know, what is it made of? How long will it last on the shelf?
Who will manufacture it and does it meet the regulatory
requirements?
And so the final, and probably most important question is,
who is going to answer all these questions and where are they
going to have the space and resources to answer them?
So our team is extremely interdisciplinary in that it
compromises a plant physiologist, a polymer scientist,
atmospheric scientist, statisticians, agronomists, a systems
engineer, a civil engineer, a data specialist among many
others. And this list does not include our team of accountants,
business managers, regulatory experts, attorneys, and other
critical business experts.
Our major successes as a company have come as a direct
result of timely funding and support from several sources
including university incubator, private and Federal.
The University of Illinois Enterprise Works AWARE Proof of
Concept Award, which is an SBA-funded initiative, enabled us to
pivot at a critical time in our development. At the time of the
award, our company had recently completed a field trial where
we did not obtain the results that we expected but we did
discover what we thought would be several key factors for our
success going forward. AWARE Funding allowed us to quickly test
our new hypotheses over a 3-month time period and develop a new
version of our product that would be field tested again shortly
after and be found to be a success. This success will go on to
serve as the backbone for our petition for new funding.
The startup world moves fast and this funding was available
to us quickly and was sufficient for our necessary technology
pivot. Without this funding, we may not have been able to
develop and quickly test our new product ideas. We have a
viable product today and have been able to stay on schedule
with our company growth because we were able to change and test
our product within a timeline synergistic with the grape
growing season.
Technology startups have traditionally been leaders in new
job creation and the competitive salaries. If our company
successfully moves on to phase two of the NSF SBIR program, our
business will entail the creation of upwards of 20 new tech
jobs with nationally competitive salaries. And when we move on
to commercialize our product, this number will likely double.
So finally, the COVID-19 pandemic has changed how we all
have had to conduct business but our funding and infrastructure
supports have given us a means to adjust to the circumstances
of potential new partners.
So with that, this testimony positions for more programs
and Federal investments that support innovation and
entrepreneurship for the sake of successful tech startups and
the prospects of new job creation.
So thank you all for your time and the opportunity to share
with you today.
Chairwoman DAVIDS. Thank you, Dr. Burks.
Next, I will recognize Mr. Maguire for 5 minutes.
STATEMENT OF JEFFREY MAGUIRE
Mr. MAGUIRE. Chairwoman Davids, Ranking Member Meuser, and
members of the Committee, I am honored to have the opportunity
to testify today on innovation's impact on jobs.
My name is Jeffrey Maguire and I am a managing partner at
Clearly Clean Products, LLC, which is based in Schuylkill
County, Pennsylvania and has nine locations. Our company
invents and manufacturers 100 percent recyclable food trays,
most notably the roll over wrap tray. This patented tray is
made from recyclable PET plastic and its rolled edge does not
tear the overwrap film on packaging for meat, poultry, produce,
and seafood. Our goal is to provide a sustainable option to
foamed polystyrene, more commonly known as Styrofoam.
When we began, we were told it would be like David versus
Goliath. We invented an ecofriendly overwrap food tray that the
industry said was impossible to manufacture up against an
entrenched industry of big named companies. Fast forward to
today and we are blessed with growing from three people to more
than 200 people in less than 5 years and we are forecasting our
sales to double in 2022 creating even more jobs.
What is at the heart of our growth? Innovation. And what is
at the heart of innovation? Patents. These Goliaths I mentioned
are now imitating our product and we have been forced to take
legal action to defend our patents. Time and money that could
have been spent on innovation is instead being spent on
protecting our patents from others who seek to capitalize on
them. We won our first case but now our patents are being
challenged at their very core at the U.S. Patent and Trademark
Office via an IPR, by a large company with extensive resources.
We are confident in our numerous patents and will continue to
fight the good fight but not all small businesses can. What
would be helpful is a policy that requires a company
challenging the validity of a patent being an IPR to pay for
the patent owner's legal fees if that challenge fails. Without
this safeguard, small businesses are forced to dig deep and
defend what was theirs all along and innovation suffers.
Another challenge we face is difficulty hiring employees.
We would hire 50 people today if we could but we cannot. The
supplemental unemployment and stimulus checks are keeping
people home. We are competing with the government and cannot
afford to. Before the COVID-19 pandemic, we started employees
at the higher end of the pay scale. Now, our daily debate is
whether we raise our rates to an unsustainable level to attract
new employees or we stop growing.
We recently learned that one large company in our area has
increased its wages to $25 an hour. Other large companies will
likely follow suit. Small businesses like ours are caught
between the government and the deep pockets of big business. In
the future, when we face a similar situation, we recommend
policies that including funding for small businesses to provide
supplemental wages to the employees who continue to work. This
would help stimulate the economy by providing bonuses to the
working.
