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26–250 2018

REVERSING THE ENTREPRENEURSHIP DECLINE 

HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

JULY 19, 2017 

Small Business Committee Document Number 115–030 

Available via the GPO Website: www.fdsys.gov 

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Congress.#13
(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

STEVE CHABOT, Ohio, Chairman 

STEVE KING, Iowa 

BLAINE LUETKEMEYER, Missouri 

DAVE BRAT, Virginia 

AUMUA AMATA COLEMAN RADEWAGEN, American Samoa 

STEVE KNIGHT, California 

TRENT KELLY, Mississippi 

ROD BLUM, Iowa 

JAMES COMER, Kentucky 

JENNIFFER GONZA ́ LEZ-COLO ́ N, Puerto Rico 

DON BACON, Nebraska 

BRIAN FITZPATRICK, Pennsylvania 

ROGER MARSHALL, Kansas 

RALPH NORMAN, South Carolina 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

DWIGHT EVANS, Pennsylvania 

STEPHANIE MURPHY, Florida 

AL LAWSON, JR., Florida 

YVETTE CLARK, New York 

JUDY CHU, California 

ALMA ADAMS, North Carolina 

ADRIANO ESPAILLAT, New York 

BRAD SCHNEIDER, Illinois 

VACANT 

KEVIN FITZPATRICK, Majority Staff Director 

JAN OLIVER, Majority Deputy Staff Director and Chief Counsel 

ADAM MINEHARDT, Staff Director 

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(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Hon. Steve Chabot ................................................................................................... 1 

Hon. Nydia Vela ́zquez ............................................................................................. 2 

WITNESSES 

Gregory Crawford, Ph.D., President, Miami University, Oxford, Ohio ............... 4 

Ms. Karen Kerrigan, President & CEO, Small Business & Entrepreneurship 

Council, Vienna, VA ............................................................................................. 6 

Mr. Joe Schocken, CEO, Broadmark Capital, Seattle, WA .................................. 8 

APPENDIX 

Prepared Statements: 

Gregory Crawford, Ph.D., President, Miami University, Oxford, Ohio ........ 29 

Ms. Karen Kerrigan, President & CEO, Small Business & Entrepreneurship Council, Vienna, VA ............................................................................. 33 

Mr. Joe Schocken, CEO, Broadmark Capital, Seattle, WA ........................... 42 

Questions and Responses for the Record: 

Questions from Hon. Steve Chabot to Ms. Karen Kerrigan .......................... 49 

Additional Material for the Record: 

None. 

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(1) 

REVERSING ENTREPRENEURSHIP DECLINE 

WEDNESDAY, JULY 19, 2017 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Committee met, pursuant to call, at 11:00 a.m., in Room 

2360, Rayburn House Office Building, Hon. Steve Chabot [chairman of the Committee] presiding. 

Present: Representatives Chabot, Luetkemeyer, Radewagen, 

Knight, Kelly, Blum, Bacon, Fitzpatrick, Marshall, Norman, 

Vela ́zquez, Murphy, Lawson, Clarke, Adams, Espaillat, and Schneider. 

Chairman CHABOT. Good morning. The Committee will come to 

order. 

We appreciate the panel being here, and I will be brief in my 

opening remarks so we can get the testimony. 

Last month, the national unemployment rate was down to 4.4 

percent, and the stock market continues to rise, setting new highs 

almost daily. But amid these encouraging statistics, the American 

economy continues to grow at only half its historic average. A slower economy means lower growth and wages for American workers, 

a higher national debt, and makes it harder for Americans to 

achieve the American dream. 

Just last week, the administration acknowledged the need for 

faster economic growth through their MAGAnomics plan, a term I 

am told was coined by our former colleague and new OMB director, 

Mick Mulvaney. I look forward to continue working with the administration on their priorities of regulation and tax reform to 

grow the economy. 

One group that should benefit from these reforms are new and 

small businesses, as they are the main engines of economic growth. 

They create the majority of our nation’s jobs and spur innovation. 

However, since the great recession, there has been a significant decline in entrepreneurship, which may in part explain the slow economic growth experienced in American today. 

With last week marking Major League Baseball’s All-Star Game, 

the Committee has put together its own group of small business 

and entrepreneurship all-stars to testify this morning. By listening 

to solutions that can be made by the federal government, universities, and the private sector, we can all work together to ensure 

America remains the most innovative and entrepreneurial country 

in the world. 

We appreciate the testimony of the witnesses today. As some 

members may be aware, originally, I had Larry Kudlow also on the 

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2 

panel, and unfortunately, he informed us yesterday he was unable 

to make it today. So he will not be here. But we have three great 

witnesses we will turn to shortly. 

And I would now like to yield to the Ranking Member for an 

opening statement. 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. And thank you for 

holding this timely hearing. 

In this Committee, we often say that small businesses are the 

backbone of the economy, and that is absolutely true. However, 

when we think about job creation, something I know all of our constituents want us to focus on, it is not just small firms, but specifically, new firms, that lead the way. Fledging companies that scale 

up rapidly need to add employees to their payrolls and that translates into new jobs. This type of entrepreneurship has long been a 

cornerstone of our economy, and it is necessary for the United 

States to see continued economic prosperity. 

While the last 2 years have seen a slight uptick in business formation, unfortunately, entrepreneurship and business creation has 

seen a decades-long decline since the 1970s. In 2014, our nation 

created slightly over 450,000 new firms. That represented the lowest number of firms created in any year in more than 4 decades. 

This troubling trend stems from a confluence of factors. Lack of 

capital remains an ongoing problem for all entrepreneurs. However, the problem is particularly pronounced for traditionally disadvantaged demographics, like women and minorities. In fact, the 

Kauffman Foundation found that over 70 percent of Asian, Hispanic, and Black entrepreneurs, relied on personal and family savings as their main source of startup capital. And women typically 

launch their ventures with 25 percent less capital than their male 

counterparts. 

These disparities come with significant cost to our economy. According to one analysis, if minorities started businesses at the 

same rate as non-minorities, the U.S. will have more than 1 million 

additional employer businesses, and as much as an extra 9.5 million jobs. 

We must also look at ways to foster entrepreneurship among 

younger people. With over $1 trillion in national student loan debt 

and an average of $37,000 for recent graduates, too many young 

people are foregoing the opportunity to create a new business. I 

have authored legislation that will provide student loan relief to recent graduates who launch startups and to their employees. I 

would be interested in hearing the panel’s view on that idea today. 

Finally, we must ensure that our nation remains the land of opportunity for foreign-born entrepreneurs. Immigration and entrepreneurship have long been drivers of our economic success. For 

generations, America has been the place to take a chance, build a 

business, and ultimately, strengthen our economy and communities. In my city, New York, nearly half the small businesses are 

owned by immigrants. Nationally, more than half of startups valued at $1 billion or more, were founded by immigrants. 

