Undoubtedly, COVID-19 has devastated the American economy. On July 29th, the Federal Reserve decided to hold interest rates steady in response to a lack of economic growth. While there has been some recent improvement, the Federal Reserve stated that current economic activity is still significantly lower than first quarter 2020. What recovery the economy has seen in the summer months is largely due to government intervention and the March 2020 CARES Act. The Federal Reserve noted as much in their statement regarding the decision to keep rates steady: “Overall financial conditions have improved in recent months, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.”
This decline in economic activity has been – and, we predict, will continue to be — particularly damaging to the start-up community. The coronavirus pandemic devastated young, innovative companies, forcing lay-offs and closures. According to the New York Times, in the first weeks of the pandemic, 6,000 employees were laid off or furloughed from more than fifty start-ups. By the end of April, that number had increased to more than 21,000 employees from over 200 start-ups. At the same time, investment in start-ups slowed or stopped completely. Between February and April of 2020, there was a 38% decrease in early-stage funding from venture capital.
Two bills currently under consideration could give desperately needed help to start-ups nationwide:
Introduced by Senator Amy Klobuchar and co-sponsored by Senators Chris Coons, Tim Kaine, and Angus King, the Senate version of this bill is designed to support start-ups located outside of traditional regional tech hubs. The Act proposes the formation of a Treasury Department program to provide a one-to-one match to private investments in start-ups with a strong potential for growth. In particular, the funding will be reserved for start-ups located in the Southwestern and Southeastern United States as well as the Midwest.
The Act reserves $1.5 billion for an initial group of investments, providing a much-needed influx of funding to underserved communities. It also reserves $500 million to provide additional funding to start-ups showing success after the initial investment. The Act specifies that private, not government, determinations will decide which companies will receive funding based on their scalability and promise for growth.
In the House, this bill is sponsored by Representatives Dean Phillips, Terri Sewell, Ro Khanna, and Tim Ryan. In early July, Rep. Phillips announced his intention to strengthen the House bill to better serve start-ups helmed by women and minorities. The pandemic has been particularly devastating to these entrepreneurs. From the months of February to April, African-American owned businesses declined by 41%.
Like the New Business Preservation Act, the Endless Frontier Act seeks to support the development of innovative businesses and spur economic growth. However, this Act focuses on science and technology as a force to create jobs and develop the economy. The bill proposes a correction to the steep decline in government funding of research and development over the past ten years.
Sponsored by Senators Chuck Schumer and Todd Young in the Senate and by Representatives Ro Khanna and Mike Gallagher in the House, the Act focuses on changes in the National Science Foundation. After a proposed renaming to the National Science Technology Foundation, a newly appointed deputy director would be tasked with funding scientific and technological innovation. The Act hallmarks $100 billion for funding projects in ten technology areas named in the bill. These areas include biotechnology, artificial intelligence, robotics, cybersecurity, and energy technology. They’re intended to establish American leadership in technological innovation. Additionally, the bill provides an additional $10 billion for the Commerce Department to develop regional technology hubs nationwide. The intention is for these hubs to become central locations for organizations involved in research, development, and manufacturing in the ten technology areas.
How does this bill help start-ups? Start-ups are the way by which new technology moves from the lab to the consumer. The bill reserves money to help businesses quickly produce innovative products and move them into the marketplace. And helping start-ups not only means helping the U.S. become a leader in innovation – it also means helping the U.S. economy. Together, start-ups and young businesses account for nearly 70% of gross job creation in the United States. Investing in start-ups is investing in the economic recovery after COVID-19 – reason enough and more to root for these two bills.
In March, April and May, we really didn’t know what we were dealing with, both in terms of the economy and the virus. We’re starting to get past that now. The Paycheck Protection Program, increased unemployment benefits, and the Main Street Lending Program were all necessary but broad tools designed for recovery. They hit their target, but a lot more is needed. As we move forward, I believe more targeted relief is going to be necessary if we want to compete in the world of innovation and entrepreneurialism. This is where the U.S. has always thrived, but our frontier nature is now our greatest weakness, so we’re going to have to play catch-up in the post-COVID-19 world to come.