What do the current policies do to small business? They
force us to automate which means less jobs. They force us to
raise prices, which means inflation. And they force us to
throttle back growth which is no one's interest. And yes,
innovation suffers.
We firmly believe that Congress should enact a
comprehensive solution to address the deteriorating
infrastructure in the United States. However, that solution
should not undue the competitive gains made through the Tax Cut
and Jobs Act. The ability to write off capital expenditures
such as equipment has been key to our success. But why is real
estate treated differently? If the depreciable life for
manufacturing plants and warehouses was reduced from 39 years
to 10 years, then small businesses could accelerate
depreciation which would enable quicker reinvestment.
With many small businesses, Federal taxes are paid at a
personal level. Increases in personal tax rates decrease the
dollars available for reinvestment. So when Congress increases
the personal tax rate, it punishes small businesses and once
again, innovation suffers.
In short, innovation flourishes when creativity meets
investment and investment flourishes when policies enable
growth. Increased taxes, paying workers to stay home, and legal
fees associated with protecting already awarded patents are all
counter to growth and disproportionately impact small
businesses. We need to ask ourselves, are we a country that
wants to leave innovation in the hands of the rich and
powerful, or do we want to encourage fair competition and
nurture small business? I know the SBA and this Committee
believe the latter. Our only hope is that future policies
continue to foster innovation and enable growth so that small
businesses can not only compete with Goliath, but just like
David, maybe one day even defeat Goliath.
Thank you very much for your time.
Chairwoman DAVIDS. Thank you, Mr. Maguire. Thank you to all
of our witnesses for your testimony today.
So I am going to start by recognizing myself for 5 minutes.
And Mr. Epp, I am going to come to you first. Thanks for being
here today. I have got a couple of things to bring up. I think
I will start off by just saying Rock Chalk, Jayhawk. And then
we will move on to something you obviously know a lot about.
Venture capital funding is often centralized in coastal hubs
leaving a lot of entrepreneurs outside those markets struggling
to raise capital. I am curious about the approach that KU
Innovation Park has taken to address that challenge. You talked
about it a little bit in your opening remarks but would love to
hear a little bit more.
Mr. EPP. Thank you, Chairwoman.
We do what many other early stage organizations do. We try
to cluster investors that are interested. We have small
investor groups. For instance, the Foster Care Technologies
example that I provided. We assembled a small group of impact
investors for that company and it fits very well for them. But
a shortage of capital is a problem for us and we are constantly
looking at new opportunities and new ways to raise capital for
these small companies. One of the things that the State of
Kansas has that is extremely valuable to us is called the angel
tax credits which allow an investor to discount significantly
its investment over a period of time and help the startup
company at the same time.
Chairwoman DAVIDS. Mr. Epp, I am sorry. Can we pause for
just a second? Is anybody else having a hard time hearing?
Okay.
Can we put back, yeah. Can we put back like 30 seconds on
his time and see if we can fix this echo? I do not know if that
is what--I would call it something like a Darth Vader effect.
Maybe, Mr. Epp, can you say something real quick?
Mr. EPP. Yeah, my sound is really quite good. I mean, I can
hear all of you very well. I do not have a problem, so. And I
think I have not changed anything with my microphone, so I do
not know what is happening.
Let me make just one other comment, Chairwoman Davids and
then I can be done. When you think ahead about the role that
SBA might play in helping the early stage companies, some type
of a venture fund or creating some type of incentive for
venture funds would be very, very helpful because it can be
seen for some of these very early age companies, and each of
the witnesses today, Mr. Johnson, Dr. Burks, and Mr. Maguire
all referenced that and I think that is extremely valuable.
Chairwoman DAVIDS. Thank you, Mr. Epp.
And actually, I am going to come to Mr.--sorry, Dr. Burks
next. I would love to hear a bit about the experience you all
had participating in a growth accelerator and how that
participation impacted your business long-term from what you
can see so far.
Mr. BURKS. Right. Right. So being affiliated with the
University of Illinois incubator has been tremendous in the
sense that it has given us a home to conduct innovation, a
place where we can do research, and the staff here is
phenomenal. They surround you by business professionals and all
these resources and, you know, their events and development,
professional development seminars that are in alignment with
early phase startup growth. So just being in that environment
really helps accelerate our own growth. And then when we
interact with other companies--if we want to form a new
partnership or if we need to reach out to figure out
manufacturing needs, just having a place that is solid and
foundational for us is super, super key.
And then with that, things like the SBA-funded Aware grant.
