An Engine-championed bill that would make it easier for startup employees to exercise their stock options cleared important hurdles in Congress this week. Yesterday, the House of Representatives passed the Empowering Employees Through Stock Options Act, and a companion bill cleared the Senate Finance Committee earlier in the week. Even with partisan divisions higher than usual in this contentious election year, Democrats and Republicans came together to support EESO, passing the bill unanimously in the Senate Finance Committee and with substantial bipartisan support in the House. As we’ve written in the past, because employees exercising certain types of stock options must pay an immediate tax upon exercise (even though there is no public market on which to sell some of the newly acquired shares to pay the tax), startup employees are often unable to purchase their shares, making it difficult for startups to attract and compensate top talent. EESO allows employees to defer the tax payment on options for seven years or until the underlying shares are actually sold, providing workers with the flexibility they need to realize the value of their contributions to their companies. We are hopeful that the full Senate will consider the bill as expeditiously as possible so that it can head to the President’s desk before the end of his term.
Today, the U.S. House of Representatives passed the Empowering Employees through Stock Ownership Act (H.R.5719), which will encourage startup growth by making it easier for employees at private companies to exercise their stock options. The following statement can be attributed to Engine Executive Director Evan Engstrom:
On Wednesday, the House Ways and Means Committee voted to approve the Empowering Employees through Stock Ownership Act (H.R.5719), legislation that will make it easier for startup employees to exercise their options. Two days prior, Engine led a letter signed by over 50 startups expressing support for the bipartisan bill, which would allow employees to defer the tax liability they owe when they exercise illiquid stock options for up to seven years or until there is a liquidity event (whichever happens first). As the letter notes, the bill “will make it possible for more employees to obtain an ownership stake in the companies they help build and make it easier for startups and private companies to attract the talent necessary to grow the economy.” The bill is scheduled to face a floor vote in the House later next week, and the Senate Finance Committee is also likely to consider it before the Senate recesses next Friday.
As a non-profit policy organization committed to making the world better for startups, Engine has a long history of engagement on copyright reform issues. Indeed, Engine began as an effort to harness the political power of the startup community that emerged from the tech world’s fight against the ill-fated SOPA/PIPA copyright bills. While the SOPA/PIPA battle remains a critical milestone in the emergence of tech as a political force, our work to return copyright law to a system that promotes rather than hinders innovation is only beginning. To help further this crucial mission, we are proud to join the Re:Create Coalition, a group of creators, innovators, and users working to ensure that copyright laws are balanced and foster innovation, creativity, and economic growth.
Equity compensation, often in the form of stock options, is a critical tool used by startups to attract, retain, and incentivize quality employees. But stock options have a downside: current tax law requires that employees pay an immediate tax when they exercise their options, usually long before they can sell those stocks to realize their full economic value. Fortunately, a bill being considered today by the House Ways and Means Committee could remedy this problem.
There are countless startups that provide platforms through which individuals can share feedback and unbiased reviews of the businesses and services they rely on. These platforms are integral to the internet economy and consumers depend on them to inform their decisions on everything from where to grab drinks to which dentist to see. Protecting freedom of speech on these platforms is critical. But non-disparagement and gag clauses silence legitimate criticism, rendering these platforms less useful and harming the broader internet ecosystem. Engine welcomes the House’s passage of the Consumer Review Fairness Act, which would outlaw these gag clauses and go a long way towards protecting consumers’ right to share their thoughts and opinions freely in the digital marketplace.
Never a fan of net neutrality, AT&T has upped the ante on controversial zero-rating programs, announcing a new program this week that will allow subscribers to stream video from DirectTV (a company AT&T owns) without consuming data under the company’s data caps. This means that AT&T is giving preferential treatment to its own data and putting all other video providers at a clear competitive disadvantage. While other programs like T-Mobile’s BingeOn service have tried to avoid the most egregious net neutrality violations by allowing any video service to participate in the zero-rating program without payment, AT&T’s program seems to directly implicate the Federal Communications Commission’s Open Internet Order.
Today, the House of Representatives passed a package of bills that will improve the capital access landscape for innovators across the country. The package included two pieces of legislation championed by Engine: the Micro Offering Safe Harbor Act (H.R.4850) and the Private Placement Improvement Act of 2016 (H.R.4852). With the approval of these two bills, the House has now passed four of Engine’s 2016 legislative priorities related to capital access.
Engine is looking for startups, entrepreneurs, and the organizations that support them to sign our letter telling Congress that startups care about broadband competition. Startups, businesses, and other institutions often need significantly more internet bandwidth than consumers use at home, so they rely on what are known as “business data services” (BDS) to deliver high-speed, high-capacity connectivity. Unfortunately, the BDS market is dominated by a few broadband gatekeepers that distort the market and jack up prices for startups and other customers. But that could change soon: the Federal Communications Commission (FCC) is in the process of a rulemaking that will introduce competition and lower prices in the BDS market.