To reverse declines in entrepreneurship, we must build on this 

asset. I am concerned that the current administration policies and 

anti-immigrant rhetoric, could severely stifle this important source 

of talent. We should be advancing strategy that draws on immiSBREP-219A with DISTILLER

3 

grants’ innovation, hard work, and entrepreneurial spirit, not creating additional barriers. 

During today’s hearing, we will hear a wide array of ideas to foster entrepreneurship. This is an important topic that directly affects the livelihood of all our constituents, whether you are from 

Brooklyn, New York, Silicon Valley, Cincinnati, Ohio, or Lincolnshire, Illinois, I hope today’s discussion provides a range of new 

ideas that members of the committee can coalesce around. 

In that regard, I want to thank all the witnesses for their participation and insight. 

And with that, Mr. Chairman, I yield back. 

Chairman CHABOT. Thank you very much. The gentlelady 

yields back. 

And if Committee members have an opening statement prepared, 

we would ask that they be submitted for the record. 

I would like now to take just a moment to explain our timing 

rules here. It is pretty simple. You get 5 minutes to testify and we 

get 5 minutes. I know some of you have been through the drill before many times. And there is a lighting system to assist you. The 

green light will be on for 4 minutes. The yellow light will come on 

and let you know that you have got about a minute to wrap up and 

then the red light will come on and we ask you to stay within that 

timeframe if at all possible. 

I would now like to introduce our distinguished panel here this 

morning. Our first witness is Dr. Gregory Crawford, the current 

president of Miami University, the real one in Oxford, Ohio, not 

that one down in Florida. And I might note that our staff director, 

Kevin Fitzpatrick, is a graduate of Miami University, and my son, 

Randy, and my brother, Dave. And Dave is a Miami merger because his wife Ellen also went there. They have four kids and live 

in Florida. But in any event, we welcome you here, Dr. Crawford. 

Under your leadership, the Entrepreneurship Program at Miami 

University Farmer School of Business is ranked sixth among public 

institutions and first in social entrepreneurship. He is also an entrepreneur himself, co-founding Myomics, a drug discovery company and Corum Medical, which produces non-invasive optical devices. And we thank you for being here. 

Our second witness is Ms. Karen Kerrigan, President and CEO 

of the Small Business and Entrepreneurship Council. Not a stranger, of course, to this Committee. Ms. Kerrigan has testified before 

numerous House and Senate Committees, and we welcome her 

back. She is an advocate for protecting small businesses and promoting entrepreneurship here in Washington, D.C.—not just here 

in D.C. but all over the country. She has served on numerous federal advisory boards, including the National Women’s Business 

Council, and the U.S. Treasury Taxpayer Advisory Panel. And we 

again welcome you here. 

I would now like to yield to the Ranking Member to introduce 

our third witness. 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. 

It is my pleasure to introduce Mr. Joe Schocken, the president 

and founder of Broadmark Capital, headquartered in Seattle, 

Washington. He currently serves on the United States Commerce 

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4 

trepreneurship. He holds a degree from the University of Washington and an MBA from Harvard University. Welcome. Thank you 

for being here today. 

Chairman CHABOT. Thank you very much. 

Dr. Crawford, you are recognized for 5 minutes. 

STATEMENTS OF GREGORY CRAWFORD, PRESIDENT, MIAMI 

UNIVERSITY; KAREN KERRIGAN, PRESIDENT AND CEO, 

SMALL BUSINESS AND ENTREPRENEURSHIP COUNCIL; JOE 

SCHOCKEN, CEO, BROADMARK CAPITAL 

STATEMENT OF GREGORY CRAWFORD 

Mr. CRAWFORD. Thank you. Chairman Chabot, Ranking Member Vela ́zquez, and Committee members, I am just thrilled to be 

here today to talk about entrepreneurship. So thank you so much 

for the invitation. 

I would like to answer three questions today: How do universities 

cultivate entrepreneurial leaders? The second question, how does 

Miami University promote the entrepreneurial spirit? And thirdly, 

kind of the new metric we are looking at is not just if our students 

get jobs, but how many jobs they actually create. 

So a little bit about my biases and my background. I am a physicist and inventory, so a little bit geeky, I bet. Co-founder of two 

tech startup companies, industrial experience out in Silicon Valley 

and Xerox Park Economic Development in Indiana, and then leadership at three top universities. And so over my time in my career 

have sort of come to the definition of entrepreneurship as seeking 

potential, seizing opportunity, and synthesizing solutions for societal impact. 

And many folks think that at a university, that entrepreneurship 

is fully embedded in the business school, and we have one of the 

best business schools in the country, the Farmer School, but nevertheless, entrepreneurship is all throughout our campus, and more 

than half of our students are actually outside the business school 

in all different majors, across all the different colleges and so forth. 

One example is the company OROS, which just was featured in 

the Forbes Magazine article, Why Ohio is the Best State in America to Launch Startups, that were two science students at Miami 

who actually leveraged the NASA technology, Aerogel with low 

thermal connectivity, and made great new coats and apparel for 

that. So we are very excited about that. 

Entrepreneurship education and how do we do it? We kind of 

think of it in three steps. Number one, we think of the T-shaped 

individual, and that is the person that has both depth, so there are 

good computer scientists, for example, but then we have this wonderful liberal arts core where they can study philosophy and ethics 

and anthropology and so forth. And then surrounded by that we 

look at entrepreneurship as a co-major, so they back that on. But 

what we bring to the table for our students is really to get them 

involved with entrepreneurship, exercises, experiences, and so 

forth, and those experiences. And so we look at it that way. We 

have a top-ranked institute for entrepreneurship, as you mentioned, Mr. Chairman, and also, we have a wonderful entrepreSBREP-219A with DISTILLER

5 

neurial faculty and students in our Armstrong Institute for Interactive Media Studies. 

Our ecosystem, a student can go along all different paths in the 

university. They can be involved with entrepreneurial clubs. They 

can live in a dorm that is a LLC, a living, learning community, 

where they are all entrepreneurial-minded. They can go and start 

a social entrepreneurship company through a net impact club. We 

do all kinds of great things on events and they can be part of a 

venture competition. We have a startup weekend where they just 

involve starting a company over a 3-day period. And we have internships all around the world, around the country. We think that 

Oxford, Ohio, is fantastic, but we need to get in the heart of some 

of these entrepreneurial environments. 

And so I would love to talk to you about a few of the examples 

there. Number one, we just think there is no replacement for students getting involved with an entrepreneurial company. They are 

real projects, real states, real consequences. It is messy, complex, 

and risky, and we want to get them involved with that. And one 

of our affiliations is Cintrifuse in Cincinnati, and it is just a wonderful place, which is a catalyst for high-tech startups and small 

startups and so forth. And so our students are engaged with companies such as Roadtrippers or Frameri, 84.51 and the Brandery, 

and they really get mixed up in those type of experiences. 