This proof of concept award, it came from this incubator space.
So all these opportunities to continue to push the idea
forward. So if you do have a setback, it is not like you are
alone. If you have an idea and you are alone, you are at home
and then it goes away and you lose this whole company idea. But
when you are supported by an incubator, you know, if you have a
setback, you know you have someone there to say, oh, you failed
here or something went wrong here. Do not worry about it. We
have these resources or access to these resources and people
that can kind of keep you going because as a startup, you know,
there are all kinds of hurdles that come up but you do not know
are going to come up and so being able to pivot and adjust to
those different hurdles quickly is extremely important and
extremely valuable for us.
Chairwoman DAVIDS. And then Mr. Johnson, I just was curious
from your perspective. You know, I often talk about the strong
entrepreneurial ecosystem we have here in the Kansas City metro
area. You spent a decent amount of time speaking about what a
robust regional ecosystem can look like. I am just curious in
this last like 45 seconds if there was anything else you wanted
to add around that, you know, from your perspective of having
been a practitioner and now working also on policy stuff?
Mr. JOHNSON. Yeah. I think what you heard in my testimony
and more in the written testimony is each region is unique. The
Innovation cluster in St. Louis is different even than our
neighbors in Kansas City, which is different than peers across
the country. So, programs like the regional innovation clusters
that allow regions to define what their strength is on their
own, not a size fits all Federal model but where there is
Federal partnership with local communities, that is where I
think we democratize, for lack of a better term, the clustering
that we typically see on the coasts or in metropolises and we
bring that to the heartland. We bring that to rural
communities. We better engage women and minority communities
left behind in the tech economy. And so regional innovation
clusters is unique and really can help drive innovation-based
job growth.
Chairwoman DAVIDS. Thank you. Thank you, Mr. Johnson. My
time has expired.
I will now yield to Ranking Member Meuser for 5 minutes.
Mr. MEUSER. Well, thank you again, Madam Chairwoman. And
certainly, thanks to all the testifiers. All of your opening
statements were very interesting and appreciated.
So Mr. Maguire, I will start with you. Good seeing you
again, Jeff.
So with your testimony, you talk about a difference related
to the Tax Cuts and Jobs Act. And of course, with small
businesses, it was a 20 percent small business deduction and
clearly it creates a more competitive atmosphere for small
businesses.
So if that Tax Cut were to be repealed, what impact would
that have on you and your employees?
Mr. MAGUIRE. Congressman Meuser, all of the tax cuts that
are proposed that really impact small businesses will impact
the amount of money that we have to reinvest into our
expansion. So everything that we have taken advantage of from
the accelerated depreciation we have reinvested back into the
business. And if those tax rates increase or some of these
items change, then the amount of capital that we have available
to reinvest has decreased because we will be using more of that
money to pay taxes.
Mr. MEUSER. The bonus depreciation is of particular concern
to you and we discussed that earlier today. Could you elaborate
a little bit on how advantageous that was to your company?
Mr. MAGUIRE. Sure. Over the last year we added five
production lines to our facility in Frackville. And through the
rules that were available to us, we depreciated all of the cost
of those assets against our income taxes. And that allowed us
to invest it was upwards of $7.5 million in those lines to sit
there and continue to grow our company. And since this
Committee is talking about innovation, the only way to innovate
is to have the available resources to innovate and to sit there
and move forward. So that was the most key component of what
was in the tax cut law for us because it allowed us to expand
our company as quickly as we have.
Mr. MEUSER. You obviously have some real smart people but
that ability to invest in that technology, that was my next
question. That had a great impact on your ability to innovate
and be on the cutting edge with your products.
Mr. MAGUIRE. Absolutely. I mean, we are in a sustainable
part of the economy. I mean, we are trying to provide
recyclable trays to food packaging companies. You will see them
if any of the representatives go or Congress people go to their
local grocery store, you will see it in the Chicken aisle or in
that part of the grocery store. But those tax advantages were
very helpful in allowing us to grow and then grow as quickly as
we did. And without them, we would have reduced our growth and
stopped moving forward because it would have been impossible
for us to sit here and go out and obtain the capital that we
needed to deal with the sales because every bank is going to
sit there and look at you as how much are you selling, how much
can you afford, and they were very helpful. We greatly
appreciate them.
Mr. MEUSER. Well, that is great. Well, it is imperative
that we do not let those get repealed.
And I was also interested in what you had to say about
patents and the legal fees being the responsibility of those
who were trying to infringe upon your patents. So hopefully
that is something we can work on as well.
I appreciate it very much. Do you want to say anything more
about the patents?
