OUR INTERNET, OUR ECONOMY:

A primer on issues impacting Americas startups

PREAMBLE

STARTUPS ARE THE ENGINE DRIVING JOB GROWTH

The United States is the land of opportunity. No group has better demonstrated this than startups disruptive young rms harnessing new technologies to create products, services, and jobs. Innovation is the engine of economic growth in the United States. Startups have accounted for all net U.S. job creation over the past two decades, generating jobs in a time of economic stagnation.1 Over the course of the 112th Congress, Washington began to take note of the value of startups by passing the JOBS Act, introducing the Startup Act, and ultimately shutting down SOPA and PIPA. Washington needs to continue this acknowledgement of the important role entrepreneurs play in the U.S. economy and the impact of public policy on startups. Technology has played a critical role in the formation of new
1. Tim Kane The Importance of Startups in Job Creation and Job Destruction Kau man Foundation Research Series: Firm Formation and Economic Growth, July 2010

companies, and technology jobs are growing all over the country. Cities including Cleveland, Kansas City, and Tulsa are enjoying the benets of tech job creation. Whats more, workers in technology industries have the most signicant impact on local communities, creating approximately ve jobs for each high tech job through increased demand for local goods and services.1 Engine is a coalition of entrepreneurs, innovators, and leaders in the startup community. By bringing together policy makers and entrepreneurs, we aim to improve the dialogue on startups, technology, and economic growth. Public policy shapes the markets startups inhabit. Learn more about the issues that are confronting these companies and hear from entrepreneurs themselves on the challenges they face in building new businesses.
2. Enrico Moretti Local Multipliers American Economic Review: Papers & Proceedings 100 (May 2010): 17

EDUCATION

INCREASE AMERICAN OPPORTUNITY

Strong education in science, technology, engineering, and mathematics (STEM) brings high tech talent to the U.S. workforce. The Commerce Department estimates that fewer than 40 percent of students entering a STEM eld in college ultimately graduate with a STEM degree.3 Improving and emphasizing elds that drive the innovation economy and boosting graduation rates will continue entrepreneurial growth in the U.S.

3. David Longdon, Geoge McKittrick, Davide Beede, Beethika Kkan, and Mark Doms. STEM: Good Jobs Now and for the Future, U.S. Department of Commerce Economics and Statistics Administration. July 2010

Technical skills and entrepreneurial skills are becoming more and more important in the U.S. today. Tech innovation is pushing the economy forward, creating and exploring new markets with amazing rapidity. And yet there are large pockets of America that are being left out of this trend towards successful entrepreneurship, particularly in technology. CODE2040 aims to ensure the success of a group of leaders underrepresented in the economy today, and to inspire and encourage more leaders in STEM elds tomorrow.
Laura Weidman Powers

CODE2040

IMMIGRATION

STOP THE BRAIN DRAIN

The U.S. is home to the best educational institutions in the world. Too often, driven graduates of American schools are unable to remain in the U.S. where their skills are desperately needed. The U.S. immigration system was not built for todays global economic climate and, in order to stay competitive with other countries, policymakers should consider changes that help young companies. Startups founded by foreign-born entrepreneurs can be found in communities across the country. More than 25 percent of engineering and tech startups launched between 1995 and 2005 were founded or cofounded by an immigrant.4

4. Vivek Wadhwa, AnnaLee Saxenian, Ben Rissing, and Gary Gere Americas New Immigrant Entrepreneurs Master of Engineering Management Program, Duke University; School of Information. U.C. Berkeley, Jan. 4 2007

As an immigrant entrepreneur, I constantly have to worry about whether I can or cannot stay in the country, in addition to the challenges all entrepreneurs face competitors, technical challenges and a uctuating marketplace. All Im trying to do is to grow my business, create more jobs, and save lives through my company. Mert Iseri, SwipeSense

BROADBAND

CONNECT ENTREPRENEURS AND USERS

Connecting more Americans to broadband is critical to growing our entrepreneurial economy. As many as 19 million Americans live in areas unserved by broadband internet providers.5 These people represent potential users and founders who are cut o from the opportunity highspeed internet provides in fueling new business growth.

5. Federal Communications Commission Eighth Broadband Progress Report Aug. 21, 2011

When discussing job creation, the tendency is to count the immediate jobs created by building physical infrastructure like roads and bridges. But the innovation created by access to high-speed internet networks wireless infrastructure creates longer lasting jobs at scale from the resulting tech innovation. Any discussion of job creation via infrastructure has to include the extension of wimax and other internet access technology in rural areas where the economy has hit us worst. Nait Jones, AgLocal

SPECTRUM

OPEN AMERICAS WIRELESS INFRASTRUCTURE

The newest generation of wireless devices has revolutionized the startup world and introduced an entirely new market for consumer and enterprise services. Mobile apps have created micro-economies of their own, generating jobs for developers and winning millions of dedicated users. Apps that leverage the wireless infrastructure have become central to the smartphone experience, allowing users to share photos and video, locate retailers, and receive real-time data. Cisco projects that wireless data use will continue to grow at an annual rate of 78 percent through 2016.6 Policymakers must strive to make more spectrum available quickly to preserve the thriving wireless marketplace.

