As policymakers debate U.S. territories, they should consider potential for their startup ecosystems

As policymakers return to the question of how best to support U.S. territories and their lagging economies, they should include a focus on a critical but often under-recognized engine for economic development: the local startup ecosystems. Despite the odds, entrepreneurs in U.S. territories are launching startups, and policymakers should put in place the supports these ecosystems need to grow.

Last month, the Senate Committee on Energy and Natural Resources convened a hearing to examine the state of the U.S. territories, bringing much needed attention to the unique economic and policy challenges that affect nearly four million Americans. The territories of Puerto Rico, U.S. Virgin Islands, Northern Mariana Islands, American Samoa, and Guam are frequently overlooked by policymakers. These territories have endured years of minimal or stagnant economic growth, driven by trade barriers, persistent flight of skilled workers, and structural inequalities that restrict access to modern infrastructure. As a result, local economies struggle to attract investment or develop industries that can compete in the modern tech age. As innovation and entrepreneurship are increasingly recognized as  vital drivers of economic development, the territories remain among the more difficult places in the U.S. to start and scale a business.  

A thriving startup economy can emerge when four core pillars are strong: a healthy funding ecosystem, access to skilled talent, reliable infrastructure, and trade policies that keep costs manageable. When these factors are all in place, founders can hire workers, access capital, and bring new ideas to market.

Talent

Innovation depends on high-skilled, entrepreneurial talent, but the territories are losing skilled workers at alarming rates. From 2010 to 2020, the U.S. Virgin Islands lost 18 percent of their population, Puerto Rico and the Northern Mariana Islands each lost 12 percent, American Samoa lost 11 percent, and Guam lost 4 percent. Unlike most U.S. states, these jurisdictions have faced sustained loss of  college-educated and working-age residents.

The comparison becomes even more staggering when you observe the U.S. mainland in the same time frame, only two states had a decrease in population and it was less than 1 percent in both instances. This brain drain is comparable to trends faced in rural communities across the U.S., where declining birthrates and flight to urban centers are tied to declining manufacturing and job opportunities, and good school districts. 

Recent federal cuts to minority-serving institutions—institutions that include every college and university in the territories—exacerbate the talent problem. Puerto Rico’s Secretary of Education, César Rey, has warned of the impact losing tutoring programs and remedial courses would have on Puerto Rico’s students. Guam is facing mass layoffs and the potential closure of at least 10 schools due to an insufficient FY 2026 education budget. In the U.S. Virgin Islands, the Trump administration cut $2.5 million intended to support climate-change agriculture training and doctoral education. In American Samoa, approximately 20 percent of total education funds are being withheld, negatively impacting the education system. Similarly, roughly a quarter of the education funds allocated to the Northern Mariana Islands remains unaccounted.

Without a stable or growing workforce, it becomes nearly impossible to build an innovation-driven economy.

Funding environment and debt

The second pillar, funding, is equally fragile. Founders in the territories operate in an environment with few private investors and limited access to capital, making it difficult to launch and scale new ventures. As Jonathan Gonzalez, co-founder of Raincoat, a startup in Puerto Rico, recently explained: “One of the biggest hurdles is the limited local investment ecosystem. There aren’t many venture investors on the island, so by default, we’ve had to raise capital in the U.S. and internationally.”

Long-standing economic stagnation, combined with population loss, has also eroded tax revenues across the territories. This has forced local governments to borrow heavily, leaving them debt-ridden and reliant on federal assistance. The Government Office of Accountability has expressed concern; a recent 2025 study on the economic development of U.S. territories acknowledged that they “face challenges to economic growth, which can make it harder for them to secure or repay debt.” These challenges include the high cost of importing goods and energy, population loss, and extreme weather events that have hurt key industries like tourism. This combination of factors leads territories to take on greater debt. For startups, this environment matters because when governments are trapped by debt and austerity, there is little funding left to support innovation, broadband expansion, research, or entrepreneurial development.

Infrastructure

The third pillar, reliable infrastructure, remains inconsistent and fragile. Affordable, high-speed broadband is still out of reach for hundreds of thousands of residents. In Puerto Rico, over 620,000 households lack broadband access. There are no places in the U.S.Virgin Islands that have three or more competing high-speed providers, and 23,000 people there have no high-speed Internet at all. Guam, American Samoa, and the Northern Mariana Islands have proposed expansions under the federal Broadband Equity, Access and Deployment program because 80–100 percent of the territories remain underserved.

Without reliable, affordable broadband, startups in the territories are locked out of the modern economy. High-speed internet is not a luxury for innovation-driven firms, it is the backbone of remote work, digital services, online markets, and access to investors and customers beyond local borders. As long as broadband remains unreliable or inaccessible, the territories’ startup ecosystems will struggle to grow, scale, and compete on equal footing with the mainland.

Trade

U.S. territories are deeply shaped by federal shipping regulations, and market-access rules that they do not control. For island territories, shipping rules restrict the ability to import affordable goods, slows down supply chains, raises operational costs for businesses, and limits participation in regional trade networks in the Pacific and Caribbean. These trade constraints matter profoundly for startups and their local innovation ecosystems. Higher transport costs elevate the price of equipment and limited trade flexibility makes it harder for entrepreneurs to scale or export. 

Critically, the Jones Act requires goods moving between U.S. ports to be carried on U.S.-built, U.S.-flagged, and U.S.-crewed vessels, making domestic transportation of goods significantly more expensive for territories that rely heavily on maritime trade. Requirements under the Jones Act mean that only a relatively small fleet of Jones Act-compliant vessels is available to serve domestic maritime routes, limiting competition and shipping capacity. Consequently, shipping goods between U.S. ports is often substantially more expensive than comparable international shipping routes. This drives up the cost of essentials for small-businesses and residents overall, including gas, diesel, and crude oil. For the territories, this means higher energy and operational costs for startups.

Political Power: Limited Voting Rights, Limited Policy Change

Even when territorial residents mobilize to demand change and improved conditions, they face another barrier: lack of voting representation. Citizens in the territories cannot vote for president and lack full voting members in Congress. This makes it difficult to reverse harmful policies, secure new funding, or advocate effectively for long-term investments.

Addressing the challenges of limited funding, inadequate broadband access, sustained brain drain, and insufficient education resources to create a talent pipeline requires targeted and informed policy action. First, Congress should pass legislation like the Territories Statistics Collection Equity Act to close critical data gaps. As the Government Accountability Office has highlighted, the territories are excluded from most federal statistical products, leaving policymakers with little information about their populations, economies, and infrastructure. Without these data, it is difficult to design effective programs, allocate resources equitably, or support innovation and entrepreneurship for roughly 4 million U.S. citizens living in the territories.

Policymakers should also make commonsense reforms to strengthen the four pillars of a healthy startup ecosystem. Expanding access to education, broadband, funding, and fair trade policies would directly support entrepreneurs, create jobs, and raise living standards. Without addressing each of these pillars these communities will be locked out of full and economically significant participation in the innovation economy.