Mr. MAGUIRE. No. Well, I would tell you this. Patents for
small business are really important for growth. I mean, both of
the startups that I have bene working with, we had patents that
we leveraged to sit there and grow our business. And if someone
challenges your patent, if a plaintiff challenges your patent,
I do not mind if they win and I am fighting, you know, and I
lose, I will pay my fees if I lose. But if they challenge me
and we win and their claim was not acknowledged.
Mr. MEUSER. Basically a tort situation. All right, thank
you.
A quick question I would like to just ask Dr. Burks if I
could. Doctor, can you just tell us what you think the biggest
need for startup companies or growing companies? You had a lot
to say there. Maybe you can just offer a quick comment on that.
Mr. BURKS. I would say the biggest need, I think one of the
biggest challenges we faced early on is, so because we saw a
very big scientific or take problems, sometimes putting the
initial teams together. You know, people, you know, you can get
people to work sometimes volunteer. You may give away some
equity to get them to volunteer to work with you but just
getting those people in the beginning to even solve that
problem or to get to a viable product, sometimes that can be
kind of cumbersome. So assistance early on is important. And I
would also add that the having the ability to pivot, like the
fund allowed us to do, just that flexibility. So these
different startup markets go quick and sometimes you need the
money on some timeline that is not on that funding timeline.
And so having the ability to get something quickly in and out
and really continue to push forward and stay on schedule could
be really, really important.
Mr. MEUSER. Madam Chair, I am past my time. Dr. Burks, it
sounds like red tape is not your friend, and as more of a
businessperson, I can appreciate that very. So thank you very
much, and I yield back
Chairwoman DAVIDS. Thank you, the gentleman yields back.
The Chair will now recognize Rep. Newman for 5 minutes.
Ms. NEWMAN. Thank you, Madam Chair and thank you Ranking
Chair for putting this discussion together. Always really
helpful.
So a couple of things. By the way, Mr. Maguire, I agree
with you on your patent situation. It is okay to challenge
things but then do not penalize people on the back end. So I am
with you on that.
Secondly, as we all know in the proposed increase for the
largest of large businesses, it does not include small business
just as a friendly reminder to everyone. So that is a good news
report from my office.
And then thirdly, what I would like to address with perhaps
Dr. Burks is you made some interesting comments and I think
this is so relevant. Being a former small business owner,
getting the right people in the right jobs is critical. Right?
And then knowing where to go and knowing where to go for the
right resources, not just financial but expertise. Those are
really critical things. So this is a blended question for Mr.
Johnson and Dr. Burks. What if we extended the Community
Navigator program that is currently in PPP and EIDL and some of
the other SBA programs into an RFIC designated line item where,
in fact, these incubator and business groups could get funding
to give companies like yourself expertise in very specific
areas. And sometimes it is HR. Sometimes it is accounting.
Sometimes it is legal. Sometimes it is in innovation. So I will
go to Dr. Burks first. Is that something that you think would
be useful coming from that type of organization?
Mr. BURKS. I think that kind of supplement would be
tremendous. So in a way, the incubator space does that. Right?
So we get help in paying to for business management. So we have
personnel who can take care of so many different things and
help us out. So from what I am hearing, it sounds like what you
are saying is an extension of that but we may need a person to
do some type of material development. A supplement to help us
pay for these things that are expensive early on definitely
helps us. And by the time we become sustainable as a business,
hopefully we are able to cover those costs on our own but in
the beginning it is a pain to pay those when you are trying to
accrue funds.
Ms. NEWMAN. Right. Right. So Mr. Johnson, if we were to
propose something like that from this Committee, would that be
helpful to give an addition line item for this group of what
formerly was navigators but expanded to be other types of
experts that are available to your members and your affiliates?
Mr. JOHNSON. Yeah, I think the Community Navigator model is
promising as a hub and spoken model to connect with SBA
resources. For us in St. Louis, the regional innovation
clusters program was sort of that original hub and spoke,
Community Navigator program within our innovation cluster.
Through the RIC program, BioSTL and our partners were able to
support more than 2,000 entrepreneurs in their journey of
starting their business, helping create 500 jobs and raising
more than a billion dollars in capital, and we did that through
a range of activities. Partnering to support Black would-be
entrepreneurs with the Family Workforce Centers of American in
urban/suburban St. Louis suburb, Wellston. Connecting small
businesses at the intersection of biosciences and IT and
advanced manufacturing with St. Louis Makes and ITEN. Working
with our innovation community, Cortex, on providing small
business training and counseling. And then launching a network
of growers and producers in rural communities to connect urban
and rural communities--ag innovation in urban St. Louis with
the growers and producers in rural Missouri who are bringing
those to market. All of that connected with our partners at the
SBDCs, the veteran business outreach centers, the women
business centers, navigating community resources in an area of
unique strength in St. Louis for us medical and agricultural
sciences. So I think with the Community Navigator model being
promising, I think authorizing and bringing additional
resources to something like the Regional Innovation Clusters
Program that has been, not just promising but, effective in
meeting communities is a unique opportunity.