The second one is putting our students in the heart of Silicon 

Valley. And so we were one of the first external satellite campuses 

out there in Silicon Valley in the San Francisco area, and it is a 

study abroad experience in a sense but in our country. And the students are embedded in startup companies for 4 days of the week, 

and then on the fifth day they get to meet with executives and 

thought-leaders in the Silicon Valley area at places like Facebook, 

Apple, Instagram, Google, and Twitter. So we are very excited 

about that program, getting them deeply engaged in that. 

The impact of our alums is pretty fantastic. We do a lot of focus 

on our undergraduate education at Miami. That is what we are 

known for. And if we look at LinkedIn, we have more than 1,500 

Miami alums that categorize themselves as founders. Over the last 

5 years, since 2011, we have brought in more than $2 billion in 

venture capital money for affiliated high-growth companies coming 

out of the university with our alums. 

And thirdly, we had about 94 Miami companies exit high-growth 

companies since 2011. 

So the role of entrepreneurship, it really plays sort of a big national role today and universities can add on the research side, 

which I did not speak too much about but we love to address. And 

they also can really train and provide innovative curriculums for 

students to really engage in that kind of enterprise. 

The outcomes are great. Students can graduate and start companies, which is fantastic, but they can also take those entrepreneurial skills and go off and be great lawyers and work in the medical enterprise and be congresswomen and senators and so forth. 

And I do believe there is the intangibles that an entrepreneurial 

kind of education offers that sometimes we do not talk about. We 

often talk about the skillset, but it creates an environment for 

them at a university where they can embrace failure, and when 

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they fail, they can embrace it with kind of enthusiasm and optimism, knowing that it is just a step to success. 

Second of all, it gives you the courage to step out and do something that nobody else has ever done in the world or nobody else 

has ever succeeded at. 

And third, it enables our students to think about an idea and 

bring unity to a concept, and also bring unity to a team. 

And so I am very happy to be here and report that we are not 

just counting students who get jobs after graduation. More than 95 

percent of our kids have a job 6 months after graduation. But my 

new metric is looking at impact on the university and how it impacts society in our country. And so how many jobs that our students create after graduation. Thank you. 

Chairman CHABOT. Thank you very much. 

Ms. Kerrigan, you are recognized for 5 minutes. 

STATEMENT OF KAREN KERRIGAN 

Ms. KERRIGAN. Well, great. Thank you so much, Chairman 

Chabot and Ranking Member Vela ́zquez, Members of the Committee. It is great to be here. 

Chairman CHABOT. Could you pull the mic a little closer, 

maybe? 

Ms. KERRIGAN. No. Actually, I think—oh, this? The whole box? 

Okay. 

Chairman CHABOT. Yeah. 

Ms. KERRIGAN. Okay. Got it. How are we doing? 

Chairman CHABOT. Good. 

Ms. KERRIGAN. Good. 

Chairman CHABOT. Much better. 

Ms. KERRIGAN. Okay. Thank you. 

So my group, the Small Business and Entrepreneurship Council, 

we are very grateful that the Committee has convened this hearing 

on this very critical issue. Restoring healthier levels of entrepreneurship and new business creation is vital to our country’s economic strength and to opportunity in America. Thank you for the 

invitation to be here. 

SBE Council, just real quickly, we are a nonprofit advocacy research and education organization dedicated to protecting small 

business, promoting entrepreneurship. For nearly 25 years, we 

have been working on policy initiatives and private sector initiatives to strengthen the ecosystem for startups and successful small 

business growth. Our members have testified many times before 

this Committee, and they have seen that their participation and 

your positive engagement has led to successful policy outcomes in 

a number of areas—access to capital, tax policy, regulatory relief, 

government procurement, and more. So we appreciate your continuous work and your ability to actually get things done. That is very 

much appreciated by our members. Every hearing, every piece of 

legislation and your advocacy is very important to building an environment where people want to take risks and pursue the dream of 

starting a business. 

John Lettieri, the cofounder of the Economic Innovation Group, 

he recently participated in our event we had on the Hill, the Startup Policy Forum last month, and he made an observation that I 

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think is worth repeating here. He noted that, indeed, there is a 

growing awareness about the trends in entrepreneurship, but there 

is a lack of connectivity in the policy debate regarding just how severe these trends are and what their implications are for the 

broader economy. And we think that really needs to change at 

every level of government and within the business community itself 

because entrepreneurship, as you know, is so critical to our country, its dynamism, and strength. 

In a series of gap analysis studies at my organization conducted 

in the summer and fall of last year, our chief economist, Ray 

Keating, looked at key gaps in the economy. We looked at gaps in 

wage growth. We looked at the gaps in private sector investment. 

We looked at the gap in jobs. And of course, we looked at the gap 

in entrepreneurship. 

Keating looked at three data points—the incorporated self-employed, unincorporated self-employed, and employer firm data. He 

looked at the pre-recession high—that is 2008—for each measure 

as a share of the civilian, noninstitutional population and compared 

those to where we are now according to the latest data. His findings show that there is a gap of about 3.5 million businesses in 

America. That is businesses that simply do not exist because people 

never started them. 

An Economic Innovation Group study reinforces our findings, but 

also finds that new business creation during the 2010-2014 recovery was highly concentrated. Their study notes that the five metro 

areas of New York, Miami, Los Angeles, Houston, and Dallas, produced as big of an increase in Businesses as the rest of the Nation 

combined. And for comparison, the recovery and expansion during 

the 1983-1987 period found much less concentration, with new 

business creation in 25 metro areas produced the same increase as 

the rest of the Nation. 

So obviously, this has been happening over some time. We know 

this recovery has been imbalanced. There are those left behind, 

those who currently think they are still, or we are still in a recession, and we know this difficult period has left these scars on 

many. We believe it is showing up, for example, in the big dropoff in entrepreneurship among younger Americans, those ages 18 

to 34. I cite several reports in my written testimony, the Millennial 

Entrepreneur study from the SBA Office of Advocacy, a Wall Street 

Journal report, the latter of which finds that the share of younger 

people who own private businesses has reached a 24-year low. 

Now, there are some groups, and there is some positive news. 

Some groups and sectors of the population that have bucked this 

trend where entrepreneurship remains stronger is growing. Entrepreneurs aged 55 to 64 made up for 25 percent of all new entrepreneurs in 2016, and that is up from 14.8 percent in 1996. Immigrant entrepreneurs continue to show strength as they account for 

30 percent of new entrepreneurs. 

