What Startups Heard in the State of the Union

Tonight’s State of the Union proved to be something of a mixed bag for the startup community. Which was a bit surprising, because over the past few weeks President Obama has previewed a number of new tech-related proposals. This was a natural move for a President seeking to highlight the nation’s economic recovery, as the tech industry—and particularly startups—are driving our economic recovery and are responsible for all net new job growth in the United States.

The President’s speech did touch on some of those proposals, such as improving access to broadband and a highly educated workforce. But other important issues, like net neutrality, received only passing mention. And some topics, like patent reform, were missing from the speech altogether.

Here’s a look at what startups heard—or didn’t hear—in this year’s State of the Union.

Community Broadband

"21st century businesses need 21st century infrastructure — modern ports, stronger bridges, faster trains and the fastest internet.

I intend to protect a free and open internet, extend its reach to every classroom, and every community, and help folks build the fastest networks, so that the next generation of digital innovators and entrepreneurs have the platform to keep reshaping our world."

Last week the President spoke in more detail about his plans to expand high-speed internet access in communities across the country. These plans include calling on the FCC to overturn limitations on community broadband, technical support to municipalities that are interested in creating their own broadband networks, and a package of grants and loans to incentivize rural broadband providers.

This is especially exciting news for burgeoning startup communities in areas where ISPs have so far failed to invest. We’ve already seen the impact that community broadband has made in places like Chattanooga, TN, Wilson, NC, and Danville, VA. Ultra high-speed broadband networks help attract startup activity to take advantage of the fast connections, which in turn drives consumer demand and ultimately, more investment in broadband infrastructure. The better the Internet infrastructure a community has, the more attractive that community is to new startups and the good jobs they create.

Access to Talent

"That’s why I am sending this Congress a bold new plan to lower the cost of community college — to zero.

We’re connecting community colleges with local employers to train workers to fill high-paying jobs like coding, and nursing, and robotics..."

One of the greatest challenges for the startup community is accessing a steady stream of talented people with ideas for new businesses and the skills needed to grow those businesses. Improving STEM education is critical if we’re going have future generations of homegrown talent.

Last week President Obama announced a package of higher education proposals that included making community college free for students across the country, and expanding technical training programs that provide skills tailored to in demand jobs. While many of the details of these proposals are still forthcoming, we’re optimistic that they will expand both access to and quality of STEM education, and we urge the White House to include the startup community in designing the details of implementation.

"Yes, passions still fly on immigration, but surely we can all see something of ourselves in the striving young student, and agree that no one benefits when a hardworking mom is taken from her child, and that it’s possible to shape a law that upholds our tradition as a nation of laws and a nation of immigrants."

The other piece of the puzzle when it comes to accessing talent is reforming our immigration system, so that foreign born entrepreneurs can come here, start a business here, and create jobs here. We’ve heard less about immigration reform from the President in the days leading up to the State of the Union, but the Executive Order he issued in November took a number of key first steps towards reform.

Among other provisions, the Executive Order expands immigration options for foreign-born entrepreneurs and makes it easier for high-skilled workers awaiting Lawful Permanent Resident status to change jobs. While these changes are important, the executive action did not raise the visa supply, something that’s been a priority for the tech community for years and requires legislative action. We also need to establish a true founder’s visa, so that entrepreneurs can come to the United States to start new ventures, rather than being tied to a job with an existing employer.

Data and Security

"Tonight, I urge this Congress to finally pass the legislation we need to better meet the evolving threat of cyber-attacks, combat identity theft, and protect our children’s information. If we don’t act, we’ll leave our nation and our economy vulnerable. If we do, we can continue to protect the technologies that have unleashed untold opportunities for people around the globe.

While some have moved on from the debates over our surveillance programs, I haven’t. As promised, our intelligence agencies have worked hard, with the recommendations of privacy advocates, to increase transparency and build more safeguards against potential abuse. And next month, we’ll issue a report on how we’re keeping our promise to keep our country safe while strengthening privacy."

The President has announced a package of proposals around data and security, including legislation that would enhance information sharing between the private sector and government agencies, expanded powers for law enforcement to combat data theft, and expanded reporting requirements around data breaches.

As more and more business migrates to the Internet, it is vitally important that consumers have confidence that the information they are sharing with online businesses is secure and private while the regulatory climate also remains ripe for innovation. Revelations about the NSA’s surveillance activity may cost the cloud computing industry billions of dollars as consumers refrain from using services they perceive to be unsecure. There is, of course, a balance that must be achieved between rules that adequately safeguard consumer information and those that impose unduly burdensome obligations on startups without providing any meaningful security or privacy benefit for users.

The startup community looks forward to being part of this ongoing conversation, and working towards smart, manageable regulation that allows for both strong consumer protections and continued business expansion and job growth.

Other Proposals

"My plan will make quality childcare more available, and more affordable, for every middle-class and low-income family with young children in America — by creating more slots and a new tax cut of up to $3,000 per child, per year.

So I’ll be taking new action to help states adopt paid leave laws of their own. And since paid sick leave won where it was on the ballot last November, let’s put it to a vote right here in Washington. Send me a bill that gives every worker in America the opportunity to earn seven days of paid sick leave. It’s the right thing to do."

While access to affordable childcare and parental leave may not sound like tech policies, they are in fact critical to creating an environment where Americans of any age and background have the ability to take a chance on a new idea or a new startup. They’ll also help make sure that a diverse cross section of Americans has the opportunity to go to work, which will in turn help spur much needed diversity within job sectors like tech.

What Was Left Unsaid

Net Neutrality

President Obama has been a vocal supporter of reclassifying broadband Internet under Title II of the Communications Act. However, tonight’s speech featured just a passing hat tip to protecting an open Internet.

Strong net neutrality rules are essential for the future of entrepreneurship in this country. If ISPs are allowed to extract fees from companies that can afford to pay for faster delivery of their content, it would create a nearly insurmountable disadvantage for the new startups that are driving new job growth.

Tonight’s speech comes less than 24 hours before major Congressional hearings on net neutrality, and just a few short weeks before the FCC is set to introduce new rules on the subject. Opponents of an open Internet are mobilizing for a last ditch effort to undermine meaningful net neutrality. That’s why in the days ahead you’ll see the startup community continue to rally against proposed legislation that would provide net neutrality in name only, and work to ensure the FCC takes action that will preserve an open Internet for generations to come. We hope we’ll continue to see more leadership from the President on this issue.

Patent Reform

Patent trolls remain one of the biggest threats to startups, forcing many growing companies to choose between hefty legal fees or baseless settlements. It’s a problem President Obama acknowledged in last year’s State of the Union when he said, “Let’s pass a patent reform bill that allows our businesses to stay focused on innovation, not costly, needless litigation.” That reform legislation came very close to passing last session before ultimately dying in the Senate.

With a change in Senate leadership, many of us in the startup community are optimistic about significant movement on patent reform. So we were disappointed to see the President avoid the topic entirely in this year’s speech. While we’re confident that he remains committed to reform, we hope to see him more aggressively pushing for legislation in the weeks to come.

Looking Ahead

"Some of our bedrock sectors, like our auto industry, are booming. But there are also millions of Americans who work in jobs that didn’t even exist ten or twenty years ago — jobs at companies like Google, and eBay, and Tesla."

Overall, the President clearly acknowledged the growing importance of the tech industry to both our economic recovery and to the daily lives of every American. But while he shouted out some of the biggest success stories in the tech community, he failed to mention that not that many years ago, these companies were all startups. And the startups of today will be the success stories and the job creators of tomorrow.

Overall, compared to some previous years, tonight’s State of the Union was a bit light on tech policy. But considering the President’s recent leadership—along with the leadership from members of both parties on the Hill—on a number of issues critical to the future of the tech industry, it’s easy to remain optimistic about our potential for real victories this year.

With FCC action on the horizon, the startup community will be focused intensely on net neutrality in the weeks ahead. At the same time, we’ll be working to make sure that startup voices are heard on topics ranging from immigration to patent reform. And we’ll maintain pressure on the President and on lawmakers in both parties to support innovation and opportunity for everyone.