The startup community has been fighting for years for reforms that would allow the world’s brightest innovators to start and scale their companies here in the United States. Engine welcomes the Department of Homeland Security’s International Entrepreneur proposal, which will allow talented foreign-born entrepreneurs to build their companies in the U.S., in turn creating jobs and driving economic transformation. Today’s announcement is an important step towards making our immigration system work for the 21st century innovation economy.
For years, the startup community has been calling for reforms to our immigration system that would allow immigrant entrepreneurs to build their companies in the U.S. It’s a no brainer, especially in light of the fact that more than half of the current group of U.S.-based “unicorns” (startups valued at more than $1 billion) have a foreign-born founder. While reforms in Congress have stalled, the Administration is proposing a new International Entrepreneur Rule that will allow foreign entrepreneurs to live in the U.S. for up to five years to help scale their business. To be eligible, the entrepreneur must have a 15 percent or greater ownership stake in the company and play an active and central role in its operations.
We’ve lamented again and again that the current patent system just isn’t working for innovators. There’s been lots of talk about ways to curb abusive patent litigation tactics, but efforts to push legislative solutions through Congress have stalled for the time being. Still, there are creative ways to combat troll tactics in the short-term. This week, Engine announced a partnership with the Electronic Frontier Foundation to Reclaim Invention. The initiative aims to address one of the unexpected sources of troll behavior: American universities. Did you know that universities often license or sell their inventions to patent trolls?
The patent system was enshrined in the American Constitution as a tool to promote innovation and invention. But as we have lamented again, and again, and again, the current system often has the opposite effect. In recent years, patent trolls—more politely known as non-practicing entities or NPEs—have hijacked the patent system, amassing hundreds and thousands of overbroad, low-quality patents with the sole purpose of suing and forcing companies into costly settlements. Unfortunately, this abusive patent litigation disproportionately impacts startups, entrepreneurs, and innovators (more than 80 percent of patent troll victims are small- and medium-sized businesses, and 55 percent of troll suits are filed against companies with revenues of less than $10 million).
The American Dream is built on the premise that regardless of who you are or where you’re born, if you work hard you can achieve greatness. Over the past century, entrepreneurs have embodied this ideal. The son of a Syrian migrant created one of the world’s most valuable companies out of his garage in California. Companies that were started in dorm rooms and university labs have changed the way we live and work.
By June 2012, President Barack Obama and his Republican rival Mitt Romney had already received over $11 million in donations from tech industry workers. But these employees—“long a reliable source of presidential donations”—haven’t been as generous with the 2016 nominees. Hillary Clinton and Donald Trump have only received a combined $3.5 million from tech workers so far. And Trump is faring much worse than Clinton, having pulled in a mere $128,000 from 238 tech donors so far. That’s less than 6 percent of what Romney had raised from tech by this point in the race.
For decades, the tech and startup community paid little attention to Washington, D.C. Entrepreneurs chose to focus their energies on building their companies, without much regard for the happenings of Congress or state legislatures. But in recent years, startups have begun to recognize that the decisions made by policymakers in a distant city can have a huge impact on their day-to-day operations and bottom lines. While the lawmaking process might seem long, laborious, and, at times, incomprehensible, it is more important than ever for the entire startup ecosystem to proactively engage policymakers at all levels of government—not only to foster a startup-friendly environment but also to anticipate and shape important policy debates that will affect America and the tech and startup communities for years to come.
Back in May, regulation crowdfunding went into effect, allowing anyone to invest in a startup through an online platform for the first time ever. But, as Engine has previously explained, we’re skeptical about the extent to which this market will truly take off given the current regulatory framework. We welcomed the House’s passage of Rep. Patrick McHenry’s Fix Crowdfunding Act (H.R. 4855) last month, which makes a couple of fixes from the startup community’s wish list like permitting special purpose vehicles. But the bill was heavily amended before passage, and as Evan argues in Bloomberg this week, it is missing a number of the startup community’s desired changes.
Three weeks ago, Engine took a look at how the Democratic Party’s draft platform would impact the tech and startup communities. This week, the party released their final platform to coincide with the beginning of the Democratic National Convention (DNC). Building on their draft, Democrats committed to rolling out broadband to every American and added language around the deployment of next-generation 5G technologies and free, public Wi-Fi. Some changes were made around encryption as well. While the initial draft did not even mention the issue, the final platform pledged support for a “national commission” on encryption, an idea that has been championed by Sen. Mark Warner and Rep. Michael McCaul.
Engine is excited to announce that we will be hitting the road again this October for Revolution’s fifth Rise of the Rest tour. Rise of the Rest is a road show to highlight and support entrepreneurship across America. Over the past four tours, we’ve had the chance to see thriving startup ecosystems in places like Baltimore, Nashville, and Detroit.