After the Gang of Eight

Last Wednesday, the Senate’s so-called “Gang of 8” released their proposal to fix our nation’s immigration system. The 844-page bill, (which you can read here you speak legal), aims to rebuild a system which has become overloaded, burdensome and anti-competitive in a global context. The nuanced proposal covers multiple sectors of our economy, and different skill levels of potential immigrants.

For our community, there are many encouraging signs which we’ve written about in our full policy update. The inclusion of provisions like a startup visa, merit-based visas, and an increase in H-1B visas provide for more and better pathways for immigrant entrepreneurs to build business in America.

So, ok, great! Job well done everyone. Glad we fixed that. Is it time to move on?

Not even remotely.

From at least one conversation I had at the end of last week with a tired Senate staffer, I can report that “now is the time for the real work to begin.” This comes from an individual who has been working on immigration legislation with other Senate offices for the last four years.

The next step for the bill is to wind through the sometimes-rocky committee and amendment processes in the Senate. We also expect, in fairly short order, to see a companion piece of legislation from a similarly tasked group of House members. Then, the pundits, interest groups, and others will weigh in on what they see.

If the Senate bill passes in both chambers, it can be sent for the President’s signature to become law. If the Senate and House proposals pass through both chambers, the bills must then be conflated before reaching the President’s desk. In the worst case scenario, neither bill passes both houses and we start again from the beginning.

Now more than ever, it is critically important for you to keep the pressure on Congress to make sure the immigration debate and reform legislation continues to advance -- we need to ensure that the positive provisions for our startup community are represented in the final bill. We can do this by reminding members of Congress that building an immigration system that works, and can scale, is of critical importance to our ability to remain competitive in a global marketplace. We started by telling the House Small Business Committee just how important startups are to the U.S. economy.

Right now, the best way to take action is to join with our friends at March for Innovation. There, you’ll find resources, ways to get active, and can sign up for the Thunderclap in anticipation of the upcoming virtual march on Washington. We’ll be making more resources available in the coming weeks and months as this process continues.

To ensure we reach the eventual goal of rebuilding a broken immigration system, we as a startup community need to continue our active engagement in this process as it unfolds. Our voices will be critically important, and our work is underway. Engine, and all of its resources, stand at the ready to help reach our goal.

If you have an immigration story to tell, email editorial@engine.is

Startups Speak: Reward Individuals Who Have Contributed

Michael Ang (or Mang as he is better known) is an engineer from Canada. He works for Changemakrs here in San Francisco. In fact, Michael has been working in the United States for over fifteen years -- mostly within the startup community. He was the first employee of Xoom -- a company that is now post IPO and employs hundreds of Americans. Despite Michael’s experience, his masters degree from NYU, and his contribution to the startup community -- and the U.S. economy as a whole, he has only ever been granted a succession of temporary visas. Watch Michael tell his story, and tell us what he’s most excited about in the new immigration bill.

Startups Speak: Michael Ang from Engine Advocacy on Vimeo.

 If you have an immigration story to tell, email editorial@engine.is.

How the Gang of Eight Immigration Bill Impacts Startups

After months of waiting, the bipartisan Gang of Eight Senators released an immigration reform bill (full 844 pages here!) The plan we’re seeing today is not only the first real attempt at truly comprehensive immigration reform -- it might also have a shot. The eight Senators included provisions for high-skilled labor that are a testament to the powerful role the tech community has played coming together strongly on this issue.

Despite some areas for improvement, this plan is something the technology community can, and should, rally behind. The new Invest Visa (better known by the community as a Startup Visa) will really encourage smart individuals to start businesses in the United States. In addition, provisions making it easier for students to apply for green cards will encourage the best and the brightest to come to school here and stay, and relieve the pressure on the H-1B system. This bill is also planning for the next generation of innovators with much-needed investments in our own education system.

First Look Key Takeaways:

1. Starting a business is lot easier for foreign founders with two types of Startup Visa

2. Hiring Foreign Talent

• H-1B reform will increase the number of visas available
• Increases in wage requirements do not take into account equity or other benefits, and require startups to pay median wages determined by metro area. This might make it difficult for smaller companies to compete with larger companies -- with deeper pockets -- for top talent.
• More green cards for startup workers through plans to reduce the backlog, and institute new categories: a larger skilled workers employment-based category, and a merit-based category.
• New merit visa includes provisions for entrepreneurs and individuals in high-demand jobs.

Here are the details:

1. Foreign startup founders get a Startup Visa

Currently, there is no visa class for foreign individuals who want to stay in the United States to start a company. This proposal makes it easier by creating an Invest (Investing in New Venture, Entrepreneurial Startups and Technologies) Visa with two categories -- the first is a temporary visa, the second grants permanent residency. Both categories establish reasonable criteria for startup founders as they work to establish their business in this country.

The startup community knows this better as the startup visa. With reasonable requirements and options for renewal, this is a big step in the right direction. Moreover, it gives lifelines to founders whose first venture might have failed. If further investment is forthcoming, the individual can start again. According to the definition for entrepreneur in this section, up to three individuals of the founding team can use this visa.

a) Non-immigration Invest Visa

• 3 year temporary visa

• No numerical caps, or limits to the number of times an individual can renew.

• To qualify, individuals must show $100,000 in investment from an accredited investor, venture capitalist, or government entity.

• Or if the company already exists, the founder needs to prove that they have created at least three jobs and have an annual revenue of at least $250,000.

• For a full 3 year renewal, the company must employ 3 people with annual revenue of $200,000 for two years, or $250,000 of additional investment.

• For 1 year renewals, the founder must show that the company has made progress towards reaching these requirements.

b) Immigrant Invest Visa

• Grants permanent residency to successful entrepreneurs
• Capped at 10,000 annually
• To qualify, individuals must have maintained a valid nonimmigrant status for at least 2 years, and have created 5 or more jobs in the United States. In addition, the entrepreneur must also have either secured at least $500,000 investment or generated at least $750,000 in annual revenue during the previous 2 years.
• For entrepreneurs with a STEM masters or PhD, the requirement to have maintained a valid nonimmigrant status for at least 2 years is the same, and the other requirements are 4 jobs and $500,000 investment, or 3 jobs and $500,0000 annual revenue.

The revenue and employment requirements should allow most successful startup founders to switch to this permanent visa category. For serial entrepreneurs, however, the time it takes to acquire this visa might be cumbersome. In addition, a founder might not be able to sell a successful venture, or start another, while waiting for visa approval.

2. Hiring Foreign Born Talent

Hiring the right individuals is crucial for startups to grow. Through H-1B reform, changes to the green card allocation system, and new merit-based visas, this bill offers a few changes to the current system that will encourage foreign born talent to remain in the country after completing their studies, slowing the brain drain. But, it might make attracting new talent from abroad comparatively more difficult.

a) Expanding the H-1B

• H-1B visa cap raised from 65,000 to 110,000, with an adjustable cap that can go as high as as high as 180,000 based on the High Skills Jobs Demand Index formula.
• This formula uses the number of visa petitions filed and the unemployment rate in the related occupations category of Bureau of Labor Statistics data from the previous year.

The cap increases are necessary, especially after the 124,000 H-1B applications and resulting visa lottery this year. But this is where the bill falls a little short. Since the cap can only be raised by 10,000 annually, H-1B supply might still be unable respond to the demand. We advocate for an H-IB visa cap that is responsive to the needs of the market.

Higher wage requirements for H-1B recipients

• Previously, employers have been required to pay the prevailing wage for the job.
• This bill changes the method of calculating that wage, identifying it by metro area.
• The range for each metro area would be further divided into tiers -- high, average, and low. H-1B employers will be now required to pay at the “average” level.