6. Cisco Visual Networking Index 2012. May 30, 2012

Some amount of spectrum regulation is necessary but it must be done fairly and expediently. I am in favor of opening up more unlicensed spectrum as well as opening up more licensed to smaller organizations. Ideally, the Federal Communications Commission would make some sort of consideration for giving local carriers companies based and operating in a given region priority to frequency in that area. Such an approach would level the playing eld and promote local companies and services. Alex Menendez, Monkeybrains

PATENTS

PROTECT INNOVATORS, NOT LITIGATORS

Patents were developed to encourage openness in the innovation space and protect inventors. Startups are increasingly facing nancial pressure from trolls that take advantage of a broken patent regime and dont contribute to economic growth or technological innovation. Companies were subjected to $29 billion in direct costs from 2011 patent infringement claims led by non-practicing entities companies that operate by collecting fees on patent licenses as opposed to making products.7 While large companies pay more of the overall settlement and legal costs, the expenses make up a greater share of smaller companies revenue.

7. James E. Bressen and Michael J. Meurer The Direct Costs from NPE Disputes Boston University School of Law Working Paper No. 12-34, revised June 25, 2012

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Even when [patent troll] suits are of little merit, they can have a chilling effect on innovation and investment. Small startups that sell innovations to larger companies can nd themselves in a potential death sentence situation. Je rey Glueck, Skyre

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DATA

PRESERVE TRUST BETWEEN USERS AND STARTUPS

Web-based business opportunities have grown through the dynamic data exchange that occurs between users and innovators. Consumers derive tremendous value from services that make sense of complex information. This data is processed by technologies including search engines, fraudprevention services, and real-time transportation services. Regulators and lawmakers should prioritize data-driven innovation as they consider cybersecurity, privacy, and data security rules that may impact the entire internet ecosystem.

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As a developer, I worry about how great innovations could be blocked due to an unfounded fear of how data could be used. Data is just like many commonly used things it can be used for both good and bad. Imagine how much innovation and economic value would have been stied if too many restrictions were put on mobile phone developers in the early days out of fear. The benets of using and analyzing data are only at the beginning stages and can truly create and shape many new technologies. Derek Parham, DrinkBox

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FINANCIAL REGULATION

BOOST STARTUPS WHILE PROTECTING INVESTORS

Limited access to capital can be one of the biggest challenges a startup faces. Seed-stage venture capital investment in startups has dropped by more than 70 percent since its peak in 2000.8 Congress has taken steps toward loosening regulations on how startups can raise money from new groups of investors, including crowdfunding which may open up an entirely new market for equity investment. Policymakers and the Securities and Exchange Commission must be mindful to protect investors while e ectively implementing new laws and rule changes that create sustainable capital streams to entrepreneurs.

8. 2012 National Venture Capital Association Yearbook, Fig. 3.09

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The JOBS Act holds great promise for helping small businesses raise capital to hire more employees, create more products, and serve more customers, but the intent of the lawmakers will only be realized if the SEC implements rules in line with the primary purpose of the bill. Rory Eakin, CircleUp

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A FREE AND OPEN INTERNET

DRIVING GROWTH, CREATING OPPORTUNITY

Startups dont stay small forever. Keeping the internet free for competition and innovation helps these companies emerge and grow into successful enterprises. Policymakers should protect the internet from harmful government intervention. Entrepreneurs are ready not only to open their businesses for consumers, but also to provide insight to government on the impact of public policy. The freedom and openness of the internet have created the potential for successful businesses to start anywhere. Its up to us to harness it.

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EVERY BUSINESS STARTS SOMEWHERE

International Business Machines. Founded: 1910. Employees: 440,8859 Microsoft. Founded: 1975. Employees: 94,000 Apple. Founded: 1976. Employees: 60,400 Electronic Arts. Founded: 1982. Employees: 9,225 Amazon. Founded: 1994. Employees: 56,200 Yahoo!. Founded: 1994. Employees: 14,100 Valve. Founded: 1996. Employees: 29310 Netix. Founded: 1997. Employees: 2,348 Google. Founded: 1998. Employees: 54,604 Pandora. Founded: 2000. Employees: 530 Facebook. Founded: 2004. Employees: 3,976 Yelp. Founded: 2004. Employees: 918 Twitter. Founded: 2006. Employees: 1140. 11 Zynga. Founded: 2007. Employees: 2,846 Groupon. Founded: 2008. Employees: 11,471

9. All company data sourced from Yahoo! Finance unless otherwise annotated 10. Valve company handbook

11. https://twitter.com/#!/twitter/team

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