So, you know, there is obviously some bad news on the entrepreneurship front, but I do think there is a lot to be hopeful for in the 

future. At the state and local level there is a tremendous amount 

of policy changes and initiatives that are focused on lowering barriers and providing support to help people start businesses. In 

terms of the states of the two witnesses here, I mean, both of their 

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states rank in the top 10 in terms of from a policy environment, 

but that took a lot of hard work in terms of keeping taxes low, 

streamlining regulations, engaging the business community and 

making those places great places to start businesses. Business 

leaders and successful entrepreneurs are stepping up and bringing 

their capital, know-how, energy, and networks back into their communities and cities to help rebuild and revitalize areas that particularly need help. We heard a great success story from Dan Gilbert, the founder and chairman of Quicken Loans at our policy 

forum where he is really pumping billions of dollars back into Detroit and making that a great place for people to live, and obviously, for new entrepreneurs. 

There is great news on the broadband front. A whole lot of things 

that are going on. We just need more of this activity to happen. 

And certainly, Congress has a role to play in terms of tax, regulatory, and healthcare reform as well. So I look forward to discussing these things with you and the Committee. 

Chairman CHABOT. Thank you very much. We appreciate it. 

Mr. Schocken, you are recognized for 5 minutes. 

STATEMENT OF JOE SCHOCKEN 

Mr. SCHOCKEN. Good morning, Chairman Chabot, Ranking 

Member Vela ́zquez, and members of the Committee. My name is 

Joe Schocken, and as the president and founder of Broadmark Capital, I spent my entire career on new company formation, capitalization, and development. 

I am very pleased this Committee is willing to tackle this vitally 

important subject of reversing the entrepreneurial design. At the 

same time, we also need to accelerate our economic growth, create 

high wage jobs, build an economy that offers opportunity for all, 

and can compete effectively in the face of increasing globalization 

and automation. 

The solution to these problems is to unleash the power of our innovation economy. That is where all the new net jobs get created, 

and the good news is that there are some pretty simple answers. 

The answers come from the Jobs Act, which I had the honor of 

working with members of Congress and the Obama Administration 

to pass. I say pretty simple because that law passed with broad bipartisan support, and it showed that some minor policy tweaks will 

produce the capital that unleashes the innovation economy and 

does it without creating problems. So here are some immediate solutions that we should all be able to agree on to remedy this decline. 

First, fix general solicitation. Seventy billion dollars of capital 

was raised in the first 27 months following the Jobs Act, almost all 

of which went into additional capital, into small companies and 

new projects spurring job growth, and that was done under the severe regulatory burden of third-party verification. Go back to the 

previous standard of self-certification, which was never a problem, 

and the $70 billion number will grow instantly and exponentially. 

Next, fix equity crowdfunding. Crowdfunding is an important 

and useful tool, especially for attracting capital to our struggling 

inner cities and capital-starved regions. It has failed because the 

SEC’s unworkable regulations have limited its potential. 

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Make it simpler and more attractive for small companies to do 

IPOs. Costs and regulatory burdens continue to make the traditional IPO path unattractive for small companies. The Jobs Act 

took a small step to correct this and we need to do more. Expand 

the pool of accredited investors by allowing people to become accredited through educational and employment qualifications. Finally, here is a novel idea; let early stage companies raise additional capital by selling their net operating losses. Let them leverage their hard-won capital in many cases that will make a difference between success and failure. 

These are simple, short-term fixes that will have a major and 

quick impact on reversing entrepreneurial decline and create real 

growth in the American economy. But we also need to address the 

bigger, harder, long-term systemic issues that impede our innovation economy. For that, we should create a commission on the innovation economy. Bring in the best and brightest venture academic, 

legal, and experienced entrepreneurs to advise the Congress, White 

House, and the agencies. A bill to do this is being introduced in 

both houses and we encourage its immediate adoption. This commission should be tasked with addressing some of these difficult, 

long-term systemic issues, such as bringing back the small regional 

IPOs. We used to have small IPOs for the regional manufacturers 

and retailers which would create regional jobs and spread economic 

growth more equally across the country. Spread venture capital 

more evenly across the country, and expand opportunities for 

women and minorities. The regional gender and racial imbalance 

is a real problem and contributes to the economic and political 

stress in this country. 

The number of venture firms in this country is down by 50 percent, starving the innovation economy of the $5 and $10 million A 

round financings designed to bring the experience and management expertise of venture professionals to follow the initial seed 

and angel financings. Our leaders are just beginning to acknowledge the problems created by a 50 percent decline in the number 

of public companies. Increasing the number of public companies 

would boost jobs, enhance transparency, lower the cost of capital, 

and make pricing more efficient. 

So there is a formula for reversing our entrepreneurial decline. 

Move quickly to solve the easier, near-term issues and create a 

commission of the best and brightest around the innovation economy to solve the tougher long-term issues. The American innovation economy has long been the envy of the world. The countries 

that are envious now are investing deeply to compete with us and 

we need to respond. 

Thank you for taking the time to address this vital issue. I look 

forward to working with you on solutions, and I am pleased to answer any questions. 

Chairman CHABOT. Thank you very much. 

And I will begin with myself and recognize myself for 5 minutes. 

Dr. Crawford, I will start with you first. So just how great is 

Miami University of Ohio? 

Mr. CRAWFORD. Well, since you asked. 

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Chairman CHABOT. No, my real question. As an entrepreneur 

yourself, what were some of the biggest lessons that you learned 

as a co-founder of two startup companies? 

Mr. CRAWFORD. Thank you for the question. I there were several areas. I was a physicist, number one, and when I started my 

first company I thought, you know, I can do quantum mechanics, 

therefore, I can do accounting. And boy was I wrong. And so I really learned how to actually pull together a team and bring unity 

around something that is very transdisciplinary and requires all 

types of expertise. And you just simply cannot do it on your own. 

The second area was just how much inertia is out there in the 

marketplace, and you fight against change, and if it is disruptive 

change, it is even more difficult to kind of move the needle forward. 

But as one of my mentors put it, if there is no inertia, you probably 

do not have a very good idea, which was actually absolutely right. 

And the third area I think, just on the personal side, as a physicist, you can kind of over engineer everything, and so the 

mentorship on really how to bring simplicity to your project, I 

think, is very important. And so, but what I did learn overall, when 

you look at entrepreneurship and you look at it from your company’s perspective or building it through the university is just how 

important the partnerships are. If you do not have that ecosystem, 

if you do not have the infrastructure in place that you can go to 

the intellectual property attorney, the corporate attorney, you can 

go to the venture capital or the angel investment firm or your local 

state for seed funding, you just cannot make it all work. So the 

most important I would say learning is how to actually develop 

those partnerships and move forward in a more strategic way with 

both your state and the country. 

Chairman CHABOT. Thank you very much. 

Ms. Kerrigan, I will go to you next. 

In your written testimony, you stated that risk aversion after the 

financial crisis has become an issue preventing Americans oftentimes from taking on risk and starting new businesses. What solutions would you suggest to potential entrepreneurs to ease their 

anxiety in starting a business? How would you address that? 