Despite trying to counter the perceived abuse of wage depression of H-1B system, the change in wage requirements is where this bill could do more harm than good for startups. Though this is not as steep as expected, and we haven’t seen these wage ranges for startup cities, we’re still concerned that this tenet of the bill will make H-1B hires unaffordable for startups, in comparison to larger companies with bigger budgets. Startups, generally clustered in large metro areas, think San Francisco and New York, with already inflated incomes across a large range, may simply not have enough funding to meet the prevailing wage requirement. This provision also does not account for equity or other benefits, so startups with limited budget for payroll might be able to attract talent, but unable to afford it under these new rules.

Reducing the burden on H1-B

• Up to 25,000 advanced degree holders in STEM fields are exempt from the H-1B cap.
• Students on F-1 visas, earning a bachelors degree or above, will be allowed dual intent, i.e. students with lawful status are also permitted to apply for green cards if employment is secured while still at school, and their potential employers can apply an employment-based visa category (see below).

b) More green cards for startup workers

• Per country caps removed
• Deals with backlog of family and employment based visas by making unused visas available, in addition to using the visas allocated for the new merit based system.
• New definition of family to include spouses and children, exempting them from the employment-based visa cap.
• Priority workers (including developers, without advanced graduate degrees) and advanced degree holders will both be allocated 40% of the available visas, up from 28.6%.

This bill makes great strides towards improving the green card system. Many changes will impact individuals who had long waits for green cards as a result of the country caps. The new family definitions will also make a significant difference, considering that spouses and children of green-card holders used 78,000 the 140,000 EB visas that were approved last year.

c) Merit Based Visas

• Takes effect in 5 years
• Replaces the diversity visa
• Capped at 120,000, to increase in in 5% increments, but must not to exceed 250,000.
• Bequeaths permanent resident status
• Divided evenly into two tiers: high skilled workers and low skilled workers
• The first tier is awarded points based on education (PhDs get more points than masters which get more points than bachelors), years of employment and type of occupation based on job zones (determined by the level of education and skill required for an occupation.)
• Additional points for entrepreneurs who employ 2 other individuals in zone 4 (as many points as for a masters degree), and points for individuals with an offer of employment in a high demand job.
• How high demand jobs are determined is unclear.

What next?

The bill will now be debated on the Senate floor with a period of time allocated for members to attach amendments. While it will certainly help that the Gang of Eight is a bipartisan coalition, opposition still lurks, and arguments about border security, American workers, family visas, and the price tag of reform might make their way into the debate. The danger is that high-skilled reform could get caught in the crossfire. Ideally, the bill would be done before the August recess after which Congress switches to campaign mode ahead of the 2014 midterms.

As Senators Schumer (D-N.Y.) and McCain (R-Ariz.) wrote in the Wall Street Journal yesterday, “Like all genuinely bipartisan efforts, this bill is a compromise. It will not please everyone, and no one got everything they wanted.” Still, this plan is starting from a higher base of support than any other we’ve seen yet, and high points for the tech community are the startup visa and pathways to permanent residency. But that doesn’t mean there isn’t for improvement. Join us, and our friends at March for Innovation, and keep the pressure on.

Gang of Eight Immigration Bill Includes Startup Visa

After months of work, and internal debate, the Senate Gang of Eight has reached an agreement on immigration reform. While we’ve yet to see the full text of the bill, here’s a quick rundown of what we know so far.

The plan predominantly deals with the controversial issue of undocumented immigrants already in the country, border security, and visas for low-skilled workers. Still, there are also a number of provisions that impact the technology community.

Key Provisions:

• Startup Visa for foreign entrepreneurs who want to start a business in the US
• H-1B visa cap raised from 65,000 to 110,000, with an adjustable cap -- as high as 180,000 -- based on the High Skills Jobs Demand Index formula. But the most the cap can increase or decrease each year is 10,000
• H-1B cap exemption for masters and PhD STEM graduates increased to 25,000
• Higher wage requirements for H-1B recipients. Jobs must also be posted on a new searchable portal created by the Secretary of Labor
• 120,000 merit-based visas for talented people, based on education, employment and length of residence in the US, alongside other considerations. The individuals with the most “points” will earn the visas. This allocation also has an adjustable cap that can reach up to 250,000 during years of low unemployment
• All PhDs exempted from green card cap. People of extraordinary ability, outstanding professors and researchers, certain physicians, and dependents are also exempted
• STEM visa for individuals with an advanced degree, or the equivalent experience
• Dual intent for all students on BA degree programs, or above. This allows those with job offers to apply both for green cards and H-1B visas

Stay tuned for full analysis.

Startup Perspective Critical for Patent Reform

Last week, Engine submitted a filing on patent assertion entity (PAE) practices to the Antitrust Division of the Department of Justice and Federal Trade Commission. Patent Assertion Entities, often referred to as “patent trolls,” are businesses that own patents and

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make money by suing others for infringing on the patents – rather than developing products. Regulators in Washington are gathering information about these business practices to better understand the impact they can have on innovation, competition, and consumers.

While there is a host of excellent quantitative research on the cost of litigation to innovation, there is little discussion of the practical impact PAE litigation has on startups. In addition, many startups that have faced such demands and lawsuits are reticent to publicly discuss their experiences for fear of being targeted by further baseless infringement claims. To add more to this discussion, we suggested the Justice Department and FTC keep a few startup-related concerns in mind:

• PAE activity is increasingly affecting startups, the net job creators in the U.S. economy
• PAE claims appear to be following the startup financing cycle, acting as a tax on investment
• PAE litigation is a drag on startup productivity, increasing the incentive to settle false claims
• Uncertainty is driving the startup and innovation community to take defensive measures on patents, both at the company and community level

Let’s break this down.

First, we know from research conducted by Santa Clara University professor Colleen Chien that companies with less revenue are increasingly being targeted by patent trolls. Her extensive work on how the patent ecosystem impacts startups demonstrates how the “patent wars” affecting big companies like Apple and Samsung are very different than the often-overlooked struggles of startups against trolls.

Second, as mentioned above, too few entrepreneurs are comfortable discussing their experiences with patent litigation. Whether under nondisclosure agreements from settlements, or for fear of making themselves repeated targets or having what they say used against them in depositions, there is little incentive for innovators to speak out against what they agree with President Obama amounts to “extortion”.

Next, there appears to be increasing evidence that patent trolls are taking advantage of the startup investment and financing cycle. When a startup secures a round of funding, they often issue a press release, or find their company’s name in TechCrunch, VentureBeat or The Verge. Many founders, as well as internal and external legal staff, have noted that demand letters seem to follow such public announcements. If patent trolls are “following the money,” as it were, this is a very concerning development – predatory litigation will act as a tax on investment. Individuals with great ideas, actually building innovative products, should not be forced to hand over money as a result of their success.

In addition, startups are particularly sensitive to the productivity drag litigation imposes. As great engineering talent is more and more difficult to find, losing engineers for days or weeks at a time, to prepare and advise lawyers and provide deposition, presents a huge barrier to getting a product up and running and in the hands of users. Larger startups face these challenges, but the problem is more pronounced for small teams trying to fight baseless patent infringement claims.

Finally, uncertainty about the direction of the patent ecosystem is driving startups and innovators to take matters into their own hands. Securing patents takes a significant amount of time and money. While some startups need patents to protect their core technologies, many are pursuing applications to protect themselves from troll activities. Moreover, groups as diverse as Twitter and Berkeley Law are creating so-called defensive patent regimes, within which those who secure patents agree to pool their portfolios and only use them for defensive purposes.

Lawmakers need to take note of the effort, time and resources that startups are putting into protecting themselves from the threat of patent trolls.