Net Neutrality Shake Up: Sprint Endorses Title II, GOP Introduces Legislation

Today marked something of a sea change in the net neutrality debate that has gripped the country for the past year. The reclassification of broadband as a common carrier service under Title II seemed all but dead on arrival just a few short months ago. This cast real doubt on the future of startups in this country, and the jobs and economic opportunities that they create.

Now, groups that once bristled at the mere mention of strong net neutrality rules are publicly embracing the tenets of an open Internet. Perhaps most exciting is Sprint declaring their support for Title II reclassification, making them the first national mobile carrier to do so. Sprint’s announcement is further evidence that reclassification would do nothing to chill investment in the expansion of broadband infrastructure.

The other big news of the day was the release of a net neutrality bill from House Republicans. This bill includes some encouraging provisions, including rules that prevent ISPs from blocking, throttling, or charging edge providers for preferential access to customers—the cornerstones of any strong net neutrality rules—and applies these rules to both wireless and wireline broadband. Of course the devil is in the details, and upon closer examination it is clear that the proposed legislation would do much to undermine the future of an open Internet.

For one thing, the bill appears to apply to only customer-facing prioritization, meaning that the rules will not prevent ISPs from using their gatekeeper power to extort money from edge providers at the peering/interconnection level. Since some of the most notable net neutrality violations in recent history involved interconnection, this loophole may be large enough to swallow the rules altogether. And, since the proposed legislation would prohibit the FCC from addressing any future avenues for discrimination, ISPs would simply have to be more creative in how they extract rents from edge providers.

The bill would also rescind an important tool that allows the FCC and state agencies to ensure broadband competition and deployment—Section 706. While 706 by itself is an insufficient grant of authority to effectively ensure an open Internet, it still has an important role in policing ISP malfeasance. As President Obama discussed earlier this week, the FCC can and should use its 706 authority to overturn laws (passed at the behest of large ISPs) that prevent municipalities from providing broadband for their citizens. Under the proposed House bill, the FCC will lose its ability to vacate these anti-competitive handouts to ISPs. Similarly, invalidating 706 as a grant of authority could diminish the role of the FCC and similar state agencies in reviewing harmful broadband consolidation, like the proposed merger between Comcast and Time Warner.

While it’s encouraging to see those once opposed to net neutrality start talking about rules that would protect an open Internet, it would be naive to think that the proposed legislation is anything other than an attempt by ISPs and their supporters to squeeze whatever benefit they can from what they see as a bad development: the FCC’s impending decision to reclassify broadband under Title II. The proposed legislation fails to offer the same strong net neutrality rules that the FCC can provide under Title II, and instead would make it impossible for the FCC to act in the future to protect a vibrant Internet.

The legislation as drafted seems to be little more than a last ditch effort by the opponents of net neutrality to prevent a reclassification that seems increasingly inevitable. Those of us in the startup community who have been fighting for an open Internet must continue to make a clear case to legislators, the FCC, and members of the public: Title II reclassification is the best way to guarantee net neutrality, not just in the short term, but for generations to come.

Bipartisan Senate Bills Propose Critical Reforms for the Tech Community

We’ve said it before and we’ll say it again: many of the greatest obstacles to attracting and retaining tech talent are the result of our country’s broken immigration system. There’s a pressing need for substantial legislative reforms that reach beyond the President’s recent executive actions. So we’re happy to see the new Congress hit the ground running with two high-skilled immigration bills—the Startup and the Immigration Innovation (“I-Squared”) Act, both bipartisan efforts introduced in the Senate this week. These important pieces of legislation propose a number of critical reforms to our immigration system, including increasing the pool of visas available to the high-skilled talent our technology and startup communities desperately need.

The bills vary in their approach, but cover similar ground. On Tuesday, Senators Orrin Hatch (R-Utah), Amy Klobuchar (D-Minn.), Marco Rubio (R-Fla.), Chris Coons (D-Del.), Jeff Flake (R-Ariz.), and Richard Blumenthal (D-Conn.) re-introduced the Immigration Innovation Act, (also known as the “I-Squared” Act). The bill would increase the H-1B cap from 65,000 to 115,000 visas, expand worker mobility for visa-holders in-between jobs, and create a number of important exemptions from the Green Card cap for professionals in STEM fields.

The Startup Act, originally introduced in February 2013 (you can read what we wrote then here), was re-introduced today by Senators Mark Warner (D-Va.) and Tim Kaine (D-VA) along with Sens. Jerry Moran (R-KS) Chris Coons (D-DE), Roy Blunt (R-MO) and Amy Klobuchar (D-MN). Their bill tackles many of the same issues with visa limitations, and goes farther in establishing an Entrepreneur’s Visa to allow founders of new businesses to remain in the United States, launch businesses, and create jobs.

Providing a pathway for entrepreneurs to create businesses in the U.S. is particularly important. Under current employment-based visa provisions, it is exceedingly difficult for entrepreneurs to venture out on their own and create startups which will in turn create new jobs here in the U.S. Immigrants are twice as likely to start businesses as their native-born peers, and failing to provide an easy way for foreign entrepreneurs to start their businesses here is essentially the same thing as shipping jobs overseas.

While both bills are likely to face some real challenges in Congress, the need to make our immigration system more innovation-friendly has become increasingly clear. We urge leaders on both sides of the aisle to support the kinds of common sense reforms found in these bills. The future of our economy depends on it.

President Obama Outlines Plan for Competitive Networks, Muni Broadband

The President’s speech yesterday in Cedar Rapids, IA called needed attention to the nation’s serious broadband problem—namely, that little to no competition exists when it comes to broadband networks. Even with a favorable net neutrality ruling from the FCC seeming imminent, the vibrancy of the Internet economy remains at risk, tethered to a few oligopoly Internet Service Providers. These ISPs have tacitly divvied up geographic markets across the country, blocking competition and offering lower speeds and higher costs than those in peer nations. Increasing competition in broadband markets won’t be accomplished overnight, but the plan the President has outlined offers some key strategies for getting competitive broadband options to cities throughout the country.

Echoing sentiments from FCC Chairman Tom Wheeler earlier this year, the President called on the FCC to overrule anti-competitive laws on the books in 19 states that prevent municipalities from providing broadband networks for their citizens. These laws—typically enacted at the behest of large ISPs—provide no public benefit, instead merely shielding ISPs from competition at the expense of local choice. As cities like Chattanooga, TN, Danville, VA, and Lafayette, LA have shown, building next-generation networks helps draw startup activity and grow the local economy, in addition to providing a much needed service to residents. Free from competitive pressures, ISPs have shown little interest in building the high-speed networks that will soon be necessary to compete internationally. The President’s plan to free cities from ISP-driven bans on municipal broadband is a long-overdue step towards getting the U.S. back on track with peer nations.

The President outlined other creative measures to prompt broadband infrastructure investment, including grants for rural areas to build high-speed networks, and a program to remove regulatory red tape that slows down broadband investment. All in all, it’s heartening for the startup community to hear concrete policy proposals to fix a broadband competition problem that is getting increasingly hard to ignore. The President’s plan is a strong step towards making the U.S. a leader in broadband innovation and ensuring that entrepreneurs can continue to create good tech jobs in cities and towns across the country.

FCC Chairman Wheeler Signals Support for Title II Reclassification

Big news on net neutrality: FCC Chairman Wheeler all but confirmed today that he plans to propose a rule reclassifying the Internet as a Title II telecommunications service next month. If you’ve been following the debate over net neutrality, you know what this means. And if you haven’t, well, this is huge.

Last year, when a federal court threw out the FCC’s 2010 Open Internet Rules, it essentially told the FCC to go back to the drawing board. The FCC, a federal agency, had a couple of choices: attempt to rewrite rules that would protect an open Internet using the same legal authority the Court already said wouldn’t work, or reclassify the Internet as a telecommunications service under Title II. Only under that second option would the FCC have the legal authority it needs to enforce real net neutrality. Which is, of course, why the cable companies and entrenched interests hate the idea. And why we love it.

