SSTI Digest

“The Achilles Heel of Reputable VCs,” a recent paper by Nuri Ersahin et al., finds that the most successful venture capital (VC) funds make fewer and smaller investments in states after investment tax credits go into effect. These VCs also co-invest with fewer firms, are less likely to invest in “serial” entrepreneurs and experience fewer positive exits after the introduction of the tax credit. The paper specifically speaks to the investment activity of VC firms that have previously garnered the top one-third of initial public offering (IPO) shares, which the authors call “reputable VCs.” The authors examine this group because they recognize that many investment tax credit studies have found marginal overall effects on investment activity and are attempting to build on this research. The contribution of this paper is showing that, within static topline numbers, the credits are trading activity from successful VCs for activity from new or previously-unsuccessful investors. While the authors’ decision to study this subset of VC firms makes sense within the context of the existing literature, readers are cautioned that these results do not address the impact of…

Independent contractors notched a win as the U.S. Department of Labor (DoL) this month announced the withdrawal of the “Independent Contractor Rule.” The rule, which was issued two weeks before the change in presidential administrations, would have made it easier for employers to classify workers as independent contractors and would have provided employers more security from challenges by contract workers for minimum wages and overtime pay. In withdrawing the rule, DoL said workers would have lost Fair Labor Standards Act (FLSA) protections.  And while the number of independent contractors rose during the pandemic, a recent story from the Rockefeller Institute of Government sheds light on how little is known about the real number of gig workers. “Legitimate business owners play an important role in our economy but, too often, workers lose important wage and related protections when employers misclassify them as independent contractors,” U.S. Secretary of Labor Marty Walsh said in a DoL press release. “We remain committed to ensuring that employees are recognized clearly and correctly when they are, in fact, employees so that they receive the protections the Fair…

The Department of Homeland Security has recently announced its withdrawal of the previously proposed removal of the International Entrepreneur Parole Program. The program allows for DHS to use its parole authority to grant foreign entrepreneurs a period of authorized stay within the United States with the aim that their start-up business can serve as a public benefit through job creation and economic development. The removal of this program, initially proposed on May 29, 2018, stemmed from the Trump administration’s 2017 “Border Security and Immigration Enforcement Improvements” Executive Order 13767 and followed the Trump administration’s initial attempt to delay the effective date of the International Entrepreneur Program. The National Venture Capital Association sued the DHS over this delay, with the judge overturning the administration’s attempt to postpone the effective date of the program. Following this ruling, the DHS proposed the removal of the program in May 2018, and organizations such as NVCA and SSTI submitted public comments, with 892 responses being submitted in total, the majority of which opposed the elimination of the program. In their recent…

Venture development organizations (VDOs) increasingly serve as the Swiss Army knife of small business growth and innovation throughout the country due to their diverse range of entrepreneurial programs, direct financing options, and commitment to local economic development. Their unique roles in the entrepreneurial ecosystems and regional public-private partnerships have allowed for startup success despite the financial instability brought on by the COVID-19 pandemic. Likewise, annual impact reports and program outcomes reveal many VDOs are serving as well-equipped options for confronting the problems of race and gender inequity that exist within the entrepreneurial and innovation landscape. By providing funding, experience, and resources for those who may be overlooked by the major banks and private investment capital pools, VDOs are widening the investment in innovation and commercialization through broader inclusion while simultaneously growing and diversifying the economy of their surrounding areas. In short, the versatility of the VDO model allows for multiple goals surrounding regional prosperity to be achieved by providing the agility and outcome-focus required…

In a previous article, SSTI detailed the limitations of public funding in solving the country’s rural broadband issue. While increased public funding is certainly part of the equation to bring internet capabilities to the near 14 million people who do not have access, there is potential to leverage new innovative technologies to bridge the broadband gap across America. Telecommunications companies and tech companies have developed many innovative ways to build out broadband capabilities in rural areas. In this article, SSTI analyzes some of the developing broadband innovations and solutions. Telecom innovations Telecommunications companies are perhaps in the best position to deploy practical and scalable broadband solutions across the country. Broadband innovations from national telecom companies tend to center around 5G or fiber optic cables. Not all of the burden to expand rural broadband has fallen to national providers, however. Regional providers have begun to develop initiatives in their respective regions as well, primarily funded by state agencies, federal agencies, or competition awards. National telecom companies have begun building out their…

Throughout the past decade, the Latino entrepreneurial landscape has experienced both a growth in average annual revenue and an increase in the establishment of new employer businesses. However, Latino business owners remain significantly less likely than white business owners to receive loan approvals from major banks, resorting instead to financing options that expose the business owners to more personal financial risk including personal and business lines of credit and personal home equity loans. The strengths and weaknesses of the Latino entrepreneurial environment are explored in the recently released 2020 State of Latino Entrepreneurship Research by the Stanford Latino Entrepreneurship Initiative. The initiative gathered information from over 3,500 surveyed Latino owned employer businesses, alongside 3,500 white owned businesses, to examine the similarities and differences between the white and Latino entrepreneurial experience. When examined over the course of the past five years, from the start of 2015 to the beginning of 2020, Latino-owned businesses had an average compound annual revenue growth rate of 15 percent, similar to the white owned business average of…

The overall employment outlook for the recipients of doctorate degrees earned at U.S. institutions has improved from 2015 to 2019, while the research activities conducted by these highly trained and educated individuals has started to shift away from basic and applied research activities towards activities focused on design and development. Doctorate recipients play an essential role in developing the knowledge base leveraged in creating new technologies and companies in the innovation economy. Understanding the employment trends of this vital group can help in crafting programs and policies to strengthen local innovation economies.