As we’ve previously argued, startups need to lead the discussion on patent reform. Policymakers, the Patent and Trademark Office, and the Justice Department and Federal Trade Commission must keep startups and entrepreneurs in mind as PAE activity is discussed and scrutinized. We are encouraged by the opportunity to engage in dialogue with the federal government, but more must be done to protect the ventures of risk-taking entrepreneurs and ensure a more innovative future for the American economy.

Picture courtesy of Alan Kotok.

California Tax Change Will Hurt Entrepreneurs and Job Creation

The removal of a state tax incentive for investment in startups is likely to make capital scarcer for California companies most poised for high growth—harming job creation and an already vulnerable state economy in the process. The change breaks with current federal policy and puts California’s entrepreneurs at a relative disadvantage to those in other states. We estimate that investments in California’s startups will decline by a conservative 2 percent each year from the tax change—translating to a drop of at least $85-$127 million annually based on 2011 data.

In December, the California Franchise Tax Board (FTB) announced changes to capital gains tax exclusions on Qualified Small Business (QSB) stock holdings. The change stemmed from an appellate court ruling that found minimum in-state asset and employment requirements during the holding period of the QSB stock unlawful under the U.S. Commerce Clause. Rather than remove the in-state asset and employment threshold requirements, the FTB instead chose throw the baby out with the bathwater and eliminate the capital gains tax exclusions altogether—effectively increasing state taxes on investments held in QSBs from 4.65 percent (under a 50 percent exclusion) to 9.3 percent (under zero exclusion).

The real attention grabber has been the FTB’s choice to make the change retroactive to 2008—with penalties and interest—despite the fact that investors were following what was then current law. While investors are up in arms over this, entrepreneurs may actually have the most to lose moving forward. 

Capital is the lifeblood of startups. This move by the FTB, which amounts to a tax hike for investors, will likely make capital scarcer for young businesses. Fewer startups means less job growth; for the last 30 years, young companies have provided all of the net new job creation in California and the United States as a whole.

Matching an existing framework with data on California, it’s possible to generate a conservative, back-of-the envelope, estimate of investment startups in the state might lose. This drop would likely have a negative impact on the California economy—not only have startups been the engine of new job creation in the state, but the QSB capital gains tax exclusions were targeted especially at businesses with the highest growth potential.

Estimating Investment Impact of Tax Change

A 2012 Kauffman Foundation report provides the framework for estimating the impact of tax changes on early-stage investments in startups. The report yields a conservative estimate of the additional investment in startups that would occur if 100 percent of the capital gains held at least five years were excludable from federal taxation, compared with an earlier exclusion of 50 percent. In other words, the report tells us how much investments of this nature might increase when taxes are reduced.

We employ that same framework here but move in the opposite direction, answering the question: how much would investments in startups decline from what amounts to a tax increase? Then we apply this estimate to data on investments in California startups.

Let’s unpack the potential investment response to the tax increase by using a hypothetical example. The Kauffman report states that a reasonable assumption for a real pre-tax return on privately held investments in startups in the current interest rate environment is 10 percent. At least one prominent angel investor group agrees, and so do we. 

Under this assumption, an investment of $100 would be worth $161 after five years on a pre-tax basis. If the tax rate were 4.65 percent, as it was under the previous 50 percent exclusion in California, that same investment would be worth $158, for an average annual return of 9.6 percent. Under a 9.3 percent tax rate regime (zero exclusion), that same investment would be worth $155—returning 9.2 percent per year on average. Capital gains in QSBs are currently fully excludable from federal income taxes and were in 2011 as well—the base year used in our analysis.

A change in the effective tax from 4.65 to 9.3 percent results in a 4 percent drop in the average annual return on the investment (from 9.6 percent to 9.2 percent). Based on previous research on the topic, and conversations with experts in the field, the Kauffman report concluded that the responsiveness (the “elasticity”) of such a change in the rate of return on aggregate investments is a conservative 0.5—or half the change in return. In other words, the 4 percent decline in a typical return would result in a 2 percent drop in investment overall. Two percent may not seem like a big decrease, but when applied to a large base like in California, it can be.

To see how big of a dent 2 percent could make, the baseline estimate of equity invested in California startups is tabulated from three sources of “seed funding”:

Seed-Stage Investments in California Startups (2011)

Source of funding	$ (in Billions)
Venture capital	$0.5
Angel investors	$2.8-$4.4
Entrepreneurs' equity	$0.8-$1.2
Total	$4.1-$6.1

 Sources: PricewaterhouseCoopers MoneyTree, Center for Venture Research, Silicon Valley Bank, Kauffman Foundation; Engine calculations

In total, an estimated $4.1-6.1 billion was invested in California seed-stage startups in 2011. It is reasonable to assume that essentially all of these seed funds were invested in traditional C corporations—the type of company that is most suitable for startups and is eligible for the QSB tax deduction. For scope, that amounts to between 32 and 47 percent of such investments in the entire United States.

With a baseline of $4.1-6.1 billion, and a 2 percent reduction in investments from the tax change, we’re left with a decline of $85-127 million in investment in startups each year in California. Now, $85-127 million per year may not sound like a whole lot of money relative to total investments in startups broadly, but over ten years it totals between $853 million and $1.27 billion. Moreover, whether we are talking about an annual or decade-long framework, considering that seed-stage companies may receive as little as $15,000 in funding (though a typical amount is in the hundreds of thousands), we’re talking about a lot of companies that may be adversely affected.

What’s more, this is almost certainly an underestimate of the value of investments in California startups and the effect the tax change would have. To begin, the Kauffman report reiterates that its framework is likely to yield conservative estimates. Most notably, it states that the elasticity estimate of 0.5 is likely conservative—meaning that for each 1 percent decline in a typical rate of return, overall investments would fall by more than 0.5 percent.

Secondly, since QSB status in California applies to companies with up to $50 million in assets, many businesses beyond the “seed/startup stage” would qualify. As a result, we are surely undercounting the pool of investment in the state that would be affected by the tax change.

Third, the 2011 statutory state tax rate applied here (9.3 percent) is lower than the marginal rate charged to those with incomes above $1M (10.3 percent), which would apply to a non-trivial number of investors in startups. These investors would be adversely affected even more than our rough estimates indicate.

Finally, the Kauffman framework was previously applied to federal tax—which would be applied uniformly across states. Holding federal tax rates and all other factors constant, other states would have an advantage against California. According to the Angel Capital Association, twenty states have tax incentives for angel investors and California isn’t one of them. For example, states like Wisconsin are actively partnering with investors to increase investments in startups.

In addition to all of this, Proposition 30, which was adopted by California voters in November, raises state income taxes to varying degrees on individuals who earn more than $250,000 per year. Though this is outside the scope of our analysis—both because the year studied pre-dates that particular tax hike and because arguing the merits of state tax policy broadly goes beyond what we’d like to accomplish here—it will further compound the issue, potentially leading to even more declines in investments in California startups.

Economic Impact

Though data are not readily available to directly tie investments in QSB-type businesses specifically to the economic impact in California, data from the Census Bureau can illustrate the important role that new businesses play in job creation in the state.

California Private-Sector Annual Net Job Creation by Firm Age (1980-2010)

 

Source: U.S. Census Bureau, Business Dynamics Statistics

Between 1980 and 2010, businesses in their first year added an average of 398,193 new jobs each year. Companies aged one year or more, as a group, subtracted an average of 192,501 each year during that same period. This occurred because the forces of job destruction (through business contractions and closures) were stronger than the forces of job creation (through firm births and expansions) for businesses older than a year old as a group. In other words, outside of startups, net job creation in California was negative during the past three decades.