Ms. KERRIGAN. Well, I think it all starts with the economic climate and, you know, bringing back sort of robust economic growth 

in the country. I think once there is that traction and there is sustainable growth, you are going to have more private sector investment. You are going to have more job growth, more quality job 

growth. I mean, things will just brighten up overall. And so if you 

have that breakthrough, sort of that light in the economy where 

there is sort of more competence and more optimism, I think it will 

bring more people off the sidelines and take those risks. 

I talked about the Millennial generation, and particularly I think 

in my written testimony, why this generation might be so risk 

averse, but I was very heartened to see an American Small Business Development Center survey that they just released in May of 

2017, that found that 50 percent of millennials planned to open 

businesses in the next 3 years. Wow, that would be terrific, you 

know, for our economy. So we need to enable that. We need to encourage that. But the two things, the two barriers that stood out 

at me are issues that this Committee has dealt with, access to capSBREP-219A with DISTILLER

11 

ital being a key issue. And the other which was a surprise; they 

do not know where to go to start a business. 

So I think really building out the ecosystem. Making sure, you 

know, the policy environment has to be right, access to capital, access to markets, and then access to education and information that 

people have that can successfully start and scale their business. 

Chairman CHABOT. Thank you very much. 

Mr. Schocken, are there any particular regulations that you 

would like to see revised or removed that would especially help entrepreneurs or small businesses generally? 

Mr. SCHOCKEN. Well, Mr. Chairman, I would go back to my 

testimony. We suggested a series of minor regulatory changes that 

would have a dramatic impact on the innovation economy. They 

build on our learnings from the Jobs Act. I mean, take general solicitations. Seventy billion dollars. You create a general solicitation 

in the Jobs Act and $70 billion of capital was directed into new 

companies and new projects across the country. And that is with 

basically one-and-a-half hands tied behind our back because of this 

third-party verification requirement. 

So Congress has accepted the notion of general solicitation. The 

SEC wrote a set of regulations that effectively fixed a problem that 

did not exist. There was no third-party verification before required 

for these securities, and you will not find anything in the literature 

that said it was a problem. The problem got created, and even with 

that major impediment to capital formation, $70 billion of new capital. And lack of access to capital is one of the most significant factors in impeding the innovation economy. So I have given you an 

outline of a couple of easy things to fix and also outlined some longterm issues that I think are terribly important. 

Chairman CHABOT. Thank you very much. My time is expired. 

The Ranking Member is recognized for 5 minutes. 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. 

Mr. Schocken, can we go back again to the concentration of capital, access to capital, in terms of geographic areas? Not only about 

debt financing but venture capital. How do you see or what role 

can we play in addressing that issue? It is one that constantly, you 

know, we bring up to the Small Business Administration, even the 

VC program that we have at SBA, is doing a poor job in reaching 

every corner of America, particularly rural America and minority 

and women-owned businesses. 

Mr. SCHOCKEN. You could not be more correct. And let me 

begin with a really startling statistic. Since the 2008 recession, 50 

percent of new business formation in the United States has come 

from .64 percent of the counties in the United States. Fully 50 percent of new businesses came from 20 of 3,100 counties across the 

United States. That is a total concentration of economic growth in 

just a very small set of areas. 

Let me give you one other statistic. Fifty percent of all venture 

capital last year went to one state. So this problem is a really serious problem. And as a business guy, it does not come easily for me 

to suggest that there is a Federal role here, but I am going to suggest that I think there is. We used to have an SBIC program, 

where the SBIC sponsored venture capital funds around the country. We in the industry viewed it as a successful program. It was 

SBREP-219A with DISTILLER

12 

viewed as unsuccessful because the bonds were not paid off by the 

investments that were made. And my view is the study that proved 

that was a poorly done study because, in fact, the debts were not 

paid back, but in doing that calculation, nobody bothered to take 

into account the taxes that had been generated by those companies 

and by those employees. And so I think part of the answer to your 

question is bring back that SBIC program. 

Ms. VELA ́ ZQUEZ. Thank you. Thank you. 

Mr. Crawford, would you like to comment? 

Mr. CRAWFORD. Thank you. Could you repeat the question, 

please? 

Ms. VELA ́ ZQUEZ. Let us talk about the changing face of the 

economy. More women are creating jobs and business formation 

and minority businesses. How can we improve access to capital, not 

only debt financing, but venture capital? 

Mr. CRAWFORD. Sure. 

Ms. VELA ́ ZQUEZ. You see the role that $2 billion in VC did to— 

the kind of impact that it had in your program. 

Mr. CRAWFORD. It has, and I would say another thing. Coming 

from my perspective at a university as well is that some of the 

ideas that we have are very early on. They are very embryonic in 

a sense, and so we have to kind of get them to the level where you 

can even be in a series A kind of round. And so personally, I have 

been the beneficiary, and I know many other people who have on 

the SBIR programs and the STTR programs, so that early kind of 

see nondilutive capital through grants I think is a great way to 

take some of those early, those big ideas that we have to get to the 

next stage and get to the prototyping stage and how that would 

work out I think would be great from that perspective. 

And also, I do like your idea of just reimbursing students for debt 

if they go into small business and so forth. That is just a fantastic 

idea. 

Ms. VELA ́ ZQUEZ. Thank you. 

Mr. CRAWFORD. And I hope you move that forward. 

Ms. VELA ́ ZQUEZ. Thank you. 

Ms. Kerrigan, tax reform remain a high priority, but also an elusive one, even in this Congress. So members on this committee understand the importance of keeping the interests of small firms and 

entrepreneurs in mind as we approach tax discussion. How could 

simply updating thresholds and adjusting them for inflation annually help create a better entrepreneurial environment? 

Ms. KERRIGAN. I think that is a great question. For example, 

if you look at the—and I am talking about the tiniest businesses 

here. They just start up and if you look at the self-employment 

threshold, for example, where you start paying self-employment tax 

at $400, that has not been updated since the 1950s. And if that had 

kept pace with inflation, whatever they do, that would be over 

$6,000 right now, and there is a lot of complexity with that. It is 

a big turn off, particularly for young entrepreneurs. I am talking 

about people that start businesses that are 15, 16 years old. This 

is the Tax Code. This is what I am going to have to deal with. So 

that is just one idea I think of a threshold that the Congress can 

look at and to update and to modernize. 

Ms. VELA ́ ZQUEZ. Mr. Chairman, I yield. 

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13 

Chairman CHABOT. Thank you. The gentlelady’s time is expired. 

The gentleman from Missouri, Mr. Luetkemeyer, who is the Vice 

Chairman of this Committee, is recognized for 5 minutes. 

Mr. LEUTKEMEYER. Thank you, Mr. Chairman. And thank all 

of you for being here today. 

As the ranking member indicated, there are a number of concerns that we have with regards to small businesses. We have 

talked about taxes, regulations, broadband last week, and then access to capital is what has been discussed with the two previous 

questioners. And to me, this is a really key situation because you 

may have a great idea, but until you can get the money to put it 

in place to operate your business, you are stuck. 