The most recent annual report from the Small Business Administration (SBA) concludes that a majority of participating federal agencies did not comply with the mandated minimum spending requirements for the Small Business Innovation Research and Small Business Technology Transfer (SBIR/STTR) programs. The SBA’s 2018 Annual Report provides a robust analysis of the award data for that year. While SSTI frequently examines the SBA’s publicly available and regularly updated award data — recent articles include analyses on the distribution of agency SBIR/STTR awards by state from 2009 to 2019 and the rate of SBIR awards per 1,000 innovative companies by state in 2019 — SBA’s annual report provides additional insights that cannot be gleaned from the publicly available data. One such insight outlines which agencies complied with the minimum program spending requirement, which for SBIR is 3.2 percent of each agency’s annual extramural R&D obligations. There must also be less than 15 percent variance between agency extramural spending as reported to SBA and as separately reported to the National Science Foundation (NSF). The report shows that six of the 10…

SSTI is making Addressing Capital Access in 2021, which had previously been available only to SSTI member organizations, publicly available. The paper is focused on helping states and their partners make the most of the opportunity presented by the newly-refunded State Small Business Credit Initiative (SSBCI 2.0), which provides $10 billion to states to support capital access. Topics covered include a review of SSBCI 1.0, the current landscape for debt and investment access, and recommendations for states developing programs in 2021. The introduction to the research brief is excerpted, below. The American Rescue Plan Act provides $10 billion for the State Small Business Credit Initiative (SSBCI) as part of the national response to the coronavirus pandemic-induced recession. This funding is unlike other small business assistance programs funded during the emergency so far in that SSBCI specifically provides funds to states — at least $56 million per state — to use for their own capital access initiatives, including programs that make investments in small businesses. SSBCI was originally funded in 2010 to help address the severe decline in small business…

Last week, a bipartisan, bicameral group of legislators reintroduced the Endless Frontier Act, a bill that would authorize more than $112 billion over five years for new research and commercialization activities within the National Science Foundation (NSF) and the Department of Commerce. This proposal would establish multiple tools at each agency to support regional innovation economies. Sen. Schumer (D-NY), the driving force behind the legislation and the Senate majority leader, is looking to advance the bill through the Senate quickly, but is being slowed down despite bipartisan support. Summary The most substantial provision of the Endless Frontier Act would create a new “Directorate for Technology and Innovation” at NSF focused on development and commercialization. The legislation proposes $100 billion over five years for this directorate, which would make it roughly twice the size of the rest of the agency. NSF would be authorized to, among other things, support consortia-based technology centers, fund STEM education opportunities at all levels of higher education, and facilitate technology transfer. These activities would be focused on 10 broad technology…

In 2014, Tennessee’s Republican governor, Bill Haslam, created the nation’s first program to ensure high school graduates could attend community and technical college tuition-free, Tennessee Promise.  While several states have followed suit in one form or another, President Joe Biden wants to take the concept nationwide with the federal government footing $109 billion of the bill through his American Families Plan. Announced during his first address to Congress on April 28, free community college was just one of the proposals outlined that could dramatically alter regional capacities to support innovation, entrepreneurship and competitiveness across the country. In addition, Biden is asking Congress to make an $80 billion-plus investment in Pell Grants, which would help low-income students seeking a certificate or a two- or four-year degree by increasing the grant size by up to $1,400. Recognizing that access to postsecondary education is not enough, the American Families Plan includes $62 billion to invest in evidence-based strategies to strengthen completion and retention rates at community colleges and institutions that serve students from our most disadvantaged…

President Joe Biden has nominated Alejandra Y. Castillo to serve as the next assistant secretary for economic development in the U.S. Department of Commerce. If confirmed, she will have a unique opportunity to leave a significant imprint on regional efforts toward growing prosperity as a result of the $3 billion appropriated to the Economic Development Administration in March through the America Rescue Plan Act.  Her past professional career is fully consistent with the Biden administration’s commitment toward broadening economic opportunity to more Americans. Castillo is the immediate past CEO of YWCA USA, where she led the 163-year-old organization and its 204 associations serving over 2.3 million women and families across 1300 communities in the United States.  She also served in senior leadership roles in two previous presidential administrations with a specific focus on international trade, minority entrepreneurship and economic development. In 2014, she was appointed by the Obama administration to serve as national director of the Minority Business Development Agency, becoming the first Hispanic American woman to lead the agency. Castillo holds a…