In addition to the job creation dynamics of new firms, among existing businesses it is young firms (those less than five years old) that have the biggest effect on job creation. Taken together with the chart above, we can say that new and young firms are responsible for all net new job creation during the past few decades.

Conclusion

The FTB’s tax change is likely to reduce investments in California’s startups by a conservative 2 percent each year, translating to $85-$127 million fewer investments annually based on 2011 data. This can’t be a good thing for the economy or job creation in the state. At a time when the state unemployment rate hovers around 10 percent, California can hardly afford to place any of its companies at a competitive disadvantage—especially not those poised for high growth. On top of that, a recent survey of small businesses sponsored by the Kauffman Foundation found California to be among the least friendly for entrepreneurs. 

Though it is understandable that state authorities are searching for ways to improve the fiscal situation of California, this isn’t a good way to go about it. The entire point of providing a tax incentive for these investments is to make them more attractive to investors, relative to others, precisely because seed-stage investments are very risky and because startups have important spillovers to the economy—namely that they fuel economic growth and job creation.

Moving forward, not only should state policymakers reinstate the QSB capital gains exclusion, they should extend it—making capital gains on these investments fully excludable. There is already precedent for this at the federal level too: in 2010 Congress temporarily made these investments fully excludable and recently extended this policy through 2013. If Washington can see the wisdom in doing this, why can’t Sacramento?

Ian Hathaway is the research director at Engine

Startups Speak: GoodApril Founder Says Reward Risk-Takers With Visas

It is a near-universal fact that no one enjoys filing their taxes. It’s usually difficult and most definitely a boring way to spend our too-scarce time.

GoodApril wants to change all that by disrupting the way that Americans plan for and file their income taxes. Like any founder with an idea who wants to make our lives better, Benny Joseph wanted to assemble the best possible team to execute his idea.

So that’s what he did. But right when the company was ready to take the next step, and incorporate as an official business entity, Benny realized that there was no way through the visa issue he was facing with his best engineer. The result? “We had to part ways; we couldn’t go forward together.”

Unable to hire his top-choice engineer, Benny lost the knowledge and talent he wanted, and an individual with the nerve and desire to take the risks associated with starting a company. As a result, it took the team at GoodApril longer to build their first product, and to raise funding to hire the people they needed -- including more engineers, writers, and marketers.

From the perspective of the engineer in question, he was tied, through the terms of his existing visa, to a company he didn’t want to work for. With a soon-to-expire H1B visa, and a stalled green card application, he is still being held hostage as an employee with no freedom to pursue other job opportunities.

From Benny’s point of view, and from ours, we should be rewarding risk takers, and that needs to happen through thoughtful reform. “I think the Startup Visa Act (included in Startup Act 3.0) is a good step in the right direction,” says Benny. “Immigrant entrepreneurs should be encouraged to build new businesses. If you take a look at many of the great companies in our country, a sizable amount are founded by immigrant entrepreneurs. They create jobs and value to the economy and help America keep a step ahead of the rest of the world.”

The current immigration system, with no visas for startups, and caps on existing visa classes for high-skilled workers, is harming entrepreneurs, would-be employees and the American ability to build successful businesses and innovate at capacity.

Startups Speak: Benny Joseph from Engine Advocacy on Vimeo.

Startups Speak: Marker Founder Talks about People and Places

We’re collecting and publishing startup profiles and policy stories. Look out for next installments, and if you have a story of your own, we’d love to hear from you. Contact us at editorial@engine.is.

Places add context and color to a life; where you came from, where you’ve been, where you are and where you’ll go. Countries and cities and neighborhoods build your character and a life with character. But right now, if you don’t come from America, staying here to build a company is very difficult. That needs to change, says Marker co-founder Michael Molesky.

Marker is all about collecting the remarkable places in your life. When users capture the places they want to go, as well as the places they know and love, Marker becomes home to the living stories of the places around you, from the people you care about.

While talking to Michael, it became clear that he believes strongly in the power of people to edit and transform a place, and the power of places to shape people as well. Staying true to the second point, he left the United States to study at Oxford (in England) for his undergraduate degree.

Why? Michael believes that an education is more than just the classes we attend – we get an education from our fellow students too. “In a global economy, it’s important for Americans to have an awareness of other cultures,” he explained. “Silicon Valley is a particularly special example of the best that can come of this global economy, all because of its openness to people from different places with new ideas.”

Ultimately, Silicon Valley believes in the power of diverse information sharing, and the importance of the ability to partner with the smartest people from any country to build the next life-changing company – on American soil.

Unfortunately, the way Michael sees it, current immigration policy is holding back the dreams of Americans by not exposing them to global talent - and he nearly had his dream shattered. For his first company, his co-founders were Romanian and British -- and because of this national diversity, Mike admitted that they almost failed at the starting line. Luckily, Michael successfully sponsored visas for his co-founders, but it still took a year after getting funding to get everyone over and “we scaled more slowly as a result.” Fast forward and LiveRail now employs fifty Americans.

This is why Michael is involved with Engine. “It’s outrageous that there is no visa class for entrepreneurs,” he said, “but we need to think carefully about how we, as a community, want to make our argument.” Michael joined Engine to lend his face and his voice to otherwise anonymous policy issues because “in the end, all politics is local. In order to communicate goals, we need to demonstrate the effects of action and inaction on real people.” And that includes real people outside the Silicon Valley bubble.

In his post on Quora, Michael argues that “the Startup Visa legislation represents the most effective jobs bill on the table in this Congress, fostering the development of America's next great companies from the best talent around the world”, but he also says that to “mount an effective lobbying effort in the US House, we need to find a way to present a more broadly American story, highlighting stories in other cities and colleges around the US which also hold the key ingredients to foster entrepreneurship.”

This brings us back to the importance of places and faces. There are many faces of immigration, and many regions across the country that benefit from global talent, so as a community, this is a story we need to do a better job of telling. High-skilled immigration reform is not simply a pet project for the sole benefit of Silicon Valley. We need to support comprehensive immigration reform to expand America’s potential for growth and our competitive culture of invention.

The Latest Immigration Debate Takes All Faces into Account

There are many faces of immigration, and finally we’re close to a solution that takes them all into account. We in the startup community have been steadfastly focused on making sure that the discussion on high-skilled immigration – with provisions for a Startup Visa and no caps on H-1B visas – gets enough airtime. But there is a flipside. And when a critical mass of lawmakers from both sides of the aisle can agree not only on high-skilled immigration, but also on paths to citizenship for undocumented immigrants, and policies on family visas, then truly comprehensive reform has a real shot.

Ahead of the full plan we expect to see in early April, this week the so-called “gang of eight” came together to discuss the waiting period for undocumented immigrants to become American citizens. The new plan reduces the time it would take to become naturalized, from five to three years (a concession to Democrats), but it would also extend the time that undocumented immigrants must wait for permission to work permanently, from eight to ten (an appeal to the Republicans.) This thirteen year path to citizenship matches the White House draft plan; bipartisan agreement on what’s been the most contentious issue over the years is a real achievement.

The worry that remains, however, is that a three year naturalization time creates a system where becoming a citizen is faster for undocumented immigrants than for individuals who came here legally. Moreover, the group remains at odds over a number of other major issues including the guest-worker program for low-skilled immigrants, employer verification, family visas, and who has authority on border security.

Meanwhile, the high-skilled immigration debate is being shaken up in the Senate Judiciary Committee. Committee member Sen. Chuck Grassley introduced a bill that explores the abuses of the H-1B system and tightens restrictions on the temporary worker visa program (H-1B). While the bill does not address the visa cap, it does set out more rigorous checks and balances, such as a higher wage threshold and requirements that companies try to hire Americans first.