Ms. NEWMAN. I agree. And maybe I tis just a model that has
worked very well and we need to scale. So good food for thought
from my office and I appreciate all of the guests that shared
their thoughts today. And thank you to Dr. Burks and Mr.
Johnson for your thoughtful answers.
And I yield back, Chairwoman.
Chairwoman DAVIDS. Thank you. The gentlewoman yields back.
The Chair will now recognize Rep. Young Kim for 5 minutes.
Ms. YOUNG KIM. Thank you Chairwoman Davids and Ranking
Member Meuser. I want to thank the witnesses for being with us
today.
My district is California's 39th District and the suburban
area in North Orange County, LA and San Bernardino counties.
And this is the area that I represent and that is home to a
robust startup and entrepreneur community.
In 2020, the LA area startup ecosystem had approximately
$3.5 billion in early stage funding for new startups. But in
contrast, the average startup ecosystem globally received about
$431 million in early stage funding for new startups. And in
Orange County, early stage venture capital investment has grown
from $107.5 million in 2010 to $404.2 million in 2019.
Unfortunately, the administration's proposal to increase taxes
on long-term capital gains will likely disincentivize
investment on our entrepreneurs. So I am concerned that the
proposal to increase the marginal tax rate will punish small
businesses categorized as pass through entities such as sole
proprietorships. It is worth noting that 95 percent of
businesses file their taxes as pass-through entities.
So let me pose this first question to Mr. Johnson. If the
Biden administration's proposal is enacted, the U.S. could have
the highest top capital gains tax rates among OECD countries.
So can you describe what a higher capital tax rate would do to
early stage funding?
Mr. JOHNSON. Thank you very much, Congresswoman Kim. Tax
rates are important, as are programs and investments into
entrepreneurship ecosystems. The Kauffman Foundation and the
national Start Us Up Coalition in their American's New Business
Plan outlines the both/and of policies that create an
environment to provide opportunity for entrepreneurs, a level
playing field, reduced red tape tax issues, funding the right
kinds of capital at the right time, the knowledge of how to
start a business and the types of supports that we are talking
about here today with the SBA, and support for the opportunity
to take a risk. From our entrepreneurs, we do not often hear
about tax issues being their top issue. It certainly is most
likely an issue. We heard from Mr. Maguire about the challenges
he has faced. What we more often hear, what really bubbles to
the top, is that they need support. They need help in
developing their business model and de-risking their
technology, turning that idea into a new product, into new
jobs, in connecting with sources of capital, being able to
compete globally for capital and bring it into their community.
So the policy environment, it needs to be a both/and, how do we
reduce regulation? How do we reduce red tape? How do we balance
taxes with investments and supports in ecosystems.
Ms. YOUNG KIM. Thank you, Mr. Johnson. I want to stay on
the topic. And let me pose the same question to Mr. Maguire.
Would you agree that a higher capital tax rate puts our
entrepreneurs and startups at a competitive disadvantage
compared to other countries? And can you cite an example?
Mr. MAGUIRE. Well, absolutely. I mean, I do not care if you
are a Republican or a Democrat, no one wants higher taxes. We
all needed to decide what the balance is for everyone out
there. If you are asking me if the capital gains rate will
impact investment in companies, absolutely it will. Will it
stop investment in other companies? No, it will not. I mean, we
are still going to go out and work hard to sit there and try to
make our businesses successful. What I think is more important
is what you said before, 95 percent of taxable entities. Once
you start messing with taxable gains and the personal income
tax rate you are going to impact every small business. I do not
care if it is a barber shop or if it is Clearly Clean products.
You will start impacting them negative.
Ms. YOUNG KIM. Sure. I know I have got a little time left.
So Mr. Maguire, I really appreciate your testimony as you
talked about the difficulty in hiring employees but I also give
you a lot of kudos from growing from a very small three
employees to over 300 employees and that is because of your
innovation and creativity. But I also wanted to talk to you
about the recent CPI that rose to 5.4 percent In June compared
to a year ago. This is the highest inflation numbers in 13
years. So can you tell us how the increase in prices and
inflation impacts your small business?
