“Time,” said Morris Panner, CEO of DICOM Grid.com, answering the vexing question of what breeds innovation during a panel of entrepreneurs speaking at the Congressional Small Business IT Caucus today in the Rayburn House Office Building in Washington, D.C. “What makes a successful innovation culture is time. The structural provisions in the Startup 3.0 Act give entrepreneurs time.” (Watch video of the entire panel here.)
Through payroll tax incentives, Startup 3.0 allows small businesses to keep more cash on hand as they invest in their companies and look to make that next breakthrough product or service. “Cash determines how long you can live,” Panner said.
Panelist Raj Khera, CEO of MailerMailer, added that entrepreneurs have to make their cash go as far as it can. “Within Startup 3.0, the research and development tax credit can be offset against payroll tax as opposed to income tax,” he said. “Startups just don’t generate taxable income in the early years, but we do have employees and pay payroll tax. So, allowing startups to offset their R&D credit against payroll taxes means these businesses keep more cash for payrolls.”
Most of the over 30 Congressional staffers at the caucus briefing had probably never heard from five entrepreneurs with so much experience before. It was eye-opening to hear what it really takes to make a company grow from startup to success.
But why invest in startups? Doug Humphrey, a serial entrepreneur, currently present of Joss Heavy Industries and board member for Entrepreneurs for Growth, summed it up best. “You snuff out the startup spirit and you snuff out the American spirit,” he said. “Entrepreneurs are all about high risk and high reward. Normal and sane people don’t take those risks. Entrepreneurs are insane, but we’re the people who make true innovation.”
He also noted how entrepreneurs drive the American economy. “Billionaires are not job creators,” he said. “Job creators are small startup companies.”
Panelist David Pauken, CEO of Convoke Systems, is on his fourth entrepreneurial project. He noted that lower tax rates lead to higher investments, which lead to more jobs. “We’re not looking for government handouts; we’re looking for policies that let us survive while we innovate,” he said. “We need policy structures that give us that chance to succeed. You need to understand why startups are different. They need a different regulatory framework, which Startup 3.0 will provide.”
“Assistance for the entrepreneur is few and far between,” said panelist Cynthia Traeger, director of the Founder Institute of DC and CEO of Pacific Siren International LLC. “Startup 3.0 will help speed entrepreneurs to success. It takes the innovation out of the garage and into the marketplace. It also allows more of those entrepreneurs to stay in the U.S.”
Khera came to the U.S. from India when he was five, when his father received a visa to stay in the U.S. He’s founded four startups, earned bachelor and master degrees in electrical engineering from the University of Maryland and was appointed by Maryland Governor O’Malley to the Maryland Economic Development Commission. He said, “A lot of people want to do what I did; they just need the opportunity.”
Beyond the payroll tax incentives in Startup 3.0, the panel gave wide support to the visa provisions in Startup 3.0, which will allow students with STEM degrees to stay in the U.S. and allow people who want to start their businesses here to do so. Those new businesses will employ more Americans, breeding even more job growth.
Humphrey implored the House staffers in the audience to not let those STEM-focused and entrepreneurial immigrants leave the country. “These entrepreneurs will not be stopped,” he said. If they can’t get a visa to stay in the U.S., they will not get venture capital funding. They instead will build their companies elsewhere and the U.S. will lose jobs.
Morris pointed out to House staffers that entrepreneurs need Startup 3.0 – with its provisions to help investors weather the financial uncertainty involved in startups and its provisions to give them access to talent to help their high-risk businesses succeed.
Read more about small business concerns for Startup 3.0 in our recent blog post by Amy Kardel of Clever Ducks.
