• Ben Franklin 4 PA

Startups Nationwide to See Job Losses Absent Urgent SBA Rule Fix

MARCH 30, 2020/BY DEVIN MILLER


126 pro-startup groups representing 39 states urge Trump Administration to save startup jobs by fixing SBA rule

FOR IMMEDIATE RELEASE

March 29, 2020

Contact: Cassie Ann Hodges

Phone: 202-864-5923

Email: chodges@nvca.org

WASHINGTON, DC – TechNet and the National Venture Capital Association today led 126 local, state, regional, and national groups representing 39 states across the country in urging the Trump Administration to ensure startups and their workers are eligible for the emergency relief loan program included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The full letter and list of signatories is below and is available as a PDF here. The groups sent a letter to the Administration this afternoon regarding startups with equity investors being forced to potentially count employees from unrelated companies as their own employees – pushing startups over the 500-employee threshold that is used to determine eligibility for the loan program, under the Small Business Administration’s (SBA) Affiliation Rules.

In 2019, 2.27 million Americans worked at startups.  According to the job site Indeed, 98 percent of firms have fewer than 100 employees and between small and medium sized companies, they jointly employ 55 percent of employees.  Without access to this loan program, some of these startups could face preventable layoffs and be forced to shut down research and development projects that could set back our country’s competitiveness, as well as delay new tools to combat the COVID-19 pandemic.

“[W]e are gravely concerned that application of the current Small Business Administration’s (SBA) ‘Affiliation Rules’ to these companies will create confusion and delays in administering the program, and could effectively exclude many startups that are trying to survive this economic crisis,” the letter states.  “Such a result would be contrary to the intent of the legislation to provide assistance broadly across all sectors of the economy.  Without clear guidance enabling startups and small businesses supported by equity investment to access the loan facility, many of these startups may be rendered ineligible.”

TEXT OF LETTER:

Dear Secretary Mnuchin and Administrator Carranza:

Thank you for your service to our nation and support for America’s small businesses and their workers, especially during this challenging time.

We, the undersigned organizations representing America’s startup community, respectfully urge you to clarify as quickly as possible that small businesses with equity investors will not be excluded from the 7(a) loan program under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.  In particular, we are gravely concerned that application of the current Small Business Administration’s (SBA) “Affiliation Rules” to these companies will create confusion and delays in administering the program, and could effectively exclude many startups that are trying to survive this economic crisis.  Such a result would be contrary to the intent of the legislation to provide assistance broadly across all sectors of the economy.

The CARES Act takes many positive steps forward to provide relief to the U.S. economy.  However, the goals of the program will be undermined if the “Affiliation Rules” prevent many small companies with equity investment — as is the case with most startups — from qualifying for the emergency relief made available by the CARES Act.  This relief is intended for companies with less than 500 employees, other firms that qualify based upon eligible size standards, and entities that already have an explicit waiver.  Depending on how the SBA assesses questions of “control” under current “Affiliation Rules,” many of these companies could be required to aggregate the employees of unrelated companies in which their investors are affiliated and count them in their employee count, pushing many above the employee size threshold.  Regardless of the purpose of these rules for traditional 7(a) loans, allowing the rules to exclude some of our country’s most innovative startups in this new loan program is manifestly contrary to the intent of the legislation: to help small businesses keep their lights on and their employees working despite the double financial squeeze created by the economic and financial market downturns.

Without clear guidance enabling startups and small businesses supported by equity investment to access the loan facility, many of these startups may be rendered ineligible.  The confusion alone could lead to waves of preventable layoffs.  These layoffs will also have broad short-term downstream economic consequences, including for service-oriented businesses like restaurants, coffee shops, and bars, who rely on these workers as customers.

In addition to laying off workers, startups will have to shut down critical research and development (R&D) projects in fields like bio-research, medical technology, and artificial intelligence, setting back our country’s competitiveness and delaying the creation of new tools to combat the COVID-19 pandemic.  Bottom line: not providing this critical support to startups now will cause both short-term pain and long-term consequences that linger for years.

In 2019 alone, 2.27 million jobs were created in the U.S. by startups across our nation.  According to the job site Indeed, 98 percent of firms have fewer than 100 employees and between small and medium sized companies, they jointly employ 55 percent of employees.  When implementing the CARES Act, we urge the SBA to issue guidance that makes clear affiliation rules do not arbitrarily exclude our most innovative startups.  Thank you for considering our concerns.