Mr. MAGUIRE. You are going to see inflation. I do not think
anyone on this Committee should sit there and not thing we are
going to see inflation. In our business, specifically, we are
seeing between 15 to 30 percent increases in our raw material
costs and in some of our supplies that are required to sit
there and put our product out there at market. It is coming.
Third quarter, fourth quarter you are going to see it. I do not
think there is any getting away from it. Your CPI, where it is
at right now is not where it is going to be in the fourth
quarter and the first quarter of 2021.
Ms. YOUNG KIM. Well, thank you. I see my time is up, so I
yield back.
Chairwoman DAVIDS. Thank you. The gentlewoman yields back.
The Chair will now represent Rep. Chu from California for 5
minutes.
Ms. CHU. Thank you so much.
Mr. Epp, I am so glad to hear of the success that your
Innovation Park has had as a growth accelerator, and I want to
ensure that startups and small businesses that are growing in
these accelerators also have access to private investment. That
is why 2 weeks ago I reintroduced H.R. 4256, the Investment in
Main Street Act with my colleague, Representative Garbarino.
This legislation would enable banks to dramatically increase
their share of the capital and surplus that can be invested
into SBA certified SBIC or small business investment companies
from 5 percent to 15 percent. Last year, SBICs made nearly $5
billion in leverage and investments for over 1,000 small
businesses. Unlike many private venture capitalists, SBICs are
backed by the SBA, and last year made one quarter of their
investments in underserved businesses showing that these SBICs
are well-suited at funneling capital to the businesses who need
it most.
So can you talk about the importance of private investment
for the startups you work with and how SBICs can help them grow
and succeed?
Oh, can you unmute? Please unmute.
Mr. EPP. Can you hear me now, please?
Ms. CHU. Yes.
Mr. EPP. I switched to another channel because I was having
trouble before using my phone which is why you saw the mute
engaged there. Is the sound better now than it was before?
Ms. CHU. Yes, it sounds much better. Yes.
Mr. EPP. Okay, thank you. And thank you for your support,
Representative Chu and for the work that you are doing,
particularly with the legislation that you have proposed. I
think that is extremely helpful.
Small company investors are always looking for match
funding and they often do not want to be first in. And so any
kind of support that can be provided in this kind of way can be
extremely helpful because it kind of opens the gate. It kind of
opens the floor gates. And once one investor is in with some
match funding or whatever, it is very easy to attract--well,
not easy but it is easier to attract other investors. So the
focus on venture capital and kind of creating a unique package
with Federal funding around creating those venture clusters and
those venture packages is very, very effective. And thank you.
Ms. CHU. Well, thank you for that.
Mr. Johnson, in April, I reintroduced my legislation, H.R.
2680, the Providing Real Opportunities for Growth to Rising
Entrepreneurs for sustained success, the Progress Act. This
legislation would support the smallest businesses, those
without any employees by helping them expand and incentivizing
third-party investment, the legislation would create a
refundable payroll tax credit for nonemployer firms that hire
their first full-time employee and an investment credit to
encourage third-party capital investment into nonemployer
firms. Nonemployer firms are much more likely to be owned by
women, and female entrepreneurs on average stat out with
roughly half the capital as male entrepreneurs.
So could you talk about how incentivizing third-party
investment into the smallest of businesses and helping startups
to hire their first full-time employee can improve outcomes for
innovative small businesses?
Mr. JOHNSON. Thank you very much and thank you for your
support of the Progress Act.
With the entrepreneurs that we support and serve, we see
that hurdle of hiring the first employee is often one of the
largest challenges, accompanied with de-risking technologies
and trying to bring talent on the team as Dr. Burks referenced,
that paving the way to hire the first employee is a big gap.
And so anything that can help bring a hire to an individual
sole practitioner is important. We know from data that all new
job growth in the country over the last decade is from new
businesses, businesses that are less than 5 years old and
helping them start a hiring process, helping them grow can be
really critical. For us, as an example, we used our RIC dollars
and our growth accelerator dollars to support an entrepreneur,
Jennifer Silva, a cofounder of Senti-AR, helped secure $2.25
million in SBIR funding that was then able to be leveraged and
matched with more than $3 million in private venture capital
that enabled them to grow the team, de-risk the technology, and
bring to market a new, real-time augmented reality in the
operating room to help with invasive surgery, in particular
cardiac arrythmia when you have an irregular heartbeat. And
that hurdle to be able to leverage those dollars to hire the
first people to the team, to bring on sales and regulatory
expertise was really critical.
Ms. CHU. Thank you. I yield back.
Chairwoman DAVIDS. Thank you. The gentlewoman yields back.
The Chair will now recognize Rep Van Duyne from Texas for 5
minutes.
Ms. VAN DUYNE. Great. Thank you.