Which brings us back to today. Despite months of lobbying by net neutrality opponents, today Chairman Wheeler, in a speech at the annual Consumer Electronics Show in Las Vegas, made his most emphatic statement to-date in favor of Title II reclassification. He told the packed room that his thinking has evolved, and while he originally believed that he could protect an open Internet using a “commercially reasonable” standard without reclassification, he’s changed his mind. Instead, he came to the conclusion—with which we agree— that "commercially reasonably" would really mean "commercially reasonable for ISPs," not the true innovators who depend on an open Internet. Chairman Wheeler also noted that the next wave of innovation would depend even more heavily on open access, particularly for innovations surrounding the Internet of Things. And with that, he signaled his support for what we have long believed is the only path forward: reclassification under Title II.

We are encouraged by the Chairman’s words today and look forward to seeing his proposal in writing early next month. But this fight is far from over. Many in Congress have promised to block any attempts at reclassification, so even with a victory at the FCC, our work here isn’t done. We promise you this, though: we’ll keep fighting on behalf of startups and their users to protect the open Internet and all that it means not just to the economy, but to all who use it. Today we got one step closer to that goal.

2014 Year in Review - Small Steps Towards an Immigration Fix

This post is one in a series of reports on significant issues for startups in 2014. In the past year, the startup community’s voice helped drive notable debates in tech and entrepreneurship policy, but many of the tech world’s policy goals in 2014, from net neutrality to patent reform, remain unfulfilled. Stay tuned for more year-end updates and continue to watch this space in 2015 as we follow the policy issues most affecting the startup community.

There’s widespread agreement among policymakers and citizens alike that our immigration system is broken. But, despite this near-universal recognition that bringing foreign entrepreneurs to the U.S. to start businesses will improve our economy and create jobs, immigration reform remains elusive. Though the House has staunchly refused to consider moving immigration reform legislation, the President took action in November, issuing an Executive Order that takes small but important steps in the right direction. The President’s Executive Order expands immigration options for foreign-born entrepreneurs and makes it easier for high-skilled workers awaiting Lawful Permanent Resident status to change jobs. While these changes are important, the kind of reform that will more fully address the challenges of our country’s immigrant system remains within the purview of Congress.

Until Congress takes on the issue, an outdated immigration system continues to be one of the greatest threats to American entrepreneurship and business growth. Demand for high-skilled employees in the tech industry remains higher than ever and continues to build. And while American universities educate thousands of foreign-born students in STEM fields every year, these students often have few legal employment options in the U.S. and end up returning to their home countries. The President’s plan addresses this problem by seeking to expand the Optional Practical Training program, which permits foreign-born STEM graduates to stay and work in the U.S. Ultimately, however, the OPT program is temporary, and more action needs to be taken in order to allow these talented, U.S. educated STEM graduates to work and build companies in the U.S.

Those high-skilled workers who are eligible to stay in the U.S. often do so through H-1B visas, which have myriad complications and limitations. For one, the supply pool is capped at 85,000, and they’re only issued once a year via lottery. Companies simply can’t rely on winning this lottery, especially startups that “live and die by speed,” as the CTO of Zenefits explained. Further, visa-holders are barred from switching employers, even if they’re afforded better opportunity at another company. This particular restriction was addressed in the President’s recent executive action, which plans to allow highly skilled workers and their spouses to obtain a portable work authorization as they wait to acquire more permanent residential status. However, the executive action did not raise the visa supply, a policy request that’s been a priority for the tech community for years. Only legislative reform will increase the woefully inadequate supply of visas for high-skilled foreign workers.

When it comes to high-skilled workers, our immigration system’s shortcomings may be most devastating for the aspiring entrepreneurs it impedes. The economic case for creating opportunities for immigrant entrepreneurs couldn’t be clearer: a Kauffman study found that immigrants are nearly twice as likely to start a business than native-born Americans.

Yet, under the current rules, a potential founder cannot leave her company in pursuit of starting her own business. The President’s Executive Order also proposes to mitigate this deficiency by creating special immigration rules for founders who can prove they’ve created jobs, attained investment, or generated revenue. We’re excited to see the details of this new immigration pathway released in the next year and hope promising entrepreneurs can take advantage of the opportunity. Nonetheless, the plan falls short of establishing a true founder’s visa.

More countries around the globe are creating attractive opportunities for entrepreneurs seeking a home to build their businesses. Canada, Chile, and New Zealand are just a few of the places welcoming entrepreneurs with legal residency status and even funding through “startup visas.” While the United States Congress stands idle, entrepreneurs are packing up and moving elsewhere. As Reddit founder Alexis Ohanian told CNNMoney, “The next Stripe, or the next Google is one annoying visa application away from just starting in Canada.”

Looking to 2015, the new Republican Congress seems eager to undo the President’s Executive Order, but whether lawmakers will simply attempt to reverse the President’s actions or actually work to fix the many flaws with our immigration system remains to be seen. While comprehensive immigration reform remains a political third rail among Republicans—particularly in light of the 2016 presidential election—it is possible that lawmakers may attempt a piecemeal approach to immigration reform that addresses problems with the high-skilled immigration system, leaving more politically fraught questions relating to undocumented immigrants untouched. Whether comprehensive reform or an issue-specific approach is more achievable, immigration reform must be a policy priority for all members of Congress in 2015 if we are to maintain our position as the best place in the world for entrepreneurs to start new and innovative businesses.

2014 Year in Review - Copyright in the Courts, Legislation on the Horizon

This post is one in a series of reports on significant issues for startups in 2014. In the past year, the startup community’s voice helped drive notable debates in tech and entrepreneurship policy, but many of the tech world’s policy goals in 2014, from net neutrality to patent reform, remain unfulfilled. Stay tuned for more year-end updates and continue to watch this space in 2015 as we follow the policy issues most affecting the startup community.

As is only fitting in a policy area where the law consistently fails to keep pace with technological developments, we are not much closer at the end of 2014 to an overhaul of the nation’s copyright laws than we were in the spring of 2013 when Register of Copyrights Maria Pallante asked Congress to begin work on the “Next Great Copyright Act.” Despite the lack of large-scale reform efforts, 2014 was a fascinating year in copyright issues, with hints at prolonged policy debates to come.

Perhaps chastened by the SOPA/PIPA debacle, Washington took a cautious, deliberate approach to copyright reform efforts this year, getting a lay of the land from a multitude of stakeholders in a series of hearings, roundtable discussions, and panels hosted by the Judiciary Committee, the Copyright Office, and the USPTO. These fact-finding missions covered everything from the DMCA notice and takedown process to the application of the first sale doctrine in digital media. In July, we participated in one of the USPTO multi-stakeholder panels to discuss how massive statutory penalties for secondary copyright infringement can chill innovation and encourage copyright trolls. That policymakers took such a keen interest in soliciting opinions from interested parties about how copyright law needs to change in the coming years suggests that the contours of new copyright legislation will start to take shape in 2015.

While legislators pondered potential reforms, the judiciary was hard at work dealing with cutting edge copyright cases (and, unfortunately, coming to some troubling conclusions). In April, we filed an amicus brief with the Supreme Court in its review of Aereo’s TV streaming business. The Court ultimately ruled that by distributing free over-the-air broadcasts to Internet subscribers via dedicated miniature antennas, Aereo was infringing broadcaster copyrights. In doing so, the Court ignored the plain text of the statutes at issue, employing what amounted to a smell test: Aereo looked like a cable TV service, so it should be governed as one, subject to a compulsory license regime. The ruling injected even more uncertainty into a notoriously vague body of law, opening up avenues for idiosyncratic judicial opinions to shut down new technologies that are in textual compliance with existing statutes.

Even more concerning for startups everywhere, the Federal Circuit in May issued its opinion in the Oracle v. Google case, holding that software APIs—bits of code that allow different applications to communicate and work together—are copyrightable. The implications of this decision are far-ranging, threatening to undermine the competition and open exchange of ideas that helped drive the rapid growth of software and applications. Requiring entrepreneurs to enter into licenses in order to use common APIs will make it significantly more difficult to create widely compatible applications, leading to an increased balkanization of software services and applications. As interoperability decreases, so too does application innovation and consumer choice. Google has appealed to the Supreme Court, and we joined an amicus brief urging the Court to take the case, arguing that allowing companies to claim copyrights on APIs would greatly harm software innovation.

