New Startup Deal 2.0: How to restart America’s startup engine

The United States has long been the place where new companies can rapidly grow big, with the likes of Facebook, Amazon and Tesla just starting out nearly a decade ago. This startup engine is central to our economic success, creating an average of 1.5 million new jobs per year and accounting for nearly all net new jobs.[1]

But we are quickly losing steam. Startup creation in the U.S. is at a nearly 40-year low, and the implications are huge. Business closures in the U.S. now outpace the number of startups annually, and only 105 companies went public in 2016 (down from 706 in 1996).[2] To see meaningful change, we need to get this number in the 300-500 range.  

Reversing this trend will require cohesive national, state and local programs to get our startup engine moving much faster. We’ve seen incredible success of such programs in other countries, like India, which is now home to the fastest growing startup ecosystem in the world and 7 percent economic growth rate, led in large part by ambitious government strategy to remove barriers to entrepreneurship.  

I believe that similar programs here in the U.S. to accelerate startup creation could accelerate our annual GDP growth to the 4 percent to 5 percent range – but we need to act fast. And if done correctly, this growth is just the beginning. By increasing startups 4 or 5X, I believe that we can create 25 to 30 million good jobs over the next 8 to 10 years.

 I call this the New Startup Deal 2.0, which can be defined across the following pillars:

1.    Create new multi-billion dollar tech funds

I’ve worked with hundreds of startups over the years, and almost all of them would agree: Access to capital is the single greatest barrier to growing a business in the United States. This is particularly true for startups outside of traditional tech hubs and industries, who are often forced to move in order to grow. There are some first steps we could take to help these new businesses, for example, we could revise SEC’s rules on crowdfunding and make it significantly easier for startups to raise funds at a local level.

Other governments around the world are stepping in to fill the funding gap for local startups. Last year, both the Saudi Arabian and Hong Kong governments announced multi-billion dollar tech funds. We should look to surpass this in the U.S. with similar vehicle for steering capital to cutting-edge startups.

Likewise, recent revisions to our nation’s tax policies could be a huge impetus for startup growth, and encourage the government to consider additional incentives to incite investment in early stage local companies or innovative tax credits for businesses less than five years old.

2.    Embrace digital acceleration at the state level

Technological innovation can happen anywhere, and increasingly outside the coasts and traditional tech hubs. For example, Michigan is making a huge comeback thanks to the state’s robust digital agenda to promote innovation and create an environment where top tech talent can thrive. These efforts have jumpstarted the state’s economy in recent years, where unemployment is at its lowest rate in 17 years[3] and venture-backed startup investment is up nearly 50 percent over the past five years.[4] As part of this push, the state of Michigan recently announced that it is joining forces with Cisco to accelerate Michigan’s continued economic transformation.

Michigan is a prime example of the power of digital acceleration at the state level, which will be key to driving startup creation across the United States. Just as we’ve seen in Andhra Pradesh in India and regional programs throughout France, these kinds of targeted digital acceleration initiatives can have a major impact on a region’s startup ecosystem and overall economy. I look forward to seeing many other U.S. states adopt similar digital strategies in the years to come.     

3.    Create a new visa category for startups

The U.S. has long been a beacon for the best and brightest tech minds around the world. In fact, more than half of all U.S.-based tech companies valued at more than $1 billion were founded by immigrants.[5] If we push these talented individuals out, they can and will create jobs elsewhere, like their home country or places like the Netherlands, France or Portugal which offer special visa programs to lure foreign tech entrepreneurs. The creation of a new visa category for startups will be crucial to ensuring our continued competitiveness.  

To fuel America’s startup engine, we’ll also need a strong pipeline of new entrepreneurs and innovators with the skills necessary to start businesses. Yet our education system hasn’t changed in decades, and the majority of American students are unprepared to compete in the new economy. To combat this issue, we need to launch a nation-wide skills initiative to ensure young people have the tools to take advantage of the opportunities our new economy provides. This means refocusing the educational curriculum at every level – from grade schools to universities – to emphasize technology skills. Places like Michigan are taking aggressive steps to close this skills gap, even opening a new state department focused on developing the workforce, but more comprehensive measures are needed at the national level as well.  

4.    Demand international trade agreements favor startups 

Successful startups need scale, and that means access to international markets. It’s well established that companies that expand their customer base by exporting their products to foreign markets outperform those that don’t. Yet few young companies actually export overseas, largely due to cumbersome trade policies that large multi-nationals are better equipped to maneuver. Removing these existing trade barriers will be essential to expanding startup growth in the United States.

We also need to ensure that the international trade agreements stand to benefit not just large corporations, but also startups. We need fair deals that remove market access barriers for digitally delivered goods and services, promote the free flow of data across borders and contain safe harbors against intermediary liability and strong protections for intellectual property.

5.    Cut the Red Tape

New businesses spend an average of $83,019 dealing with regulations in their first year.[6] With fewer resources to dedicate to complicated compliance, reporting and record keeping processes, this puts them at an unfair disadvantage to more established businesses. To help level the playing field, we need to streamline communication between the government and small businesses, and look to special exemptions and lighter regulatory requirements for entrepreneurs wherever appropriate. This should start with simplifying the existing tax code, which gets more complicated each year, making it harder and harder for small companies to get it right and take full advantage of provisions intended to benefit them. While we chip away layers of bureaucracy, we should consider a special loan program to help startups deal with regulations.

Reducing this regulatory burden will be key to spreading America’s startup ecosystem outside the coasts and traditional tech hubs. Places like Detroit, Atlanta, Denver and Salt Lake City have emerged in recent years as leading U.S. startup hubs, thanks to pro-innovation regional regulatory policies to make it easier to start a business there. I believe that with the right strategy to cut the red tape, we could create 25 new startup hubs in the U.S. over the next decade.   

Startups are not only the answer the nation’s unemployment problem, but also the secret and key to our nation’s economic longevity. Now is the time for state and national governments to come together with businesses to chart our country’s path forward. If we have the courage to disrupt ourselves and transform into a true Startup Nation, there are no limits to what we can achieve. 

[1] https://www.kauffman.org/what-we-do/resources/entrepreneurship-policy-digest/the-importance-of-young-firms-for-economic-growth

[2] https://www.nytimes.com/2017/03/28/business/dealbook/fewer-ipos-regulation-stock-market.html?_r=0

[3] https://www.detroitnews.com/story/business/2017/07/19/michigan-jobless-rate-falls-lowest-level/103844012/

[4] https://michiganvca.org/research/research-report/

[5] https://nfap.com/wp-content/uploads/2016/03/Immigrants-and-Billion-Dollar-Startups.NFAP-Policy-Brief.March-2016.pdf

[6] https://www.prnewswire.com/news-releases/new-survey-regulations-a-major-issue-for-small-business-300392523.html