I have been having a hard time with my volume so I am
hoping that you guys will be able to hear me. If not, I can
dial back in.
But I want to thank you, Chairwoman Davids and Ranking
Member Meuser for holding this hearing today.
This past Tuesday, the Labor Department reported its
highest 12-month consumer price index increase since August
2008. In addition, in June, the National Federation of
Independent Businesses found that the number of small business
owners raising prices was the highest since 1981. A third of
small businesses are facing supply chain disruptions. Nearly
half of those businesses have job openings they cannot sell.
As a former small business owner and entrepreneur, I can
tell you that no counseling or training can overcome tone deaf
settlement policies. Innovators must understandably cross a
high bar to succeed but the federal government should not raise
that threshold by threatening higher taxes and paying a
qualified work force to stay unemployed.
I want to reiterate that point for those who have never run
a business before. It is incredibly difficult t run a business
with thin margins when you cannot hire workers, and much needed
dollars are sent to Federal coffers instead of reinvestment in
innovation.
At the beginning of 2020, the small business economy saw
record levels of optimism and production. And my Republican
colleagues and I understand that the best way to support
innovation and entrepreneurship is getting the government out
of the way. Unfortunately, this point seems to be lost on the
current administration. There is no doubt that COVID-19 was a
disaster for small businesses. In a time of crisis, the federal
government responded but this pandemic is ending and we need to
empower Americans to transition back to back. The government
cannot continue to hold businesses and the workforce back
through their failed policies. The strength of the American
economy is in its innovate and the key to innovation is in the
American people. If we want to spur innovation, the simple
solution is to get government out of the way and let people
prosper.
And with that, I want to thank Mr. Maguire for his
testimony today. You talked about your company's rapid growth
in hiring. Do you think that that growth would have been
possible in today's labor market? And do you think that the
economic environment today compared to what it was before the
pandemic is more or less friendly to small business innovation?
Mr. MAGUIRE. Well, with COVID-19 it has been an extremely
difficult challenge. So, you know, it was easier to hire before
the pandemic. And in 2018, there is no doubt about it. We have
gone through an incredible phase in trying to deal with our
situation and trying to have the appropriate people on the
production line to make things work but there is no doubt that
it has been more difficult, much more challenging right now.
And the current situation, you know, I do not see it getting
better for the next 6 months.
Ms. VAN DUYNE. In your testimony you had said something I
found really interesting. Innovation flourishes when creativity
meets investment. When you think about the tax proposals coming
from this administration, how do you think they would affect
not only your margins but small business capital at large?
Mr. MAGUIRE. Oh, it is going to be extremely difficult
because most small businesses are self-funded. I mean, you may
sit there and think that small businesses have the ability to
go out and get resources and all of the other panelists that
are talking, it is incredible. The opportunities that you
provide to entrepreneurs is phenomenal. I applaud every one of
you, and Dr. Burks, I applaud you the most. But I wills It
there and will come back to you and I will tell you, it is
extremely hard. and you will not be able to build a business in
the environment that taxes are increased because we took every
penny of our savings and put it back into our business. And
that is really how most small businesses work. I mean, you
work, you try to make a profit, you use that profit to build
your business and you continue to do so. And if you change the
rates and if you change some of what is going on out there, it
is negatively impact small businesses and there is no two ways
about it.
Ms. VAN DUYNE. So without sacrificing ay of the waste, this
is for Mr. Epp, without sacrificing any of the waste, fraud,
and abuse protections that need to be required, how can we
eliminate some of the paperwork burden for small businesses
participating in SBA's innovations programs?
Cannot hear you. Mr. Epp? Can anybody else hear him?
Mr. EPP. Can you hear me now?
Ms. VAN DUYNE. I can hear you.
Mr. EPP. Can you hear me?
Ms. VAN DUYNE. Yeah, I can hear you.
Mr. EPP. Can you hear me now?
Ms. VAN DUYNE. Yes.
Mr. EPP. I am sorry. I am still trying to figure all this
out.
You know, as I mentioned, that is one of the really very
good attributes about the accelerator growth competition is the
minimal restrictions on it, the minimal paperwork that is
required. I am sorry to be so picky but more of that.
Ms. VAN DUYNE. All right. Thank you. I yield back my time.
Chairwoman DAVIDS. Thank you. The gentlewoman yields back.
The Chair will now recognize Mr. Evans.
Mr. EVANS. Thank you. Thank you, Madam Chair. Thank you,
Ranking Member.
The question I would like to ask is to Dr. Burks. Access to
capital is a persistent issue for small businesses and
entrepreneurs, and particularly for Black businesses and women.