Recent weeks have seen even more salacious copyright news, with leaked documents from the MPAA suggesting that the so-called “copyright wars” of a few years back may return in a big way. The MPAA has apparently been working on reinterpreting the DMCA to accomplish some of the same nefarious goals that SOPA was meant to facilitate (e.g., DNS site blocking), and it has roped several state Attorneys General into taking up its cause of holding content-neutral websites accountable for copyright infringement rather than the folks actually engaging in the “piracy” the content industry so detests. As the SOPA/PIPA fight showed and these leaked documents confirm, the content industry has little regard for the collateral damage its anti-piracy efforts would do to non-infringing activities.

In light of these reports, it seems more and more likely that Congress will begin putting pen to paper on a Copyright Act update in 2015, and it’s crucial that the technology and startup communities help set the agenda, rather than merely reacting to the demands of the content industries. Key on that agenda is restoring sanity to the copyright damages regime, strengthening and clarifying safe harbors for companies that aren’t engaging in direct infringement, and ensuring that the costs of complying with secondary liability rules aren’t prohibitively expensive for startups. The SOPA/PIPA debate showed that the Internet community is paying attention to changes in copyright policy; the next great copyright debate must show that the tech world is ready and willing to advance a proactive agenda that fosters the next wave of innovative technologies.

Patent Reform: We Must Capitalize on 2014’s Momentum to Win in 2015

This post is one in a series of reports on significant issues for startups in 2014. In the past year, the startup community's voice helped drive notable debates in tech and entrepreneurship policy, but many of the tech world's policy goals in 2014, from net neutrality to patent reform, remain unfulfilled. Stay tuned for more year-end updates and continue to watch this space in 2015 as we follow the policy issues most affecting the startup community.

Patent reform—a highly technical and wonky area of the law—is having a moment. A long-overdue moment. While we didn’t accomplish our primary goal in 2014, namely, passing patent reform legislation that would fix a dangerous and expensive patent troll problem, we did make important strides toward leveling a playing field that had been, up until recently, completely skewed in favor of incumbent industries.

In fact, 2014 saw some really important changes to the U.S. patent laws, pretty much all of which benefitted the startup community.  For instance, the Supreme Court has been very active in patent reform—issuing six unanimous rulings last year, each of which came down in favor of the tech industry and/or patent reformers. The most important of those was a case called Alice v. CLS Bank, in which the Court tightened the definition over what can and can’t be patented, which has already resulted in fewer bad patents. This is good news, because a low-quality patent is one of a troll’s favorite weapons.

Even more, 20+ states have taken on patent trolls and the FTC continues to investigate the issue as well. Which is why we’ve argued that, despite the hold-up on Capitol Hill, our community is actually winning the patent reform debate.

That said, there is much work left to do. One of a troll’s favorite weapons might be low-quality patents, but the other is the outrageous cost of patent litigation. To fight a case to verdict can easily cost a defendant millions of dollars and can take years—resources unavailable to many startups and small inventors. This leaves a startup facing a patent threat with two really bad options: waste time and money in court, a terrible distraction from growing a business; or to settle, essentially paying the troll to go away and emboldening it to act again.

Which brings us to legislation. Only Congress and President Obama can fix the lopsided nature of patent litigation and create the proper incentives for troll targets to fight back. The good news is that bills in both the House and Senate appear poised to move in early 2015. Even better, the President has been very supportive of these efforts in the past. The bad news is that the usual opponents of reform—the ones who benefit from the status quo—are gearing up for a big fight.

We’re confident that the momentum gained in 2014 will help push patent reform over the finish line in 2015, but it will not be an easy fight. Continue to watch this space to learn how you can help join our efforts.

2014 Year in Review — The JOBS Act: What’s Happened and What’s Next for Startup Capital Access

This post is one in a series of reports on significant issues for startups in 2014. In the past year, the startup community's voice helped drive notable debates in tech and entrepreneurship policy, but many of the tech world's policy goals in 2014, from net neutrality to patent reform, remain unfulfilled. Stay tuned for more year-end updates and continue to watch this space in 2015 as we follow the policy issues most affecting the startup community.

With overwhelming bipartisan support, the Jumpstart Our Business Startups Act—or the JOBS Act—was signed into law on April 5, 2012, and for entrepreneurs and startup investors, the bill was easily one of the most promising pieces of new legislation to come out of Congress in some time. The JOBS Act updated Securities and Exchange Commission rules dating back to the 1930s to enable growing companies—from seed stage to IPO—to more easily raise capital. In the past two years, parts of the JOBS Act have proved effective and even essential for startups and investors while other portions of the act, notably public equity crowdfunding, continue to languish in the SEC rulemaking process. We’re hopeful that the intent of the JOBS Act—to open new avenues for capital formation and spur great participation in the startup economy—can finally come to fruition in the new year.

At the very least, 2014 proved the JOBS Act’s “IPO On-Ramp” to be a major success, whether or not the bill’s authors can take direct credit. Aiming to revitalize the struggling IPO market of recent years, this provision created special rules for emerging growth companies approaching IPO, including loosening disclosure requirements. In 2013, the rate of IPOs began to accelerate, and 2014 saw the most IPOs since the late nineties tech bubble, including tech startups GoPro, Zendesk, and Grubhub. As Steve Case writes in the Wall Street Journal, taking companies public is significant not only for a company’s owners and investors, but also for the economy as a whole: most job growth at emerging-growth companies comes post-IPO. If the economy continues to recover, we hope 2014’s banner year is just the beginning for the role tech startups can play in reviving the economy.

Another significant section of the JOBS Act lifted the ban on general solicitation, meaning companies can now publicly advertise that they’re raising money. Historically, entrepreneurs could only seek investment from people with whom they had pre-existing relationships. Soliciting investors online or over social media was strictly prohibited. This ban was officially lifted in September 2013 and within the past year, hundreds of startups like Scoot Networks in San Francisco and Dinner Lab in New Orleans have embraced this new approach to finding investors. Anyone on the Internet can now browse through lists of hundreds more startups seeking funding on crowdfunding portals like Angel List, Circle Up, SeedInvest, Flashfunders, and Alphaworks.

Yet compared to traditional capital-raising options taking place behind closed doors, general solicitation makes up an extremely small portion of the offering market. According to the SEC’s private offering filings from September 2013 to September 2014, only around 3% of issuers chose the general solicitation route.

That so few businesses are taking advantage of these new funding opportunities may be the result of poorly defined rules. What is properly considered “general solicitation” and just how businesses must go about verifying that their investors are accredited (a requirement of the act) has not been clearly articulated by the SEC. Further, proposed SEC rules made public in September of last year hint at onerous additional disclosure requirements that would make this offering much less attractive.

Though there is uncertainty surrounding the act’s general solicitation provision, it’s at least seen the light of day. Other highly anticipated portions of the JOBS Act continue to be held up in the SEC rulemaking process. Equity crowdfunding, which would allow for non-accredited investors to buy small amounts of equity in startups, awaits final rules, as does another kind of offering referred to as Regulation A+, a sort of public offering for smaller private companies attempting to raise up to $5 million. Whether the SEC has been bogged down in finalizing Dodd-Frank rules, or they’re taking extraordinary caution and due diligence in crafting crrowdfunding rules, the exact cause of the remarkably long delay is unknown. Whatever the source of the SEC’s inaction, we were frustrated with the SEC and decided to rally the startup and investor community around the issue, telling the SEC that it’s time to act.

In November, Engine crafted a letter signed by over 200 entrepreneurs and investors to the SEC, urging it to finalize rules for equity crowdfunding and Regulation A+ raises, a loud and clear reminder of the widespread community of supporters and stakeholders awaiting the Commission’s action. Nonetheless, the SEC has given no indication of a timeline for issuing rules, though some have speculated those rules may not be released until later in 2015.

Meanwhile, many experts in the investment community believe that even if SEC does finish the job, between the current statute and any additional SEC requirements, equity crowdfunding will be too costly and cumbersome for startups raising just small amounts of capital. Spending the time and money to file tax returns, audit financial statements, and provide detailed accounts of business information could make crowdfunding an expensive undertaking that just isn’t worth the potential rewards, given the other, less costly fundraising avenues available to entrepreneurs. Thus, as the SEC continues to stall, interest grows in returning to Congress to draft better legislation. If the SEC fails to promptly issue rules in the new year, folks in Congress may begin writing a new version of the JOBS Act that addresses concerns with the crowdfunding provisions and limits the SEC’s discretion to issue implementing rules.