While it seems that system abuses are fairly rampant, will Senator Grassley’s bill make things better for prospective employees and startups? For example, the requirement to list available positions on a Department of Labor sponsored website for a period of 30 days prior to petitioning for foreign labor seems onerous and unnecessarily time-consuming for startups that are all about high-speed growth.

Second, a key point in this debate is the concept of “indentured” visa holders – foreign workers who are paid less than their American counterparts because they are starting from a weaker bargaining position, having been reliant on their employers for sponsorship. The data bears out this reality. But, while ensuring that visa holders are paid the same as Americans is absolutely necessary, who is the authority on the “prevailing wage” for any industry or specific job? And what’s to say that authority won’t fudge the numbers to retain the current status quo?

Still, despite the problems with the system that certainly need to be investigated and addressed, neither party is happy with the status quo for high-skilled immigration, and leaders from both parties are promising change. The hurdle will be getting an agreement through Senator Grassley and the Judiciary Committee – and accepting that change is likely to come with requirements such as higher wages, higher application fees and more central control over the process. 

Introducing another angle, the committee also heard arguments suggesting that the H-1B program discriminates against women.

While the debate is far from over, what’s clear is that bipartisan agreement is central to the success of comprehensive reform. And if that’s what we’re rallying for, then we need to understand what’s happening to all the faces of immigration.

Answer a few quick questions about your take on immigration reform and how it affects you.

Photo courtesy of Anuska Sampedro.

Good STEM Education Needs to be Available to Everyone. Early.

The Commerce Department estimates that fewer than 40 percent of students entering a STEM field in college ultimately graduate with a STEM degree. This is a headline problem that impacts the long term success rate of American innovation. But college dropouts are not the only problem – for some students the issue is making it to the table at all.

Increasing American opportunity and innovation means encouraging STEM education and creating a more level educational playing field in order to produce more qualified young people entering the workforce. Looking at STEM education starting with college obscures the fact that technological awareness and education starts much earlier -- at home and at school. If students fall behind early, they’re likely to stay behind.

Unsurprisingly, socio-economic inequality is currently cutting the deck in educational opportunity. According to the Pew Research Center’s Internet & American Life report, low income students in poorer school districts are getting left behind. Eighty-four percent of Advanced Placement and National Writing Project teachers raised the issue of increasing disparities between low- and high-income students and school districts regarding access to technology.

Thirty-nine percent of AP and NWP teachers of low income students say their school is “behind the curve” on the use of digital tools in the classroom, compared to only 15 percent of teachers in wealthier districts. It’s clear that low income students might also be suffering from not having access to the internet and other technology in their homes -- only 18 percent of teachers in the study said their students have the necessary access to digital tools at home.

The kids that don’t get left behind might go on to study STEM subjects at college, and they might graduate (though over 60% do not), and then they might manage to secure one of the highest paying jobs that do much to push the economy forward.

Based on the latest research, students are not on the right path in great enough numbers to get to the desired result – and the diversion is happening at middle school.

When half the youth population is falling behind their peers, it’s bad news for the future of American innovation. When the half left behind is from the lower end of the socio-economic scale, it perpetuates the message that prosperity and success is only for those born into privilege and opportunity. To change the message, we need to change the reality.

We need to face up to one of the root problems of poor-performing students and a low STEM graduation rate – the effect of poverty on education – and endorse programs like the Discovery Research K-12 Mathematics and Science Partnerships (and celebrate the successes of approaching the issue early), as well as those that policies that seek to attract and retain students in STEM degree programs through scholarships and financial aid.

Education and access are key to opening opportunities for personal growth and national economic success. In addition to supporting college programs, as a community we need to support investment along the so-called education “pipeline” from kindergarten to bachelors and masters degrees, and beyond. Starting with college is too late.

Photo courtesy of Patrick Giblin.

Startup Act 3.0 Understands the Importance of Skilled Labor -- American or Foreign-born.

Recently, Senators Mark Warner (Democrat) of Virginia, Chris Coons (Democrat) of Delaware and Jerry Moran (Republican) of Kansas introduced Startup Act 3.0 to the Senate. An updated version of Startup Act 2.0, the new bill’s central goal is both to attract top talent and to keep high-skilled workers and talented entrepreneurs inside the U.S.

The bill proposes the creation of 75,000 visas for immigrant entrepreneurs who can raise $100,000 or more in investment capital to start a company, 50,000 new visas for STEM students, providing them with a path to citizenship, and removing to cap on visas for high skilled H-1B workers. (Check out this infographic for more details.)

Research continues to corroborate the positive impact of skilled immigrants on job creation and innovation in the United States. A 2012 report by the Information Technology Industry Council, the Partnership for a New American Economy and the U.S. Chamber of Commerce found that “every foreign-born student who graduates from a U.S. university with an advanced degree and stays to work in STEM has been shown to create on average 2.62 jobs for American workers—often because they help lead in innovation, research, and development.” And in 2011, a report by the Partnership for a New American Economy revealed that immigrants were founders of 18 percent of all Fortune 500 companies, many of which are high tech companies with an estimate that as of 2010, these companies generated $1.7 trillion in annual revenue and employed 3.6 million workers globally.

Most recently, a February 2013 report by the Kauffman foundation estimates that offering startup visas has the potential to add, conservatively, between 500,000 and 1.6 million new jobs in the United States over the next ten years. The impact this could have on the U.S. economy cannot be overemphasized. By some estimates, this range of jobs represents 0.5 to 1.6 percent of GDP or about $70 billion to $224 billion in economic gain.

Comprehensive immigration reform that addresses the needs of foreign born startup entrepreneurs and highly skilled workers is crucial for the advancement of the U.S. innovation economy. Despite having the world’s best higher education system, the U.S. continues to lag significantly in its openness to high skilled immigration at a time when other countries around the world are opening their borders to talented STEM founders.

We have previously highlighted efforts that countries like Canada, Singapore and Chile are making to attract the world’s best and brightest to start high growth businesses on their soil. In today’s knowledge economy, a protectionist labor market for technology talent can significantly hurt innovation, slowing down job growth and economic progress.

Startup Acts 1.0 and 2.0 unfortunately never made it past the Senate floor. It is crucial that Startup Act 3.0 be given a chance this time. Despite the odds, more than 44% of companies started in Silicon Valley since 2006 were started by immigrants. Imagine the flood of innovation that could be unleashed if this bill is signed into law.

So show your support for entrepreneurship and American innovation by joining the positive momentum behind Startup Act 3.0.

Photo courtesy of Senator Mark Warner. 

Entrepreneurs to Congress: Act on Patent Troll Suits

Engine and the Electronic Frontier Foundation join with more than 60 entrepreneurs, investors, and innovators to ask the House Judiciary Committee to take action on patent trolls. Our call to action supports the reintroduction of Congressman Peter Defazio’s SHIELD Act, a measure aimed at reducing costly litigation created by non-practicing entities. We’re encouraging Congress to consider legislation that helps protect startups from litigation that stifles economic growth.

Alexis Ohanian, co-founder of reddit; Dallas Mavericks owner Mark Cuban; Brad Feld and Jason Mendelson of Foundry Group; Brad Burnham of Union Square Ventures, and David Cohen, founder and CEO of TechStars are among the individuals who signed on to the letter.

Today’s letter demonstrates agreement in the innovation and investment communities on the harmful nature of litigation to companies across the country. Find the full text of the letter below.

