The Big Story: House passes package expanding capital access for startups
This morning, the House passed H.R. 2799, the Expanding Access to Capital Act, a broad measure that will lead to more funding options for startups through a more diverse pool of investors. Accessing capital is the biggest hurdle faced by virtually all U.S. startups, and this is especially true for underrepresented founders, who confront diminished access to all funding streams, from venture capital to business loans. Startups are encouraged by the bill’s passage, and the Senate should take up, pass, and send it to the president.
The Expanding Access to Capital Act builds off of the bipartisan success of the Jumpstart our Business Startups (JOBS) Act, enacted more than ten years ago. It would further ease the path to IPO, lift the cap on Regulation A+, and enhance Regulation Crowdfunding. Perhaps most importantly, the bill would expand the definition of accredited investor. That would give more Americans the opportunity to build generational wealth by investing in the startup ecosystem, and it would create a more diverse pool of investors that would lead to a more diverse pool of startups receiving funding. Other provisions, including one to reform 3(c)(1) funds by raising the fund cap and increasing the number of possible investors, would allow more investors to participate at lower amounts and would give rise to greater diversity. Ahead of its consideration this week, Engine voiced support for the package, and startups have repeatedly emphasized how the accredited investor definition should be expanded because independent wealth is not an indicator of financial acumen.
Engine is pleased to see the passage of the Expanding Access to Capital Act and efforts to ease barriers for underrepresented founders. While the legislation faces a difficult pathway to success in the Senate, Sen. Tim Scott (R-S.C.), Ranking Member on the Senate Banking Committee is undertaking similar efforts to boost capital access, especially for underserved communities, through his framework, the Empowering Main Street in America Act. Policymakers must continue this important work so that all communities are positioned to succeed in the startup ecosystem.
Policy Roundup:
Texas judge delivers blow to Minority Business Agency, underrepresented founders. This week, a federal judge in Texas ruled that the Minority Business Development Agency must open its doors to all races, challenging a claim that minority-owned businesses are disadvantaged. This decision has broader implications for various programs—including those not administered by the government—aimed at supporting startups led by underrepresented founders. Underrepresented entrepreneurs often grapple with challenges related to limited access to funding streams, talent, and resources. In a recent video, Sonja Ebron, CEO of Courtroom5 based in Durham, North Carolina, highlighted the hurdles faced by Black and brown women in the startup ecosystem. She emphasized the discriminatory barriers in accessing capital and underscored the importance of dedicated programs and resources for founders of color.
Biden touches on tech issues in State of the Union Address. During his State of the Union address Thursday evening, President Biden highlighted several tech policy issues that impact startups, including artificial intelligence, data privacy, and broadband infrastructure investment. He also expressed support for policies that can enable more people to pursue entrepreneurship, like student loan forgiveness and an expanded child tax credit. These issues impact the regulatory environment startups must innovate within, their ability to reach customers, and individuals’ ability to pursue entrepreneurship—and deserve attention from policymakers in ways that prioritize startups.
States continue to pass social media ban bills. State lawmakers in Iowa and Florida each passed measures that would ban or require parental consent for those under a specified age to use certain Internet services. The bills’ definitions do not include size thresholds and could apply to startups. In addition to constitutional concerns highlighted by stakeholders, in practice, these measures will likely require age verification measures for Internet services, which for startups, strain budgets, heighten cybersecurity risks, compromise user experience, and undermine competitiveness.
Digital Markets Act takes effect in Europe. On Thursday, the Digital Markets Act came into effect in the European Union, dramatically changing the regulatory landscape there. The law regulates the conduct of a collection of large, mostly American companies designated as "gatekeepers," and provides additional powers to the European Commission to investigate and block acquisitions in the tech sector. Acquisitions are critical to startup ecosystems because they facilitate beneficial cycles of knowledge and capital necessary for building and financing innovative companies. European antitrust enforcers have already posed problems for transactions involving American companies and startups.
Continued Republican opposition on display during hearing on global tax deal. On Thursday, the House Ways & Means Tax Subcommittee held a hearing on Pillar 1 of the Organisation for Economic Cooperation and Development’s global tax deal. The plan, which continues to face Republican opposition, would address the proliferation of digital services taxes (DSTs) across the globe. DSTs stand to burden startups as the large, mostly American technology companies directly impacted, pass on the costs to customers—like startups—through price increases. These added expenses can be daunting for startups, many of which rely on inexpensive digital services to operate, particularly in their early stages with limited budgets. Policymakers should continue to push back against these discriminatory taxes, so startups don’t face yet another cost barrier to growth.
Startup Roundup:
#StartupsEverywhere: Frederiksted, Virgin Islands. Tarik McMillan and Tamara Mohammed founded Greater Changes with the goal of making mental health services accessible for people, no matter their background. We spoke with them about the sometimes challenging process of developing a telehealth platform, ‘Change’, their experiences fighting stigma and operating out of the U.S. Virgin Islands, and their goals for 2024.