In 2015, we hope to see our government step up with a renewed, spirited policy approach that opens new avenues for capital access. Whether the SEC can finally get the job done or Congress can come together like it did in 2012 to pass a revived version of the JOBS Act, policymakers should ensure that promising businesses of any size, and committed investors of any net worth, can contribute to and grow our economy.  

2014 Year in Review — Net Neutrality: Where We've Been, and Where We're Going

This post is one in a series of reports on significant issues for startups in 2014. In the past year, the startup community's voice helped drive notable debates in tech and entrepreneurship policy, but many of the tech world's policy goals in 2014, from net neutrality to patent reform, remain unfulfilled. Stay tuned for more year-end updates and continue to watch this space in 2015 as we follow the policy issues most affecting the startup community.

Of all the tech policy issues that got major airtime in 2014, few resonated so deeply with the general public as the fight over net neutrality. The net neutrality debate highlighted both the strength of the Internet community’s voice and the ample work we must still do to make sure Washington heeds our message. Thousands of companies that depend on the Internet’s open playing field and millions of Americans who recognize the threat posed by unchecked ISP gatekeepers mounted a sustained and effective campaign throughout the year to influence the FCC’s net neutrality rulemaking. While these efforts have been enormously successful in getting the FCC to take net neutrality seriously, the task is not yet finished.

This year’s net neutrality fight was not the first time the FCC grappled with these questions. Though the FCC in 2002 (wrongly, we believe) classified broadband Internet as an “information service” under the Communications Act of 1934, rather than a “telecommunications service,” broadband Internet has always been governed by net neutrality principles. Under such principles, ISPs are obligated to treat all sources of data equally and not block or degrade traffic from particular edge providers. The FCC enshrined these principles as enforceable rules in its 2010 Open Internet Order, which established regulations against ISP discrimination.

Earlier this year, an appellate court in D.C. threw out out these 2010 rules not because of any inherent infirmity with the logic of net neutrality itself but on something of a legal technicality: only “common carrier” services could be subject to bright line rules against discrimination, and since the FCC neglected to classify broadband as a common carrier telecommunications service, it could not now bar ISP discrimination. The court held that any rules issued pursuant to the FCC’s section 706 authority—a statutory mandate to enact policies that promote the adoption of broadband—could not include a ban on paid prioritization arrangements or other forms of access fees unless the FCC first reclassified broadband as a common carrier service under Title II of the Communications Act. Faced with this rejection of its 2010 rules, the FCC was asked yet again to reconsider how and whether to protect a neutral Internet.

Reports earlier this spring suggested that the FCC was not considering any plan involving reclassification, which signaled to the Internet community that the FCC was essentially turning its back on net neutrality altogether. The reaction to these reports was swift and effective. Engine, along with the Open Technology Institute at the New America Foundation  sent a letter to the FCC with nearly 200 major Internet company signatories demanding that the Commission issue rules sufficient to block discrimination and paid prioritization. The FCC got the message, and its notice of proposed rulemaking solicited comments on whether to reclassify broadband under Title II in order to establish meaningful net neutrality rules.

Even as the FCC discussed the possibility of reclassification in its proposed rules, few believed that reclassification had any chance of going forward. Unwilling to accept a world in which ISPs could abuse their gatekeeper power to impose rent-seeking access fees, the Internet community got to work. The path from toothless rules under section 706 to the imminent possibility of full-fledged net neutrality regulations under Title II was paved most visibly by a stunningly large public response. Nearly 4 million commenters wrote to the FCC about its consideration of new net neutrality rules, a majority of whom supported calls for stronger regulations to prevent ISP misconduct. Recognizing that the high cost of access fees that ISPs could charge edge providers would ultimately get passed on to consumers, citizens fought back against allowing ISPs to serve as gatekeepers to the Internet.

Startups also played a key role in shifting the FCC’s consideration of net neutrality rules towards more meaningful regulations under Title II. Despite having limited resources and time to devote to challenging the lobbying might of cable companies, startups from across the country worked hard to keep the Internet open for permissionless innovation, filing comments with the FCC, participating in an Internet-wide protest, and flying to Washington, D.C. to gin up political support for real net neutrality. As the dire consequences of abandoning net neutrality would be felt more deeply by smaller companies rather than larger, more established tech firms, startups took on an outsized role in the net neutrality fight.

In the face of this massive popular response, the FCC moved haltingly towards a Title II-based solution, leaking news that it was considering a so-called “hybrid” net neutrality proposal that relied in part on Title II authority, but would have entailed significant risk of being rejected again in court. Under such hybrid proposals, the FCC would divide every Internet communications into two distinct components—a communication between an end user and her ISP and a communication between the ISP and the edge provider the user wants to access—and regulating only this second communication under Title II. While news that the FCC was finally considering Title II in some form was encouraging, the Commission’s failure to recognize that full-fledged Title II reclassification represented a far cleaner path to strong net neutrality was frustrating.

With the FCC expected to circulate a final draft rule only weeks after news of the “hybrid” plans leaked, the time for action appeared to be running out. And then, almost overnight, the conversation changed when President Obama called on the FCC to use Title II reclassification to protect an open Internet. The President’s announcement was game-changing; the once-impossible prospect that the FCC would invoke full Title II reclassification became plausible, perhaps even likely. Politicians rallied behind the President’s plan in droves, and many of the largest tech companies in the country vocally supported the President’s call for full Title II. Even conservatives, often assumed to be opposed to net neutrality, overwhelmingly supported real net neutrality.

But, despite the FCC’s apparent shift from weak net neutrality under 706 to full-fledged Title II reclassification, the net neutrality fight is not yet over. All indications from the FCC suggest that it will circulate its proposed rule this spring. Though most believe that the FCC will propose reclassification (and apply net neutrality principles to mobile broadband—an important protection omitted from the 2010 rules), there is no concrete proof that the FCC will follow the clear will of the people and the Internet economy to enact real net neutrality. While it is crucial that the FCC makes sure that its new rules are strong and sufficient to withstand the inevitable legal challenge from ISPs, we must continue to pressure the FCC to do what’s right and do it promptly, lest carriers use the delay to sap the FCC’s courage to stand up to ISP malfeasance and protect the open Internet.

And, even if the FCC reclassifies broadband in order to craft strong net neutrality rules, the debate will likely continue in the new Republican Congress, which has already signalled its opposition to meaningful net neutrality. Whether Republican opposition is genuine or a knee-jerk reaction to the President’s statements remains to be seen. In the next year, we will keep the pressure on policymakers, reminding them of how crucial net neutrality has been to the momentous growth of the Internet economy and how the millions of Americans who have benefitted from the Internet’s prosperity are fully engaged and ready to fight to preserve the neutral Internet they know and love.

Rising Urban Inequality and the Role Technology Must Play

While the San Francisco Bay Area is home to many of the country’s most successful startups and innovations in technology, it’s also a region of staggering inequalities. NPR reported last year that one-third of the households in Santa Clara County, where Google, Apple and hundreds of high-tech startups have their headquarters, don’t earn enough to cover basic income expenses. And in the city of San Francisco, troves of data confirm the already apparent trends in rising income inequality, increasing poverty rates, and a shrinking middle class. With these realities, it’s not surprising that anger, resentment, and frustration, among longtime residents in San Francisco watching their neighborhoods become increasingly unaffordable have been directed to newcomers working for technology companies, both big and small. But, as many have suspected, tech startups may not be responsible for this kind of increasing inequality, after all.

That’s what renowned urban economist Richard Florida concluded in a recent study that examined the relationship between high-tech startups and increasing inequality in cities throughout the country. Florida and his partner at the Martin Prosperity Institute charted venture capital investment in startups against the two primary measures of inequality: wage and income disparity. In urban tech hubs across the country from Boston to Seattle, they found a fairly high correlation between wage inequality and venture capital investment. Notably, however, this same trend did not hold when charting venture capital investment against the more common measure of inequality: the Gini coefficient, a measurement based on income distribution within an economy. Income inequality didn’t necessarily increase as venture capital investment in a given area did.

