In 2009, the Obama-Biden Administration elevated the startup entrepreneur as a key piece of America’s recovery from the Great Recession. This wasn’t a particularly partisan decision—there was broad-based Republican support for it. Nevertheless, it was a fundamental transformation in how the federal government views entrepreneurs.
The decision to invest government resources to promote high-growth startups was based on three important facts. The first was data from the U.S. Census Bureau showing that young, high-growth businesses were responsible for the majority of net job creation in the United States economy from 1980-2009. Secondly, through the work of Steve Blank and Eric Ries, there was greater awareness that startup companies are different from small businesses and large corporations. They share characteristics of both at different times in their existence but need distinct policies to reflect their unique growth trajectory. And thirdly, there was a realization that America’s large companies in 2009 had embraced a policy of offshoring and outsourcing and would not likely be enticed to build large factories in America without significant subsidies.
The Obama-Biden Administration spent the next several years developing policies, with bipartisan support, to use the resources of the federal government to facilitate creation of more high-growth startups and commercialize more federally funded research across the nation. It created the National Advisory Council on Innovation and Entrepreneurship, chaired by Steve Case, Desh Deshpande and Mary Sue Coleman, to identify bottlenecks and suggest policies to help startup entrepreneurs across America. The effort led to some important successes, including the 2012 Jumpstart our Business Startups (JOBS) Act, which passed—in an election year—with strong bi-partisan support. Among other things, the legislation relaxed regulations facing pre-IPO startups, and legalized crowdfunding at a time when capital was constrained by the Great Recession.
The Obama-Biden Administration also created programs to boost regional entrepreneurship in America, modeled on the success of universities and startup accelerators in the Northeast and West Coast. This led to the Defense Innovation Unit, the NIH National Centers for Accelerated Innovation, ARPA-E and the National Science Foundation I-Corp program.
2020 presents another similar pivot. While the Trump Administration kept these programs in place, it linked its economic goals to the performance of the stock market, and therefore, of large, publicly-traded companies. The 2017 tax cuts, the slashing of climate change-related programs and the termination of the H1-B visa program undercut the fastest growing segments of the economy—alternative energy, technology and ESG investing.
The Trump Administration’s Operation Warp Speed program to develop a vaccine for Covid-19, has given preference to large companies such as Pfizer and Johnson & Johnson. While there is certainly an argument to be made for this strategy, it has no doubt left out startups with potentially better technology and R&D.
The Biden plan, entitled Made in All of America, will once again elevate the entrepreneur as a key piece of America’s economic recovery from Covid-19. The plan has some ambitious goals, including $300 billion in increased federal research funding, a $700 billion plan to build infrastructure using American firms, and to finally bring broadband access to every corner of America. According to the Biden campaign, the plan also includes $600 million for regional entrepreneurship centers, accelerated R&D investment to drive large-scale innovation in the industries of the future, and significant resources to support underrepresented entrepreneurs, including people of color, women and immigrants.
A just-released report by PayPal, in partnership with Reimagine Main Street, showed that small businesses that got PPP loans and embraced a digital business model outperformed traditional businesses. It stated that digital small businesses saw “25% year-over-year (YoY) growth in Q2 of 2020, compared to a publicly reported 9% drop in revenue for overall SMBs and a -3.6% growth in overall U.S. retail in the same quarter.” PayPal states that “a comparison of transaction data of overall PayPal SMBs (small and medium businesses) and PayPal SMBs that received a PPP loan shows that the group that received a PPP loan recorded 177% as much total payment volume as did those without a PPP loan, on average, in April to August of 2020.” Based on the study, it seems clear that the PPP stimulus, along with technical support, has helped American entrepreneurs.
Both candidates support further rounds of fiscal and monetary stimulus. But as in 2008, we face a fundamental question about what our businesses will look like on the other side. We don’t know what a successful office environment, airline, restaurant or factory will look like. To date, only the Democratic leadership of the House of Representatives has committed to continuous stimulus until we have defeated Covid-19.
When Americans voted this week, the state of America’s startups was probably not a deciding factor. On the other hand, we know that innovation will be critical to defeating Covid-19, that high-growth startups create the jobs in America, and that half of our workforce is employed by small businesses. In 2009, Joe Biden was part of the Administration that saw the importance of supporting the high-growth entrepreneur for these exact reasons. Regardless of how this ends, we need that again.