Dear Chairman Goodlatte and Ranking Member Conyers,

We, the undersigned, write today as entrepreneurs, investors, and innovators in support of the Saving High-tech Innovators from Egregious Legal Disputes (SHIELD) Act and other legislative measures aimed at reducing costly litigation created by non-practicing entities, often referred to as patent trolls. Congress should consider measures that shift incentives away from those who game the system and toward an innovative economy and competitive market.

As President Obama acknowledged earlier this month, patent trolls, “essentially leverage and hijack” patents originally issued to others in an effort to “extort” money through litigation. Young, innovative companies are increasingly targets of these lawsuits. While big companies paid much of the $29 billion in direct costs resulting from activities by patent trolls in 2011, the costs made up a larger share of small companies’ revenue. In fact, the majority of companies targeted by patent trolls have less than $10 million in revenue.

Without startups, there would have been no net job growth in the United States over the last two decades. Congress needs to make measures like the SHIELD Act a priority in 2013 so that innovative companies and entrepreneurs can continue to grow without the threats posed by non-practicing entities. Congress must take action and fix the patent troll problem. We urge the committee to call hearings on patent troll litigation and to solicit information from the innovation community at-large.

Sincerely,

Nathan Allen
Four First Names

Luis Arbulu
Hattery

Joen Asmussen
Automattic Inc.

Seth Bannon
Amicus

James R Bazet
Cobra Electronics Corporation

Matthew Bellows
Yesware, Inc

Paul Berberian
Orbotix, Inc.

Aaron N. Block
BayRu LLC

Matthew Y. Blumberg
Return Path, Inc.

Brad Burnham
Union Square Ventures

David Cohen
TechStars

Jessica Cole
Roammeo, Inc.

Dave Copps
PureDiscovery

Mark Cuban
Dallas Mavericks

Rutul Davè
Bright Funds, Inc.

Pete Davies
Automattic Inc

Christian Dawson
Internet Infrastructure Coalition

Derek Dukes
Dipity

Mat Ellis
Cloudability

Edward Engler
Pittsburgh Equity Partners

Tim Enwall
Mobiplug Networks, Inc

Brad Feld
Foundry Group

Rand Fishkin
SEOmoz

Chris Franks
Moblify

William Randolph Fry
Fry’s Electronics, Inc.

Nick Hamze
Automattic Inc.

Erick Hitter
Automattic Inc

Trenidad Hubbard
Game Face Sports International, LLC

Terry Floyd Johnson
Showdown Royal

Jeevan Kalanithi
Sifteo

Seth Levine
Foundary Group

John Levisay
Sympoz Inc.

Benjamin Lewis
The MadCelt Studios

David Mandell
PivotDesk

Michael Masnick
Floor64, Inc.

Ryan McIntyre
Foundry Group

Josh Mendelsohn
Hattery

Jason Mendelson
Foundry Group

David Merrill
Sifteo

Jesse Miller
Attachments.me

Christopher Neumann
Datahero, Inc.

George Northup
Memeo Inc.

Ethan Rishon Oberman
SpiderOak, Inc.

Alexis Ohanian
reddit

Scott Petry
Authentic8

Daniel Pidgeon
Starpower

Lamar Porter
CIKI, Inc.

Ian C Rogers
Daisy, A Beats by Dre Company

Toni Schneider
Automattic Inc.

Paul Sieminski
Automattic Inc

Keith Lloyd Smith
BigDoor

Jesse Suchmann
DIGITAS

Steven Tiffen
The Tiffen Company

Joshua To
Hattery

Max Uhlenhuth
SilviaTerra

Elizabeth Urello
Automattic Inc

Alexander Shalek White
Next Big Sound

Victor Wong
PaperG

Skylar Woodward
Trumo, Inc.

Adam Wooley
Brute Labs

Gary Yacoubian
Specialty Technologies, LLC dba SVS

Jun Zhang
Vercury Inc.

What You Need to Know About Immigration Reform

In the past few weeks, immigration reform has come back into the limelight on Capitol Hill. The post election climate is such that immigration is a priority for both Republicans and Democrats. President Obama made it clear last week during his State of the Union address that he expected a comprehensive bill on his desk in just a few months, not in a year or two. Though there is no comprehensive reform bill as yet, lawmakers have started drawing the battle lines around issues such as border protection and the path to legal residency for the thousands of undocumented immigrants who already live in this country.

A few lawmakers, however, are looking at another side of the issue as well. As the President outlined in both his immigration reform proposal and the State of the Union address, comprehensive reform must include high skilled workers, many of whom work at startups. Take for example the stories of Fabien Beckers and Rutul Dave highlighted in the Wall Street Journal last week. Beckers, who co-founded Morpheus Medical, a company that creates 3D models of soft tissue from MRI readings, struggled to find funding for his startup because he could not get an H-1B visa (the visa category for temporary workers). As a co-founder, he was not technically employed by the company, therefore he did not qualify for the employer-tied H-1B visa. Rutul Dave, co-founder of Bright Funds, was sponsored by Cisco and unable to start his own company until his green card came through.

Among startup founders, stories like these are not unusual. According to a recent study, immigrants are almost twice as likely to start a company than American workers. In fact, nearly a quarter of the engineering and technology companies founded in the U.S. between 2006 and 2012 had at least one key founder who was foreign-born. In 2012, these companies employed roughly 560,000 workers and generated $63 billion in sales. However, immigration laws are such that we are still sending U.S. educated STEM (Science, Technology, Engineering, and Mathematics) graduates back to their native countries because of visa caps.

Here’s a look at the various proposals circulating right now that are aiming to address these issues:

The White House proposal:

The only comprehensive proposal in consideration right now has come from the White House. There is no legislative text, but rather, an outline that lays out the Administration’s goals.

The President’s proposal specifically creates a new visa category for entrepreneurs who are financed by U.S. investors or U.S. customers. If the company grows, this startup visa allows them to stay in the U.S. permanently. For those who receive advanced STEM degrees in the U.S., the President’s outline calls to “staple” a green card to their diploma once they find employment. Though these masters and doctoral students will undoubtedly contribute to the American economy, this plan may not help startups hire talent who choose to enter the job market after completing a bachelors degree.

The Senate’s solutions - Startup Act 3.0 and I-Squared Act:

In addition to the President’s proposal, friends of the startup community have introduced legislation to fill the void, including the Startup Act 3.0 and the Innovation Immigration Act (I-Squared Act).

The Startup Act 3.0, introduced by Senators Moran, Warner, Coons, and Blunt, creates a new visa category for startups. The bill creates 75,000 entrepreneur visas for entrepreneurs who secure $100,000 in VC funding and already have an employer-based H1-B visa or any student F-1 visa. The Startup Act also introduces a new visa category for STEM masters and PhD graduates by creating 50,000 new STEM visas. For the Entrepreneur visa, the individual must have completed college, but the Entrepreneur visa does not require a masters in a STEM field. Though skilled founders will have to find some way to get here before qualifying for this entrepreneur visa, their educational background will not be limiting, as it was in the previous version of this bill.

The key takeaway here for startups is that a foreign founder cannot move to the U.S. just to start a business. For someone like Fabien, who graduated from an American university, the Entrepreneur visa would have made his immigration process easier. But the act doesn’t grant a visa to an entrepreneur who wants to move to the U.S. to start a business that employs Americans -- and who has already received VC funding -- simply because she is currently outside the states.

The I-Squared Act, which was introduced by Senators Coons, Hatch, Klobucher, and Rubio, handles the backlog of visa requests a little differently. Instead of creating a new visa category to address the needs of startups and high-skilled workers, it increases the cap for employer-based H-1B visas from 65,000 to 115,000. It goes even further in reducing the backlog by tying the number of available visas to market demand. This system is less limiting -- H-1B visas are reserved for college graduates in any field, as long as they can prove that their skills are needed by an employer.