These mixed results are evidently limited in the extent to which they can diagnose urban challenges. Perhaps these findings can only demonstrate that urban inequity is a complex matter with dozens of factors. Whether it’s simply correlation or more significantly (though not addressed in this study), causation, inequality has myriad historical, political, and economic sources, even city by city. (And for a formidable, detailed account of what's happened in the San Francisco Bay Area, check out this Tech Crunch article.)

To put it another way: the data shows us that urban tech startups aren’t worsening inequality—that means there’s a lot of room for startups to make things better for a wider range of citizens.

We already know these new businesses create jobs, supply municipal tax revenue, and can make urban life more efficient and convenient. Yet urban innovation—technology for local governments, neighborhoods, and schools; tools to create safer streets, smarter public transit, and more efficient energy use—may still be in its infancy.

As startup hubs continue to expand across the country, they’ll play an increasingly important role in the urban fabric of their host cities. For the sake of long term economic prosperity, it’s incumbent upon burgeoning entrepreneurs as well as urban policymakers to understand existing inequities and think about how technology can create a “more inclusive urbanism,” as Florida puts it.

This includes not only building tools for a more diverse and urban public, but also training a new generation of citizens to contribute to creating that technology. Examples of organizations already doing this work aren’t hard to find. In San Francisco, an organization called Missionbit offers public school students free coding classes. Another exciting pogram we’ve seen is the Coalition for Queens, an organization with the mission to “increase economic opportunity and transform the world’s most diverse community into a leading hub for innovation and entrepreneurship.” With the support of both local government and technology experts, the organization has launched an entrepreneurial and computer programming program for low-income New Yorkers called Access Code. As they grow and add alumni to their network, the Coalition for Queens and programs like it could serve as models for cities both new and established as centers for startups—in creating more diverse and participatory startup ecosystems and perhaps a new technologically-empowered middle class.

Entrepreneurs and Investors Sign Letter to the SEC

Today, we sent a letter signed by more than 200 entrepreneurs, investors, and members of the startup community to the Securities Commission to tell the agency it’s time it fulfills its statutory obligation and finalize rules to make the JOBS Act a reality. You can find the full text of the letter with its signatories below.

It’s been over two years since Congress passed the JOBS Act, yet much of its promise remains unfulfilled, because the SEC has simply not done its job. The Commission is now an astounding 700 plus days past the statutory deadline to issue rules that will enable equity crowdfunding for companies attempting to raise up to $1 million a year as well as additional capital-raising options for small private companies.

Until the SEC acts, opportunities for entrepreneurs to raise capital and for potential investors to contribute equity to new businesses remain grossly limited. Without these new rules, only a small subset of Americans who qualify as accredited investors can participate in driving capital to thousands of small, diverse, and promising startups across the country. Take Dinner Lab, a New Orleans-based startup: when CEO Brian Bordainick decided to tap into his existing customers and food-lovers as prospective investors, he had to turn half of them away because they didn’t qualify. And Alphaworks, a new equity crowdfunding platform with just a small number of deals, has already had to turn away hundreds of potential investors from contributing to companies on its site.

Capital access is often an entrepreneur’s greatest challenge, especially for businesses who find themselves on the outside the traditional hubs of venture capital and angel investors—whether they’re based in parts of the country where startup communities are just beginning to prosper or they’re simply not well-connected to investment circles. And while 13 states have now taken it up themselves to legalize equity crowdfunding and spur economic activity, these state laws only allow investment within a state’s borders.

The JOBS Act could unleash a new wave of entrepreneurship across the country. Yet without these rules in place, much of the JOBS Act remains an empty promise. We call upon the SEC to make what the JOBS Act set out to do a reality as mandated by Congress over two years ago. It’s time it finalize the rules without further delay.

Engine's Letter to the SEC

Want to join our efforts? You can still sign the letter and learn more about what we're doing at www.engine.is/jobsact.

A New, More Inclusive Approach to Startup Funding

You can also read this post on Medium.

Many immigrants who come to the U.S. to work in technology dream of starting their own companies, but the limited visa system makes this ambition near impossible to achieve. Other aspiring entrepreneurs may be U.S. citizens, but simply can’t incur the risks and costs of starting their own companies without a reliable salary or health insurance. The founders of a new angel fund, Unshackled, rethought what it means to support entrepreneurs who may face these obstacles despite showing great promise. The fund they’ve created will consequently enable a greater diversity of passionate entrepreneurs to take the leap into building their businesses.

“We saw an opportunity to be more inclusive from the funding side,” explained Manan Mehta who, together with his business partner, Nitin Pachisia, launched Unshackled just weeks ago. As experienced and solution-oriented entrepreneurs themselves, Manan and Nitin built an innovative kind of angel fund.

In addition to investing in the startup teams selected for funding, Unshackled will sponsor visas for entrepreneurs already authorized to work in the U.S., but “shackled” to their current employers. Most high-skilled immigrants come to the U.S. on H-1B visas, but if they leave their sponsoring company, they’re no longer eligible to remain in the U.S. This restriction thus bars talented, would-be entrepreneurs from devoting meaningful time to starting a new company. Madhuri Eunni, for instance, is originally from India and worked at Sprint for nearly 10 years. But when she decided to launch her own venture, she uprooted from the U.S. and moved to Toronto where she could more easily and quickly secure a visa.

Visa sponsorship isn’t the only benefit Unshackled offers. They also pay founding teams steady salaries and provide health insurance, aspects that may attract other potential entrepreneurs who would otherwise be unable to pay their student loans, rents, or health costs out of pocket while committing resources to their startups. This unprecedented fund liberates founders from what are debilitating yet unavoidable challenges for many people.

“The funding model has been the same for the last 50 years. How can we modernize it to reflect realities in our country?” asked Manan.

With a $3.5 million fund financed by heavyweights in the investment community, Unshackled plans to work with up to 25 teams of two to three founders over the next couple of years.

Like many other potential investors, Unshackled will evaluate a prospective startup’s founding team, business plan, and prototype in deciding whom they’ll accept. Selected startup teams will then become employees of Unshackled and receive a working space in the Bay Area, a salary that allows them to cover living expenses in the region, and benefits. Unshackled will cover legal costs, visa sponsorships--if and when necessary--and manage banking. And the fund will also connect entrepreneurs to an experienced network of mentors and advisors from the very beginning.

Unshackled is now accepting applications for prospective teams and Manan says they’re already attracting impressive proposals, which doesn’t surprise him. The high-skilled immigrants Unshackled may appeal to, as Manan points out, have “already had to beat out the best in their country,” to even be accepted to study at a U.S. university or acquire one of the very limited visas. They’ve already proven they “have the hustle and the passion to become the best entrepreneurs.”

And data overwhelmingly supports this: in one study the Kauffman Foundation concluded that immigrants are nearly twice as likely to start businesses in the U.S. as are native-born Americans.

Eventually, Congressional immigration reform could both expand and ease the visa process for high-skilled workers and aspiring entrepreneurs. President Obama’s recently announced plans for reform expressly recognize the enormous talent pool among our immigrant population and the economic importance of diversity among entrepreneurs. And one initiative the president has proposed could provide founders with a special exemption from the company sponsorship requirement if founders can prove they’ve created jobs. Yet a true “startup visa” similar to those in other countries starting to attract and retain entrepreneurial talent and innovation will require congressional action.

Meanwhile, Manan and Nitin plan to enable a pool of entrepreneurs who at this point in time may otherwise be excluded from accessing capital and growing their businesses here in the United States.

“I hope we can prove to not only the venture community, but the global community that America can retain the top talent by giving everyone an equal opportunity in innovation,” said Manan.

Utah v. Zenefits: The Case for Smart Disruption

“Disruption” is a word that’s thrown around often and without consequence, but when you take a second to think about what it really means—upending the status quo—you can understand why it’s so important that we encourage responsible disruption. Because, quite often, doing away with the status quo also means progress.