What types of funding have you utilized?
Mr. BURKS. Good question. As a startup, you usually use as
much as you can find but we have been able to utilize funding
from the University of Illinois. Probably our largest supporter
is Federal. The National Science Foundation SBIR funding, so we
are in that pipeline. We are a phase one SBIR funded company at
this point and we are in advanced review for NSF SBIR phase
two. Those are the largest funding sources that we have
received thus far. We have also received the Proof of Concept
Award through the Illinois incubator which is an SBA funded
initiative. And for certain aspects of like development we have
gotten support from private vineyards. So vineyards who believe
in our product. You know, the problem we are trying to solve is
extremely huge, so the vineyards that could benefit from our
product being a success, they have been giving us resources,
whether it is manpower, whether it is access to data, whether
it is equipment and to space on their farms to do work. We had
an international partner who we could not pay for but they put
the money up to fund us to do a field trial at their site
internationally. So I would say those are our primary sources.
But without the government funding, particularly the SBIR, I
mean, none of this would be probably possible because that has
funded salaries, that has funded initial material costs, that
has funded personnel. It just goes on and on what it has
funded. And it has given us the ability to be housed in this
incubator in a way because we have to pay rent to the incubator
for our laboratory space and so that has paid for all of that.
So the NSF SBIR has been tremendous and huge as part of our
funding.
Mr. EVANS. Let me follow up a little bit. How does this
work? Can you talk a little bit about it?
Mr. BURKS. How does what work?
Mr. EVANS. How does the Committee, in terms of the funding
issue, how does it work? As you said, you are housed in the
incubator. How does it work?
Mr. BURKS. So it is a long process but the incubator
recognized our idea as something that had a lot of potential,
so that gave us access to the incubator. And in the beginning
the incubator has funds available to house us there. And then
from there you continue to grow your pot for other funding and
then that is where the NSF funding came into play. We also had
NSF I-Corp, which involved going out to do customer discovery,
figuring out what the customer needs are. There was funding
involved in that to kind of also help offset costs of being in
the incubator. But then in our world for like material tech
startups, you know, if you get the NSF SBIR it is a huge, like
that is like you kind of made it in a way. And so from there
you use that funding to continue to develop your efforts in
this incubator. And the hope for the incubator is that they can
give you all the resources that you need so that you can
eventually fly away on your own and be able to be a self-
sustaining business. So we have to apply. And so the NSF SBIR
has a vetting process where basically we submit our idea in an
organized, scientific way and it is vetted by other scientists
for its technical feasibility and then after that it is kind of
vetted from a financial standpoint to see if it is financially
suitable, like our money and things like that add up and we are
a responsible company in our accounting practices. So, but it
is nice because it is scientifically vetted first, which means
there is a higher likelihood that what we are proposing is
going to be technically successful going forward. And then as
we all know, all the business owners here know, you know, just
because you are a good scientist does not make you necessarily
a good businessperson. So then there is this leap that we also
have to make to become good businesspeople or to hire good
business people or to have good business advisors to help us
grow in that capacity as well.
Mr. EVANS. I would like to thank you, Dr. Burks.
I yield back the balance of my time, Madam Chair.
Mr. BURKS. Thank you.
Chairwoman DAVIDS. Thank you. The gentleman yields back.
I want to start off by saying thank you to all of our
witnesses today. I definitely appreciate you being here. Your
compelling testimony has certainly helped shed light on the
importance of SBA's innovation initiatives. And of course, as
always, input from stakeholders, folks like you, it is critical
as we make our innovative ecosystem more inclusive and prolific
here in this country. Obviously, we have more work to do if our
country is going to reclaim the title of world's most
innovative. Small businesses are going to play a critical role
in achieving that and that is why we have to work together on
this Committee to ensure the SBA programs have the support that
they need to guide entrepreneurs and ensure that they have the
support they need to support the entrepreneurs with what they
need. So, I am looking forward to working with members on this
Committee to ensure that these programs are operating at their
full potential and serving small businesses effectively.
And with that I would ask unanimous consent that members
have 5 legislative days to submit statements and supporting
materials for the record.
Without objection, so ordered.
And if there is no further business to come before the
Committee, we are adjourned.
[Whereupon, at 2:28 p.m., the subcommittee was adjourned.]
A P P E N D I X
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
[all]
File and source
- File
- CHRG-117hhrg45124.txt
- Size
- 80,362 bytes
- SHA-256
- 4e782d9fc6b33129108892b4508457ae30dbe82e7c9f6a44b111a4d64db7cf6e
- Our copy
- CHRG-117hhrg45124.txt
- Original
- No public link identified.