Sincerely,

National Organizations

TechNet National Venture Capital Association Technology Councils of North America Engine Advanced Medical Technology Association (AdvaMed) Biotechnology Innovation Organization (BIO) Center for American Entrepreneurship Angel Capital Association Medical Device Manufacturers Association Female Founders Alliance Information Technology Industry Council (ITI) Clean Energy Business Network Blockchain Association StartOut Commercial Spaceflight Federation LatinX VC Hello Alice Dental Trade Alliance State Science & Technology Institute (SSTI) Regional Organizations Mid-Atlantic Venture Association Mid-America Healthcare Investors Network New England Venture Capital Association Rocky Mountain Venture Capital Association (Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah, Wyoming) Southeast Life Sciences Western Association of Venture Capitalists Alabama Tech Birmingham Arizona Arizona Bioindustry Association, Inc. (AZBio) Arizona Technology Council California Alliance for SoCal Innovation Bay Area Council BioCalifornia Biocom – Life Science Association of California California Technology Council California Business Incubation Alliance California Cybersecurity Information Sharing and Analysis Organization (CalCISO) California Life Sciences Association Octane Silicon Valley Leadership Group sf.citi Tech San Diego Colorado Colorado Technology Association Rockies Venture Club Delaware Delaware BioScience Association (Delaware BIO) Florida BioFlorida Domi Station eMerge Americas Florida Medical Manufacturers Consortium (FMMC) Florida Venture Forum Georgia Technology Association of Georgia Indiana Indiana Health Industry Forum Indiana Technology & Innovation Association TechPoint Indiana Illinois 1871 Illinois Biotechnology Innovation Organization Illinois Venture Capital Association MATTER mHUB Open Prairie TechNexus Venture Collaborative Iowa Iowa Venture Capital Association Kansas KC Tech Council Wichita Technology Corporation/Wichita Technology Ventures Kentucky Technology Association of Louisville Kentucky Maine Startup Maine Maryland Maryland Tech Council Massachusetts Massachusetts Medical Device Industry Council (MassMEDIC) Mass Technology Leadership Council Michigan Ann Arbor SPARK Michigan Biosciences Industry Association (MichBio) Michigan Venture Capital Association Minnesota Medical Alley Association Missouri Arch Grants BioGenerator BioSTL Cortex Innovation Community KCRise KC Tech Council Missouri Biotechnology Association (MOBIO) Technology Entrepreneur Center Nebraska Invest Nebraska New Jersey HealthCare Institute of New Jersey (HINJ) New Jersey Tech Council New York MedTech (NY) NY Tech Alliance Tech:NYC Upstate Capital Association of New York North Carolina Council for Entrepreneurial Development North Carolina Biosciences Organization (NCBIO) North Carolina Technology Association Ohio Cintrifuse JumpStart VentureOhio Oklahoma 36 Degrees North Oregon Oregon Bioscience Association Technology Association of Oregon Pennsylvania Ben Franklin Technology Partners Life Sciences Pennsylvania Philadelphia Alliance for Capital and Technologies Pittsburgh Technology Council Pittsburgh Venture Capital Association Rhode Island Tech Collective Tennessee EO Nashville Greater Memphis IT Council Greater Nashville Technology Council Texas Austin Tech Alliance Austin Chamber of Commerce Caruth Institute for Entrepreneurship Geekdom Houston Exponential The Ion Kauffman Fellows Launch SA MassChallenge Texas Rice Alliance for Technology & Entrepreneurship Southwest Venture Forum Texas Healthcare & Bioscience Institute Texas Venture Capital Association Utah BioUtah Silicon Slopes Commons Vermont Vermont Technology Alliance Virginia Northern Virginia Technology Council Roanoke-Blacksburg Technology Council Washington Life Science Washington Washington Technology Industry Association Wisconsin BioForward Wisconsin TitletownTech Wisconsin Technology Council Wisconsin Venture Capital Association

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About TechNet

TechNet is the national, bipartisan network of technology CEOs and senior executives that promotes the growth of the innovation economy by advocating a targeted policy agenda at the federal and 50-state level.  TechNet’s diverse membership includes dynamic American businesses ranging from startups to the most iconic companies on the planet and represents over three million employees and countless customers in the fields of information technology, e-commerce, the sharing and gig economies, advanced energy, cybersecurity, venture capital, and finance.  TechNet has offices in Albany, Austin, Boston, Chicago, Olympia, Sacramento, San Francisco, Silicon Valley, Tallahassee, and Washington, D.C.

About National Venture Capital Association

The National Venture Capital Association (NVCA) empowers the next generation of American companies that will fuel the economy of tomorrow. As the voice of the US venture capital and startup community, NVCA advocates for public policy that supports the American entrepreneurial ecosystem. Serving the venture community as the preeminent trade association, NVCA arms the venture community for success, serving as the leading resource for venture capital data, practical education, peer-led initiatives, and networking. For more information about NVCA, please visit www.nvca.org.

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