My thoughts in Forbes:
Without some immediate clarity in the stimulus law, startups that have accepted investor capital are in jeopardy of being deemed ineligible to borrow SBA money or otherwise qualify for stimulus aid.
The uncertainty surrounding the global health crisis will eventually give way to the certainty of the financial crisis. The economic impact of this unprecedented pandemic is not (entirely) unpredictable, and the swift, bipartisan action from Congress to protect livelihoods, jobs and opportunity is critical.
However, overly broad language in the stimulus bill risks missing (or even actively excluding) startups from helping to rebuild the economy. Startups with investors may be ineligible to borrow SBA money or otherwise qualify for stimulus aid. It’s not too late for Congress to fix this in the bills report language, and/or for the SBA and the Administration to clarify when they issue guidance and implement.
I’ve written here before about how startups can create the next wave of opportunity for Americans everywhere, across a wide range of industries. In 2019 alone, over 3.1 million jobs were directly created by startups that were less than a year old.
The US economy might be anchored by large private and public sector employers, but the small businesses which line Main Street America collectively employ half of us. Even more to the point, it’s the startups — fast-growing young companies in all 50 states — that really drives the innovation, growth and new jobs. Nearly all net new job growth in the past 40 years has come from entrepreneurs taking risks, investors backing them, and teams of people coming together to create new companies, technologies and innovative new business models.
But we can’t create jobs and spur economic development if we are locked out of COVID-19 emergency relief programs, and I’m worried Congress is passing a bill that does just that. The stimulus response to the Great Recession in 2008 did far too little to help all small companies, let alone prioritize the kind of fast-growing startups upon which America’s economy really relies. The banks and big companies might have been boosted, but the last recession left Main Street and startup ventures suffocating for access to the credit or capital to make payroll and rebound.
The proposed stimulus package is using eligibility guidelines issued by the Small Business Association (SBA) to identify the companies that need help. And while this stimulus at least considers small businesses, the SBA’s affiliation rules might inadvertently (and mistakenly) exclude the most critical part of the economy.
The SBA affiliation rules could be interpreted to force startups to aggregate the employees of all the unrelated companies in which some of their investors have also invested, even minority shareholders with a small amount of equity in the startups.
If that’s the interpretation, then all of the employees of the investors might also be counted against the SBA’s definition of a small business (less than 500 employees).
Without some immediate clarity in the stimulus law, startups that have accepted investor capital are in jeopardy of being deemed ineligible to borrow SBA money or otherwise qualify for stimulus aid. To avoid any discrepancies in interpretation, Congress should clearly waive the SBA’s “affiliation rules” so that equity-backed startups can access the proposed emergency relief programs.
This isn’t about “big tech” companies and rich venture capitalists tucked away in Silicon Valley, it’s about the source of innovation and jobs across all industries and across the country. Startups are everywhere, they’re growing rapidly, and they are critical to manufacturing, healthcare, education and every industry that employs Americans. Atlanta, Washington, D.C., New Orleans, and Minneapolis are among 25 emerging startup hubs in the U.S., according to TechNet and the Progressive Policy Institute. From 2007-2016, these 25 cities averaged 11.9% private sector job growth. By comparison, areas with lower levels of startup activity averaged approximately half that level of job growth.
It’s not too late for Congress to get this right and clarify the stimulus package to include startups. Forbes Entrepreneur readers should reach out to their elected officials now, and tell them to write in a waiver provision for minority-equity-backed startups in small businesses from the SBA affiliation rules. It is critical to the success of this stimulus package that startups have access to the bill’s proposed emergency relief programs.