In terms of startup founders, the I-Squared Act relies heavily on changes to green card policy. It exempts STEM masters and PhD. graduates from the green card caps, allowing highly educated STEM workers to pursue their own startup dreams. For example, this could have made it easier for Rutul to start his company years ago, rather than having to wait for his green card.

Both the I-Squared Act and the Startup Act 3.0 eliminate the per country-cap on employment based visas, making it easier to recruit top talent from any country. The key difference with the I-Squared Act is that when the technology economy is booming, as it is now, and the demand for technical talent is high, more visas would be allocated.

What does it all mean?

None of the proposals do enough on their own to champion the needs of startups, though all have components that are key. There are two key needs that should be addressed by any high-skilled immigration proposal: First, we must make it easier for entrepreneurs who want to come to this country to start a business and create new jobs. The Startup Act 3.0 addresses this problem by creating a new visa category, but requires that recipients already have another employment or student visa. The second need is the ability to hire the best and the brightest talent, no matter where they are from. Increasing the H1-B visa cap is the best way to do just that, and the I-Squared Act addresses this need through it’s market-based approach.

However a few questions remain: What of those founders whose first venture fails? Take for example Twitter, which started as a taxi dispatch service. In a culture that values and forgives failure, where ‘pivoting’ a business venture is the norm, and where second opportunities are part of our founding ethos, entrepreneurs need time as much as they need money-- a need that none of the bills or proposals addresses. If a brilliant computer scientist gets a visa to start a company that isn’t successful, she isn’t provided a chance to innovate and try again--and we lose another talented inventor. Both of these bills and the President's proposal attempt to quell the demand for technical talent, relying heavily on masters and doctoral students to fill the ranks at startups. But when was the last time you met a software engineer at a startup with a Ph.D.?

Let’s face it, startups want smart people - it doesn’t matter if they have a STEM degree, where they were educated, or what their nationality is -- as long as they are passionate about the business, and have the talent to help an enterprise grow.

Bringing More to the Patent Discussion

Innovators may have the opportunity to work more closely with patent regulators as they expand their operations to the West coast. On behalf of Engine, I headed to Stanford University on Tuesday to speak alongside individuals from the Electronic Frontier Foundation, App Developers Alliance, and CodeX as well as two independent developers about the need for greater innovation in the patent regime.

The United States Patent and Trademark Office kicked off its “Software Partnership Roundtable” series seeking input on how to better handle overbroad software patents. Many of us highlighted the opportunity to use new technology to help patent examiners avoid issuing overbroad or unclear patents.

These problem patents are largely to blame for the increase in suits filed by non-practicing entities, often referred to as “patent trolls.” New research from Santa Clara University professor Colleen Chien shows that 82 percent of those facing patent troll suits have been sued on the basis of a software patent. The PTO sought input specifically on overbroad software patents making functional claims that may encompass any number of technologies. Think of Lodsys’ alleged patent on in-app purchases or the disputed “pull to refresh” patents.

Entrepreneurs, investors, and software developers are growing increasingly wary of the patent system both because of potential litigation and due to limited resources to file for and license patents. In a startup’s first year, the company will likely run on little more than the savings of the founders, a few credit cards, and the company’s ideas and innovations. Angel and seed-stage investment don’t provide much financial breathing room, making the fees and time associated with filing for a patent a luxury at best.

Trust in the patent system has eroded. Companies and organizations including Twitter are creating defensive patent systems to help innovators avoid the negative externalities associated with patent litigation. The relationship between developers and the patent system is not so much broken as it is nonexistent in many cases. As two Washington University economists noted in a recent Journal of Economic Perspectives article, engineers are actively told by companies to not “search, view, or speculate” on patents. As one Microsoft engineer testified, “Ignorance is bliss and strongly recommended when it comes to patents.” Big companies often encourage their engineers to avoid patents in an effort to minimize damages should they be found to have infringed an existing patent.

One potential opportunity I dicussed was drawn from Harvard Law professor Yochai Benkler’s book The Wealth of Networks. In 2002, another resource-constrained government agency -- NASA -- successfully launched a clickworkers project to map the surface of Mars. After 6 months and over 1.9 million entries, the survey work was almost indistinguishable from that of a professional geographer. It’s not a perfect case study, but an example of how technology has been used to bring the insight of ordinary citizens into problem solving at a massively complex level.

Communities ranging from Quora to Wikipedia have demonstrated the internet’s capacity to harness collective intelligence, cut through the noise, and provide reasonable guidance on any number of issues. Civic startup groups like Code for America are also demonstrating what a teams of engineers with access to government data can contribute to benefit citizens and businesses around the country. I don’t know if these models would necessarily work for the patent office, but I think the idea warrants discussion, especially as the demand for more rigorous patent review increases.

The confusion created by overbroad patents comes as platforms like GitHub make it easier and easier for software developers to engage in a flexible, responsive, and accessible way. The patent system was built around similar principles, but has become a confusing thicket for most people. To make this partnership successful, the patent office needs to mend the break with innovators while increasing transparency, rigor, and accessibility. I think the startup community can help and Engine will continue to look for opportunities to contribute.

Picture courtesy of Alan Kotok.

Entrepreneurship, Innovation and the Global War for Talent

Innovation – “the process by which individuals and organizations generate new ideas and put them into practice” – has over the past two centuries been the bedrock of the United States’ economic growth and national competitiveness. From the energy to the computer industries, America’s innovative sectors have been the key drivers of the economy, raising living standards and improving workforce productivity.

Last year, the Information Technology and Innovation Foundation and the Kauffman Foundation released the Global Innovation Policy Index and benchmarked the effectiveness of the innovation policies of 55 countries - including virtually all countries in the European Union, those in the Organization for Economic Co-operation and Development (OECD) and the BRIC economies (Brazil, Russia, India & China) among others. The Policy Index assessed nations based on seven core innovation policy areas: trade and foreign direct investment, science and R&D, domestic market competition, intellectual property rights, information technology, government procurement and high-skill immigration.

Based on the index, the United States placed in the top tier in every category except openness to high skill immigration.

As the competition for global innovation leadership intensifies, countries around the world are strengthening their innovation policy agenda to attract the world’s brightest and best. Just this month, Canada announced that it will roll out a startup visa that will encourage partnerships between foreign innovators and the Canadian investment community.

Singapore which has for long been ranked by the World Bank as the world’s easiest company to do business in has rapidly risen as a magnet for foreign entrepreneurs looking to establish their businesses attracted by provisions such as the EntrePass designed to facilitate the entry and stay of entrepreneurs.

Chile’s startup program, “Startup Chile” is well known for attracting early stage businesses to start their business in Chile with the ultimate goal of attracting world-class early stage entrepreneurs to start their businesses in Chile and converting Chile into a global innovation hub.

Staying competitive in the global economy will be determined by a myriad of factors; key of which is the global competition for talent. As the market for talent becomes more and more diffuse, smart policy should focus on attracting the world’s best to innovate and create the next game changing businesses.

Celebrating The Free and Open Internet

One year ago today, the internet community came together as never before. Users, entrepreneurs, policy experts, and activists united to defeat the Stop Online Piracy Act and Protect IP Act. The downfall of SOPA and PIPA opened a new chapter in internet and technology-based activism and sent a resounding message to Washington: protect the free and open internet.

Today, we’re launching “Stop The Wall” a video that shows how Engine fought to stop SOPA and PIPA, and how we as a community succeeded through the dedication of so many engaged individuals across the United States who took the time to call their legislators.

With the new Congress, we aim to make startups and entrepreneurship a central priority for lawmakers -- beyond copyright. Patent, immigration, spectrum, data, and financial regulation will all be debated in the coming months. The Engine team expects to be at the fore of these debates, connecting our members to Washington and reminding policymakers that the internet is powering our economy.