And so it is interesting, Mr. Schocken, you mentioned that 50 

percent of all venture capital went to one state last year. Can you 

explain why? Have they just got all the brainpower there to come 

up with all the ideas or is that where they have all the money? Or 

they have both? Or how does this all work? 

Mr. SCHOCKEN. Well, first of all, 50 percent went to one state 

and just as consequential, there has been a 50 percent decline in 

the number of venture firms in this country. There has not been 

a decline in the amount of capital managed in the industry. So the 

number of firms is down by 50 percent. What that means is the 

firms are making fewer, larger, and later stage investments, and 

those are concentrated in just a couple of these markets. And that 

is one of the most important long-term systemic issues that we 

should be addressing. 

Mr. LEUTKEMEYER. One of the things that you also mentioned 

in your testimony was with regards to regional IPOs. Can you 

elaborate a little bit? That is kind of an interesting concept to me. 

I would like to delve into that just a little bit. Can you talk about 

it a little bit? 

Mr. SCHOCKEN. When I grew up—— 

Mr. LEUTKEMEYER. That makes two of us. 

Mr. SCHOCKEN. The way I grew up in this industry, we had 

small regional IPOs. Today, every IPO, virtually IPO is $100 million or larger, and there are many small companies across this 

country, small, regional manufacturers, craft brewers, small manufacturing companies. The $25 million IPO has gone away. 

Mr. LEUTKEMEYER. And the reason for that is? 

Mr. SCHOCKEN. Well, there are lots of reasons for it. My suggestion is we create this commission to figure out what the reasons 

are, but you lost the regional investment banking firms. You used 

to have regional investment banking firms across the country. Now 

you have got a couple of major national banking firms. And so because of that concentration of capital in larger firms, because of 

regulatory requirements, because of costs, because of 

decimalization, there are a whole series of reasons why the regional 

IPOs have gone away. And one of our most important tasks should 

be to bring back those regional IPOs. That is one of the ways to 

create jobs around the country. I am not sure I have got the magic 

answer for that one, but it is such an important issue. It should 

be one of the major long-term systemic issues that we address. 

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14 

Mr. LEUTKEMEYER. Well, I deal a lot with community banks 

and banking folks in general with one of the other Committees I 

serve on, and one of the things that we have seen is we really have 

got kind of a two-tiered economy going right now where we have 

the big banks and big companies doing well and you have the small 

banks and small companies that are kind of struggling. And a lot 

of it goes back to regulatory costs of compliance that the small 

banks are having to deal with and then they pass those costs on 

to their small lenders, to the small borrowers, and it makes it more 

difficult, number one, to afford the loan, and number two, the regulatory environment makes it more difficult for the small banks that 

should give a loan to small businesses as well. So it is kind of a 

one-two punch there. 

The problem is if we do not have a way to generate some economic activity and some access to capital for entrepreneurs, we are 

going to dry up as a country. We wonder why our employment 

numbers are stagnating, and we had this discussion this morning 

with some folk at the Fed. And it is pretty simple to me. The small 

businesses are where the generation of jobs are, and if you do not 

have small businesses, you do not generate the jobs. 

I know one of the other things I want to talk about, and you had 

mentioned crowdfunding in your testimony. And also, I know we 

had somebody I think testify in this Committee that PayPal now 

has small business online lending. There are a lot of other options 

out there. How viable are those options for entrepreneurs? 

Ms. KERRIGAN. I know Mr. Schocken said crowdfunding has 

been a disaster, Title 3 crowdfunding, but there is a positive story 

to tell here. There have been 400 offerings to date in Title 3 

crowdfunding, and that was sort of, you know, Title 3 was really 

meant to focus on these startups, on these smaller businesses. And 

you do have some businesses that have been successful at raising 

a million plus. There is also a diversity of businesses that are raising money through crowdfunding. I think food and beverage is the 

top category. You have entertainment and media, transportation. 

So I think the early signs are really good. And also, 

PricewaterhouseCoopers just released a survey. They said women 

were better at crowdfunding. So this is, I think, really very positive. It comes down to, I think, some regulatory relief. The SEC 

and perhaps things that Congress can do to make this right. You 

know, lift some of the costs on those small businesses who want to 

use crowdfunding through their CF filing and all the compliance 

they have to do and make it more practical. And I think you can 

really build from some of these successes that you see. And also 

work against, or help in terms of this concentration, this density 

of capital as well, using these platforms that businesses everywhere can use. 

Mr. LEUTKEMEYER. Thank you very much. My time is expired. 

Thank you, Mr. Chair. 

Chairman CHABOT. Thank you very much. The gentleman’s 

time is expired. 

The gentleman from Illinois, Mr. Schneider, who is the Ranking 

Member on the Subcommittee on Agriculture, Energy, and Trade, 

is recognized for 5 minutes. 

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15 

Mr. SCHNEIDER. Thank you, Chairman. I want to thank Chairman Chabot and the Ranking Member Vela ́zquez for holding this 

hearing, and thanks to you for all you do for joining us today to 

share your thoughts. 

We have talked a lot about the fact that entrepreneurship, small 

business startup, new business startup numbers are down, and 

dramatically down, and have been declining for a while, and reversing this decline obviously is something very important to grow 

our economy because as was noted, two-thirds of the jobs in this 

country are created by these small businesses. 

From the beginning, if these businesses are going to succeed, 

they need to have the resources, the access to capital, the access 

to talent, the skillset that will create these well-paying jobs, to create more investments, to create the virtual circle. Mr. Schocken, as 

you touched, we have moved away from the regional development 

and we have this great concentration in a few places. But I also 

think we need to invest in education and schools. And Dr. 

Crawford, you talk about in college, and I love the fact that we are 

permeating the entrepreneurial spirit into every class but we need 

to get that into high schools and middle schools, I think, and create 

it earlier. Because if you think about what is an entrepreneur, or 

the definition of an entrepreneur. There are many academic definitions. For me, it is someone who has a vision, a dream, and the 

will and passion to pursue that dream, to take that risk, and there 

is an element of risk-taking. But entrepreneurs, as is my experience from 20 years in the business working with entrepreneurs has 

demonstrated, they also have blind spots. And I do not mean that 

in a bad way. These are people who do not see barriers, who do 

not see stop signs, who are not willing to accept no from people 

who cannot say yes and go out and try to do that. But that spirit 

seems to be declining. My worry is we are seeing a diminishing of 

that can-do attitude, belief in the American economy that defined 

the 20th century as the American century. If we are going to make 

the 21st century an American century as well, among the many 

other things we have to do, I believe it has to be driving this entrepreneurial spirit across the entire country. 

So I did not know the number about. Was it .064? 

Mr. SCHOCKEN. .64. 