The latest battle that has our attention is in Utah: there, Zenefits is under fire from the state Insurance Department for offering free software from which people can obtain insurance and other HR-related services. The state claims that offering the free software violates state laws regulating insurance brokers. Yet, we find it hard to come up with any rationale for this decision, other than the fact that Zenefits’ product makes it harder for long-time insurance brokers to compete. (For what it’s worth, Utah’s Lt. Governor publicly stated last week that Zenefits has not been banned from the state, but it’s fair to say Utah is not a hospitable place for the growing startup right now.)

Here’s the thing about Zenefits: It provides an incredibly useful service. (We at Engine should know, since we use if for our own team.) Through an easy-to-use UI and streamlined process, Zenefits makes it significantly easier for startups and small businesses to navigate the HR and insurance process, which—as anyone who has tried to do that before can tell you—is a beast. This is a good thing for at least two very important reasons: 1) it allows small businesses to more easily give their employees access to not just health insurance, but other HR benefits (like FSAs, commuter benefits, etc.); and 2) it frees up valuable resources, primarily time, so that a business can get back to the hard work of building a company.

As we see it, Zenefits and other companies simplifying the HR process are good for just about everyone, except for those who benefit from a messy and expensive system that requires incumbents with entrenched market power to navigate. Which is why we’re so concerned about what’s going on in Utah.

This is not to say that the insurance industry should not be regulated, or that Zenefits should be able to compete without following smart regulations that exist to protect consumers. It is to say, however, that relying on antiquated regulation to stymie innovation—what the Utah Insurance Department seems to be up to here—sets dangerous precedent that will only harm our startup ecosystem and recovering economy.

Success of FCC Spectrum Auction Reflects Boom in Mobile Internet Market

The FCC’s auction of new wireless spectrum—the biggest auction of its kind since 2008 —has vastly exceeded revenue expectations, surpassing $40 billion in bids as of Wednesday morning. Considering most analysts predicted that the auction would fetch somewhere between the FCC’s reserve price of $10 billion and $15 billion, the auction appears to be a resounding success.  The auction is for mid-band spectrum that carriers can use to help deploy 4G LTE networks. The success of the spectrum auction is particularly notable in light of arguments from wireless carriers in recent months that the application of net neutrality rules to wireless broadband would diminish their incentives to invest in infrastructure. Although the FCC has indicated that it is considering applying net neutrality rules to both wireless and wired broadband, carrier interest in bidding on the available spectrum surpassed all expectations.

The reason carriers are scrambling to buy up available spectrum is quite simple: consumer demand for wireless data has exploded in recent years, due to a robust market for mobile applications and services. The global market for mobile apps and advertising was worth $38 billion in 2013, up from about $6.8 billion in 2010. This latest spectrum auction shows what the FCC has described as the “virtuous cycle of innovation” at work: the more and better wireless services and applications are available to customers, the more consumers will demand sufficient capacity to use these services, and the more incentive carriers have to invest and expand their networks. Startups and entrepreneurs always find creative ways to make use of greater bandwidth and faster speeds, creating new applications to harness advances in infrastructure, further increasing consumer demand for more applications and more network capacity.

The key to all this innovation growth, of course, is robust competition and sound policy managing the finite public resource that is wireless spectrum. To ensure that the the wireless market remains competitive and innovative, the FCC and other regulators must work to promote policies that encourage wireless providers to use their spectrum efficiently and fairly, including taking steps to protect Open Internet principles in wireless networks and preserving spectrum for unlicensed use. The success of the auction is an encouraging sign for the future prospects of the US wireless market, but regulators should continue to work to ensure that sufficient spectrum is preserved for unlicensed use and not exclusively controlled by a few carriers.

Fighting the Entrepreneurial Divide, One Latino Startup at a Time

You can also read this post on Medium.

Jesse and Edwardo Martinez are brothers from Houston, software engineers by training and co-founders of several startups. Jesse has been in San Francisco since the late nineties, but it wasn’t until 2010 that he realized there wasn’t a dedicated effort in Silicon Valley to connect Latino entrepreneurs in technology like himself. So, he and Edwardo took it upon themselves to host a Meetup of their own.

“We were all wondering, were there really that many Latino entrepreneurs?” said Jesse.

Turns out, there were, but no one had brought them together just yet.  

Since then, the Meetup has burgeoned into the Latino Startup Alliance with the mission of cultivating entrepreneurial spirit within the Latino community and increasing the amount of Latino led technology innovation. The organization is based in Bay Area and expanding to chapters in New York, Miami, Chicago, Los Angeles, and Austin next year. Jesse has now left his third startup to support the Latino Startup Alliance full-time.

The expansion seems ambitious, but LSA may just barely be tapping into the Latino entrepreneurial community in the U.S. at large. Latinos are far and away the largest minority group in the United States, making up 17 percent of the population. U.S. News reports the Hispanic student population at 4-year colleges and universities is spiking, with a 20 percent enrollment increase since 2010, and 2015 will be the most Latino Congress in history, with 29 Hispanics in the House and three in the Senate.

Nonetheless, the representation of Latinos in technology lags at only seven percent. And in California, the hub of tech innovation and where the Hispanic population is expected to become the largest ethnic and racial group in the state, Latino students represented less than 1.3 percent of computer science AP test takers in 2013.

Jesse thinks the problem is due in large part to education (or, more precisely, lack thereof). He wants LSA to help expand opportunity for more Latinos and inspire more to pursue both careers in technology and take the risks of becoming an entrepreneur. Like many startup networks, LSA supports entrepreneurs in its community through fostering connections, offering educational opportunities, and providing mentorship.

Take for instance Deldelp Medina, a San Francisco-based mobile app entrepreneur. Medina got involved with LSA and soon connected to several other Latina women in tech. With the support of the LSA community, she and Jesse founded a pre-accelerator for Latina entrepreneurs in the mobile application industry called Avión Ventures. Through training and programming, Avión will support Latina women with an interest and potential in building technology.

Jesse and Deldelp hope to see many more connections and new ventures, like Avion Ventures, emerge from LSA. This week, LSA is hosting its second annual summit in San Francisco featuring startup pitches, keynote speakers, and networking events. They’re hoping it’ll be their biggest event yet and a catalyst to inspire more Latinos to become leaders in technology.

A recent Pew Research Study showed that the “Digital Divide” in Latino community in the U.S. is rapidly shrinking: technology usage is higher than ever among Latinos and at pace with most other demographic groups. While it is encouraging to see that divide shrinking, the Latino community—and the nation at large—only stands to benefit when Latinos don’t just use, but also create, that technology.

Congressional Hearing Highlights Troubling Practices at the Patent Office

Bad patents hurt innovation. This is especially true when they end up in the hands of patent trolls, who often use them indiscriminately to extort settlement payments. While we are glad to hear the Patent Office (PTO) has been increasing its efforts to improve the patent examination process and, in turn, patent quality, a recent government oversight hearing in Congress on telework abuse brought to light several PTO management practices that can’t help but hurt progress toward increased patent quality.

Some background on the joint House Judiciary and Oversight hearing: The PTO has long been recognized as a leader in telework, allowing employees the flexibility to work from home, and has leveraged it recruit and retain examiners. A few years ago, serious allegations surfaced regarding time and attendance fraud and ineffective oversight regarding the telework program. In response, the PTO conducted an internal investigation and issued a report in July 2013. Unfortunately, that report was considerably watered down from a more critical draft report, which—perhaps not surprisingly—was never released.

At the hearing, Oversight Chairman Issa, who has a few dozen patents of his own, emphasized the importance of patent quality; he even joked that he was sure some of his patents were invalid. Judiciary Chairman Goodlatte and Congressmen Connelly and Cummings zeroed in on PTO practices that hinder quality, and called for a reassessment of performance metrics to ensure that quality is not sacrificed to quantity. We couldn’t agree more.

Chairman Goodlatte and others expressed concerns about the examiner “count system,” which creates a series of incentives for examiners, essentially giving them credit for accomplishing certain tasks, e.g., approving a patent application. The count system is often criticized for pushing examiners to not give patent applications the time they really deserve and, as a result, issue unworthy patents. There have been efforts to reform the count system, however any real change has gotten mired in negotiations with the Patent Office Professional Association, otherwise known as the Patent Examiners Union.