The last year hasn’t been without its blows. The recent passing of Aaron Swartz is an immeasurable loss, foremost to his family and friends, and also to the internet’s collective voice. Demand Progress, Aaron’s organization with whom Engine collaborated during the SOPA/PIPA fight, is just one aspect of his important body of work, which touches everything from public policy, Creative Commons, Reddit, and RSS. As we celebrate our community’s efforts on January 18th last year, we also remember Aaron and strive to continue the work he devoted his life to.

Tonight, we’re gathering with members, friends, and fellow activists to celebrate the end of SOPA and PIPA. We will also reflect on the life, work, and spirit of Aaron Swartz.

His life demonstrates yet again the power of the internet to enable one voice to overcome a chorus of conventional wisdom. Aaron empowered many in the fight against a closed internet and obsolescent legal structures. Engine aims to continue this fight and to act as an agent of change in government.

Thank you for your commitment in 2012. The internet is, and will continue to be, better because of the work of people committed to our internet and our economy.

After CES: One More Thing About Patents

Startups are taking the lead in the debate on patent reform, but the nature of litigation is keeping too many victims silent. Settlements agreed to by startups often prevent information from coming out about the hardships faced by entrepreneurs.

On Tuesday, I had the opportunity to sit on a panel at the Consumer Electronics Show with patent experts from groups including Google, EFF, and Newegg. A lot of ground was covered (find great roundups in Ars Technica and Forbes), but we ran out of time before addressing one of the most critical issues facing startups: the inability of many companies to discuss cases after settling.

Why is this big deal for startups? As moderator Marvin Ammori pointed out at the end of the session, his call for questions on Twitter was answered by a host of direct messages from entrepreneurs unable to discuss the terms of settlements made. This opacity prevents a truly comprehensive understanding of the damage wrought by entities abusing bad patents.

Not much can be done to combat the silence imposed by gag orders and NDAs, but
Congressman Peter DeFazio, an Oregon Democrat, highlighted legislation during the panel that will help start the conversation on litigation reform in Congress. By decreasing the incentives to litigate, it is hoped that some of the thousands of annual patents suits may be prevented.

Startups can’t afford to be silent about the pain caused by the patent system. Engine is working to gather the stories of entrepreneurs to share with lawmakers. If you have a story to tell about the patent system, please reach out to me at edwardg@engine.is. Together we can change the way the patent system works.

Startups Set the Stage for Patents at the FTC

The Federal Trade Commission held a workshop on patents on Monday, December 12, bringing together lawyers, academics, and industry experts to discuss issues surrounding patent litigation in the United States. Concern about startups drove the conversation at the workshop as the biggest losers in the increasingly litigious patent ecosystem, especially in presentations by Colleen Chien and Carl Shapiro.

Lawsuits filed by patent assertion entities (PAEs) -- companies that focus on buying patents for the purpose of litigation -- have increased 61 percent in 2011, according to Chien. Shapiro noted that large companies absorb the costs created by patent litigation, but that high costs for startups are emblematic of the potential harm to innovation created by PAE litigation.

As we’ve pointed out before, startups face steep costs when confronted with patent suits, especially compared to larger companies. Despite this fact, the discussion about patent litigation has centered on the battle over smartphone patents between companies like Apple, HTC, and Motorola.

We’re working to move startups to the center of the debate over patent litigation and patent reform. Reforms enacted last year in the America Invents Act provide some short-term fixes that can protect startups that have been sued. More steps are needed to protect entrepreneurs and innovation in the longer-term. At Engine, we encourage more discussions like the one the FTC held this week, bringing together stakeholders from across the ecosystem to learn from their expertise and experience.

Photo courtesy of Priya Deonarain. 

Tell Congress to Protect Startup Data

Today, Engine and a coalition of more than 20 organizations call on Congress to require law enforcement to secure a warrant before asking businesses turn over user data. Data plays an increasingly important role for startups. This week, the Senate Judiciary Committee is slated to vote on a proposal that would change the Electronic Communications Privacy Act (ECPA) rules outlining how the government can access digital data.

ECPA was enacted in 1986 and is in need of an update. Innovations like cloud computing are available to businesses of all sizes and have changed the way data is stored and transmitted. The government must set clear due process protections -- such as securing a warrant -- to access consumer data through businesses.

Startups and other innovative companies leverage all sorts of data to make products better, ranging from location data to make map applications more accurate, to transaction information that prevents fraud. A lack of clarity under the current law imposes problems for companies.

Uncertainty about compliance increases legal costs that most startups are generally unprepared to take on. Also, giving up customer data can erode the trust of users. Receiving a complex legal request from the government for user data can put startups in a bind, forcing them to decide between absorbing unforeseen legal costs or alienating current and prospective users.

Engine has joined with a coalition of technology, industry, and civil liberties organizations to call on Congress to reform ECPA in order to create greater legal certainty around user data. Today is your chance to get involved by telling the Senate Judiciary Committee to make data, privacy, and due process a priority.

Click here to tell Congress that your digital data deserves the same protections as your mail and phone calls. You can also tweet at any or all of the members of the Senate Judiciary Committee listed below to tell them that protecting data matters to startups.

Chairman Patrick Leahy @SenatorLeahy

Ranking Member Charles Grassley @ChuckGrassley

Sen. Herb Kohl contact form

Sen. Dianne Feinstein @SenFeinstein

Sen. Orrin Hatch @Orrin Hatch

Sen. Chuck Schumer @ChuckSchumer

Sen. Jon Kyl @SenJonKyl

Sen. Dick Durbin @SenatorDurbin

Sen. Jeff Sessions @SenatorSessions

Sen. Sheldon Whitehouse @SenWhitehouse

Sen. Lindsey Graham @GrahamBlog

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Startups Can’t ‘Give It A Rest’ on Software Patents

David Kappos, head of the United States Patent and Trademark Office, gave a presentation yesterday morning telling those claiming the patent system is broken to “give it a rest.”

Kappos approached the debate over software patents in context of smartphone lawsuits between large corporations like Apple and Samsung. He admonished detractors of the patent system to “get the facts.” Here at Engine, we’ve been following developments in the patent system closely; the fact is startups can’t afford to give it a rest under the current patent regime.

The economics are clear: startups fuel net job growth in the U.S. economy. Small, technology-focused businesses are developing innovative products and promoting competition. Software patents are a real challenge to young firms that don’t have the legal resources to defend themselves against non-practicing entities -- often called trolls -- that use patents for litigation instead of innovation.

A June paper from Boston University showed that patent trolls cost companies $29 billion in 2011 in direct costs from litigation. While large companies pay more of the overall settlement and legal costs, the expenses make up a greater share of smaller companies’ revenue, according to the research.

Last Friday, we attended a conference aimed at finding solutions to the software patent problem. Hosted by the High Tech Law Institute at Santa Clara University Law School, lawyers, software engineers, and activists came together to discuss possible solutions. Legal, procedural, and economic ideas were floated, but investor Brad Burnham of Union Square Ventures made a critical point, saying that 25 percent of USV’s startups had been sued and that half had received demand letters. Suits like these don’t just cost companies revenue; they threaten the survival of startups and destroy jobs.

Policymakers like Kappos must recognize the existential threat bad patents pose to young companies. While he emphasized new review procedures available to PTO after passage of the America Invents Act, the fact is that the measures in place insufficiently protect small companies facing predatory patent suits. The last thing the startup community needs to do is to give software patents a rest. At Engine, our community aims to lead the discussion on how to move forward.

Picture courtesy of Alan Kotok.