Mr. SCHNEIDER. .64 percent of the counties. And you hear this 

discussion of the struggling rural economy. Well, if we can start up 

businesses in these rural economies, if we can create, and I have 

had the privilege of introducing legislation, promote the hubs and 

the ecosystems and create the incubators that will help companies 

go from the idea to start up, to step out, to success. And I did not 

mean to give a speech but I am passionate about this. 

Chairman CHABOT. It was a fine speech, by the way. 

Mr. SCHNEIDER. Thank you. 

So Dr. Crawford, I will start with you, this idea of installing the 

spirit. You are a physicist; I am an engineer. That science helps, 

but you talked about the fact that you do not know, did not know 

about accounting but you thought you could do it. How do we help 

these people? And it is not just young people, it is people of all 

ages, to get over the hump that maybe I do not know how to do 

SBREP-219A with DISTILLER

16 

it but I know how to learn and I know how to ask questions. How 

do we get that spirit instilled? 

Mr. CRAWFORD. Well, I think you are exactly right. I really do 

believe that entrepreneurship is a mindset. It is sort of how you 

tackle and solve problems. It is not necessarily a discipline in and 

of itself. But one of the areas which I see, both at the college level 

and as you mentioned, the high school level, is that I do not think 

that we prepare students how to fail and then how to kind of move 

forward with failure. So if you want to be naı ̈ve and move forward 

and break down walls and bust it down rather than trying to go 

over, you really need to try things and fail and then how to kind 

of repurpose yourself and redirect and know it is a stepping stone 

and a way in which you will pivot and go in a new direction. I 

think high school is a good place for that. I think college is an exceptionally great place for that because you are surrounded by 

mentorship and you are surrounded by people that can help you 

sort of get through the messiness of entrepreneurship. 

So I am in complete agreement with you. But the one thing I 

would say and it sounds kind of funny, but we really need to teach 

our youth how to fail and how to move forward because that is all 

about the entrepreneurial mindset. When you hear successful entrepreneurs, they do not be successful on their very first time. It 

is two, three, four times. And they talk about that failure. How do 

we teach it and learn it? How do we pool that creativity? 

Mr. SCHNEIDER. It is the difference between failure and defeat. 

John Wooden, the great basketball coach said, ‘‘I never lost a game. 

I just ran out of time.’’ 

Mr. CRAWFORD. Exactly. 

Mr. SCHNEIDER. And I think failure is that lesson. 

Mr. Schocken, the last few moments I have, is the culture of failure is unacceptable affecting the ability for small firms, new businesses to raise capital, because the idea of we have to succeed becomes such a paramount issue for them? 

Mr. SCHOCKEN. The problem for the innovation economy is access to capital and regulations. If we solve those problems, we will 

get back to creating the kind of vibrant economy where there is 

success and failure becomes less of a factor. We have got to create 

the jobs. 

The other reason we have to create these jobs is you are all dealing with the onsets of globalization and automation and you know 

what is coming down the road. That genie is out of the bottle. 

Mr. SCHNEIDER. I do not think we are at the onset; I think we 

are in the midst of it and we need to beat it. 

Mr. SCHOCKEN. We are, and it is only going to accelerate. And 

therefore, unleashing the innovation economy to create the jobs 

that are needed is absolutely essential. And as someone who has 

worked in this industry my entire career, the answer is around access to capital and some minor regulatory reform. That is how you 

make this industry succeed and that is how you address these economic disparity issues. 

Mr. SCHNEIDER. I am out of time, and thank you for the extension. I yield back. 

Chairman CHABOT. The gentleman’s time has expired. 

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17 

The gentleman from Iowa, Mr. Blum, who is Chairman of the 

Subcommittee on Agriculture, Energy, and Trade is recognized for 

5 minutes. 

Mr. BLUM. Thank you, Mr. Chairman. Thank you to our panelists for being here today. 

Mr. Schocken, I am very intrigued by your ideas of simpler IPOs 

and other means of financing startups. My little software company 

in Iowa that started as three people in a basement went public in 

the mid-90s and we were one of those $30 million IPOs you referred to. Piper Jaffray out of Minneapolis and William Blair out 

of Chicago were our co-lead underwriters and I will never forget 

the days of sitting in a high-rise in Chicago at Sidley Austin, a law 

firm of 2,000 attorneys. Good firm. But at $1,000 an hour per attorney, there were probably 10 of them in the room. We were running 

up a bill of $10,000 an hour. And in the process that it took to put 

together a prospectus and a red herring and initially go public was 

fascinating but overwhelming, I think, to most small entrepreneurs. Can you give me some ideas? The regional IPO is an excellent idea. I could not agree with you more. Do you have other 

ideas about financing options? I know there is—well, I used to call 

them vulture capitalists. I know there are venture capitalists out 

there, which we managed to go public without using their services, 

but other ideas you have? Because it intrigues me and it is much 

needed. I could not agree with you more. 

Mr. SCHOCKEN. Thank you. And congratulations on that success. 

Mr. BLUM. Thank you. 

Mr. SCHOCKEN. That is a good story. I love to hear those kind 

of stories. 

You know, what happens when there is an economic event, the 

laws tend to overreact, and it is the smaller companies that get 

punished when that happens. And you will remember what happened at the end of the 1990s when the tech bubble burst and the 

reaction congressionally was Sarbanes-Oxley. And what happened 

was they swept the small companies in under the bigger companies 

in terms of regulatory requirements for doing IPOs. And those have 

just become so costly and so burdensome. The accounting requirements and the undertakings required, where your small company 

would have been subject to the same kind of accounting and legal 

standards as the Boeings and Exxons of the world. 

Mr. BLUM. That is crazy. 

Mr. SCHOCKEN. Yes. And so we took a step towards resolving 

that problem in the Jobs Act by creating a couple of minor benefits 

for the smaller companies. Unfortunately, it has not been as useful 

for bringing back the IPOs as we would have hoped, and the reason 

for that is because of low interest rates. Low interest rates have 

been drawing so much capital into private equity that private equity has turned out to be a very strong competitor to going public. 

But at the same time, we have got to really answer this question— 

how do you bring back the smaller IPOs? Because there are lots 

of great little companies that, you know, for which a $25 million 

IPO means another 200 or 400 employees. And it is one of the ways 

of solving this problem of the regional concentration. And there are 

answers to that. And that is why I designed, you know, in my testiSBREP-219A with DISTILLER

18 

mony, here are some easy, short-term fixes that we can do, but 

then here are some longer term systemic issues that really need attention. And to me you do those two things and you will unleash 

this innovation economy. But you have got to bring back those $25 

million IPOs as one of the answers. 

Mr. BLUM. We did this in Iowa, by the way, and I tried to coin 

the phrase ‘‘Silicorn Valley.’’ I do not know if it stuck or not, Mr. 

Chairman. 

Question for Mr. Crawford. Are the young people, the 

Millennials, young people in general, becoming risk averse? 