Another issue that came up was "end-loading” of work by examiners at the tail end of each quarter and how that practice undermines quality. Supervisors, who have limited time to review the quarter’s work, cannot effectively monitor the quality of work submitted when it comes in a flood of end-of-quarter submissions. Apparently, the practice is rampant. At the hearing, PTO representatives reported that they were in discussions with the Union to address end-loading, but no details were provided as to how or when that would happen.

The patent system in this country is not working, and startups and small inventors, faced with a growing patent troll problem, shoulder the resulting costs. As Congress and the courts work to fix the problem, the Patent Office, too, must do its part. The mismanagement that came to light during the recent congressional hearing leads directly to more low-quality patents, which are a patent troll’s favorite weapon.

The good news is that President Obama recently nominated Michelle Lee to direct the Patent and Trademark Office. Michelle Lee, who currently acts as the agency’s deputy director, would not only be the first woman and first minority to hold that post, but she has a background rare in a long lineage of PTO directors: a patent lawyer from Silicon Valley who has worked for and at companies who operate in the software space. For all these reasons, and more, we strongly support Michelle’s nomination, and recently said so in a letter to Senators Leahy and Grassley.

We’re hopeful that under strong leadership, the PTO can clean up the problems that plague it and, in turn, return to its core mission of issuing patents that actually incentivize innovation instead of hindering it.

The SEC Could Drastically Limit the Pool of Startup Investors

It’s no secret that the availability of capital is critical for early stage startups. While entrepreneurs may find some initial financial support by tapping into the generosity of friends and family, once those pockets dry up, they often turn to angel investors—individuals who put their own money into what they see as promising ventures. While a small cadre of wildly successful angel investors have made millions from betting early on companies like Google and Twitter, thousands more across the United States are investing in early-stage startups in dozens of industries every day.

According to the Angel Capital Association (ACA), angels provide 90% of outside equity raised by startups. And in 2013, this group invested $25 billion in 71,000 companies. That’s impressive. But this number could drastically change depending on if and how the Securities and Exchange Commission acts after their review of the accredited investor definition, a status most angels depend on to pursue these private investments.

Whether the Commission should revise the definition of accredited investor was one of the topics at issue during the SEC’s Government-Business Forum on Small Business Capital Formation held last Thursday at its DC headquarters. The Dodd-Frank Act—the 2,300 page financial regulation bill—mandates, among other things, that the SEC undertake a comprehensive review every four years of what some consider an outdated definition.

By current SEC standards that were originally adopted in 1983, an individual is qualified as an accredited investor if she makes over $200,000 in annual income, her household has made over $300,000 in income, or she’s worth at least $1 million in assets, excluding her house. While this income level far surpasses the median household income in the United States, over 7 million individuals or nearly 4 million households still qualify, for now.

One proposal on the table at the SEC suggests adjusting these thresholds for inflation, which means you’d need to make around half a million dollars in order to invest your own money in a startup. According to numbers analyzed by the ACA, raising the income bar for inflation would disqualify nearly 60% of the accredited investor population. A decision like this could significantly reduce the pool of capital available for early stage startups.

This possibility is alarming. So it wasn’t surprising to hear many of the participants from the business community at the SEC’s forum express outright opposition to raising this threshold, not only because it would eliminate existing investors, but also because an income threshold to begin with misses the point. The entire reason for defining this class of people is to protect them from making poor investment choices.

Yet income is hardly an indicator of financial sophistication in undertaking risky investments, especially in the world of novel startups and high tech. By today’s standards it would be illegal for a bio-chemistry PhD making $190,000 a year to invest equity in a biotech startup on a site like Angel List. And if adjusted for inflation, someone making even twice that amount would still be prohibited from investing.

Voices in the startup and investment communities have suggested an alternative set of criteria which could include years of experience, licenses issued by a qualifying test, or relevant degrees to measure investor sophistication rather than only relying on an income threshold that offers virtually no insight on an individual’s understanding of capital markets.

Whatever the ultimate criteria, there’s clear opportunity for the SEC to expand participation in the startup economy, and facilitate capital formation, by allowing those with both interest and knowledge in innovative new companies to support the entrepreneurs building them.

At the end of the forum, attendees gathered to submit recommendations to the SEC as they review the definition. We hope the Commission takes these recommendations seriously. If not, they could end up significantly stifling a community that’s been an enormous asset for the startup economy, instead of expanding opportunity in it.

And whether anybody can invest equity in startups through crowdfunding—well, that’s another question the SEC will have to consider, but rules to regulate the equity crowdfunding market have only been proposed thus far. As far as we can tell, the SEC first wants to figure out who’s accredited. Visit engine.is/jobsact to learn more about the crowdfunding part of the JOBS Act and why we think that’s important, too.

President Obama's Executive Order on Immigration: A Small But Important Step Towards True Reform

Tonight, President Obama announced that he will sign an Executive Order that will, among other things, expand immigration options for foreign-born entrepreneurs and make it easier for high-skilled workers awaiting Lawful Permanent Resident status to change jobs. While the President’s actions fall short of the legislation we had hoped for, we are encouraged to see some movement toward fixing a broken immigration system that plagues all aspects of our economy.

In particular, we applaud the President’s efforts to bring more high-skilled workers to the United States. As the President said, we must promote policies that allow immigrant entrepreneurs “to stay and create jobs here, create businesses here, create industries right here in America.” While the political debate on immigration has long been contentious, one thing has always been clear: there is widespread and popular support for expansion of the H1-B visa program and other efforts to bring skilled workers, particularly those skilled in technology, here.

We are simply turning away far too many talented people that want to come to the US to grow businesses. This year, more than 100,000 high-skilled workers were turned away because of limitations on the number of H1-B visas available. As studies show that immigrants are twice as likely to start businesses as native-born citizens, failing to accommodate the many immigrants that want to come to the US to start businesses unquestionably harms the American economy.

Our potential for growth is limitless when the world’s best and brightest minds are here in America, building American companies, creating American jobs, and recreating the American dream for every new generation.

We wish tonight that we could celebrate real, comprehensive legislation that would fix all facets of a broken immigration system, but policymakers have not yet been willing to take up the difficult, politically fraught task of true reform. While the President’s Executive Order is a step towards meaningful reform, some worry that the President’s actions make a bipartisan compromise harder to achieve in the short term. We remain hopeful that the enormous economic benefits that will flow from comprehensive immigration reform will encourage policymakers on both sides of the aisle can put party politics aside and take lead by finding solutions to the myriad problems with our immigration system that still remain.

Engine and R Street Release Study of Ridesharing Regulations

Few startup innovations in the past few years have been as influential and controversial as ridesharing technologies. The emergence and explosive growth of companies like Uber, Lyft, and Sidecar signaled the rise of the sharing economy, allowing virtually anybody to put their spare time, spare car, or spare room to productive use. Not surprisingly, incumbents operating in the markets that these new startups shook up have reacted strongly to their new competitors. Taxi interests in particular have fought hard against transportation networking companies (TNCs), lobbying for restrictions on their operation, and even getting cities to ban their operation entirely.

Regulators will always have a hard time keeping pace with the development of new technologies, but we believe that the great consumer value of TNCs and other sharing economy services warrants a balanced approach between promoting competition and protecting legitimate public health and safety concerns. To better figure out which cities were doing the best and worst to foster competition and innovation in transportation markets, Engine, in partnership with R Street Institute, released a report ranking US cities on how friendly their regulatory climate is towards ridesharing.

The study shows a wide range of regulatory approaches to ridesharing, with some cities like Portland banning them outright, and some like Washington D.C. creating a specific regulatory framework for TNCs that allows them to operate in the city under rules designed for their particular concerns. With this paper, citizens can learn more about what their representatives are doing to promote healthy transportation markets in their cities and figure out what other cities are doing right or wrong to encourage innovative startup activity in the transportation sector.

Along with the paper, R Street launched an associated website that maps out the cities in the study along with their grades and provides tools for citizens to ask their representatives to enact better TNC regulations.

The recent debate about how to treat ridesharing companies is a great case study for how startups can have a quick and meaningful impact on a city’s quality of life and how regulations have a hard time keeping up with the pace of innovation. With this paper, we hope that policymakers can learn about what works and what doesn’t when it comes to regulating the sharing economy.