Mr. CRAWFORD. It is a great question. I think it goes back to 

some of the earlier comments that we had about failure and if you 

are ready to really work in that kind of environment where you 

may fail three or four times before you succeed. I am not necessarily convinced that they are risk averse, but I must say that 

there is one thing. When we trained these entrepreneurial kids at 

the university level and, you know, we would love for them to go 

out and start small businesses and so forth, but what we do see 

is that the bigger companies, the Fortune 500s and so forth, are 

not gobbling those kids up because they really see those entrepreneurial skills as being very viable to their larger organization in an 

entrepreneurial way that they can walk and get through things. 

And so I think it is hard to say whether it is risk averse or not 

because even though they may not end up in a small company or 

a small startup, they are able to go work in some of the bigger 

firms these days which are becoming more entrepreneurial in and 

of itself. 

Mr. BLUM. I have 8 seconds left. We cannot do another question. 

I yield my 5 seconds back. Thank you. 

Chairman CHABOT. The gentleman yields back. Thank you very 

much. 

The gentleman from New York, Mr. Espaillat is recognized for 5 

minutes. 

Mr. ESPAILLAT. Thank you, Mr. Chairman, and Ranking Member Vela ́zquez. In the 13th Congressional in New York, we are 

working to increase access to necessary capital for all our entrepreneurs. Just last week, the ranking member—thank you. Is this 

better? Okay. 

Yes. Just last week, Ranking Member Vela ́zquez and I had a 

Small Business Summit, which was focusing on connecting small 

businesses owners with agencies both at the Federal, state, and 

city level, to assist them in their role to starting and growing a 

small business. And we noticed that a good number of the folks 

that participated were young people with questions regarding establishing and supporting their small businesses. And no doubt, 

this has shown that there is a high interest still in young entrepreneurs in succeeding. Yet, they are failing, as you have mentioned, in accessing capital, finding a pathway to the necessary 

capital that will make their business successful and sustainable. 

And in a time where we work in the technology and research fields, 

it this is quickly advancing. Yet, IPOs are down. We need to be focusing on how to better supply our entrepreneurs with the capital 

they need to succeed and ultimately create jobs and grow our economy. 

SBREP-219A with DISTILLER

19 

But you mentioned that some of the hurdles that some of these 

small entrepreneurs are the overregulation often overburden small 

businesses, and particularly startup businesses, and the tax inequities that exist, they are saddled with these tax inequities. They are 

unable to like get some oxygen out of the tunnel and continue to 

move forward. 

So as we move as a Congress in this session to consider, potentially consider, hopefully, some tax reform legislation, what real, 

precise recommendations do you have for tax reform that will help 

small businesses? It will be a real travesty if we engage in tax reform and only like the big corporations walk out of here with their 

pockets full and small businesses, again, continue to struggle with 

overregulation and tax inequities. What real recommendations do 

you have for easing the pain with regards to tax inequities and regulation itself? Any one of you? 

Ms. KERRIGAN. Sure. And thank you for pulling together that 

summit with business owners or potential business owners and entrepreneurs because, you know, as I mentioned in my testimony, 

many of them do not know where to go. I know the SBA administrator is out traveling the country and sort of promoting the SBA 

as a resource and getting the word out about that. But certainly, 

we have a long way to go in terms of telling them where to turn. 

I think on tax reform, look, I think from a small business perspective is very simple. I mean, we do have to keep small businesses at the center of tax reform, so we need to lower individual 

rates along with corporates rates. We need to lower taxes, definitely a more simplified system, and again, updating, I think, some 

of these thresholds is going to matter to small entrepreneurs. And 

complexity, I think, is really the key thing that has to be addressed. So if you get rid of a lot of the loopholes. For example, 

allow for full expensing. I mean, again, it all boils down to simplicity and these lower rates that again are going to make the system I think more competitive. So simplify, lower rates. There are 

a lot of great ideas out there. Updating, modernizing, and just certainty in the Tax Code as well, not changing it all the time I think 

is very, very important from a small business perspective. 

Mr. SCHOCKEN. And if I could? 

Mr. ESPAILLAT. Yes, go ahead. Yes, Mr. Schocken? 

Mr. SCHOCKEN. So, first of all, I gave you a suggestion in my 

testimony when I said allow these young companies to sell their 

net operating losses. They have to work terribly hard to raise capital. Those losses that sit on their balance sheet do not do them 

any good. If they could sell that, that would be a way of really 

leveraging the equity they have created. And I know from my own 

experience in many cases that would make the difference between 

success and failure. The first thing I would say. 

The second thing I would say for the kind of businesses that you 

are talking about, equity crowdfunding is just enormously important. If someone is going to start a business and their friends and 

their cousins and the people in other states that they know will 

want to own a portion of that business. The ability to invest in that 

business, whether it is a neighborhood bakery, a small manufacturing company, to raise that money via equity across the country 

SBREP-219A with DISTILLER

20 

under equity crowdfunding under a reasonable set of rules different 

than what we have today would make an enormous difference. 

And the third thing, you have got to somehow simplify the regulations. People want to start their businesses. They want to bake 

their breads. They want to deliver, they want to do whatever they 

want to do, and they get just buried under the city, the state, the 

county, and all the various regulatory requirements. Make that 

simple for small businesses. You are correct wanting to keep these 

benefits away from big businesses. I agree with you, whether it is 

selling the net operating losses or whether it is simplifying, you 

can do that for the small businesses and it would make an enormous economic difference in this country. 

Chairman CHABOT. The gentleman’s time is expired. 

Mr. ESPAILLAT. Thank you so much. 

Chairman CHABOT. Thank you. 

The gentleman from South Carolina, Mr. Norman, who used to 

be the new guy on the Committee but now he has been around a 

couple of weeks, so he is an old hand now, is recognized for 5 minutes. 

Mr. NORMAN. Thank you, Mr. Chairman. Thank each one of 

you for coming. 

In our role in Congress, there is no shortage of the need for public-private partnerships, but in many cases you see where the public is the one that gets the short end of the stick. What would you 

say that we could put in, safeguards that we could put in, benchmarks to make sure that any dollar that the taxpayer invests, 

there is a return on investment. And failure is a great teacher. But 

from our role, what would you say we do to make sure that there 

is a return on investment, that it is a smart investment, and not 

dole out to either one state or one group? This is for each one of 

you. 

Mr. SCHOCKEN. Well, earlier I had said that one of the ideas 

for dealing with driving capital into rural and other counties across 

the country is to reestablish the small business investment program at the SBA. So specifically to your question, how do you avoid 

losses by the government, the answer is to have each of those investments be partnered with private venture capital or private equity firms where the government is not making the win-lose decisions on each investment, but they are doing it in partnership with 

private capital. And that discipline would have an enormously positive impact on government money being invested in the correct 

companies that have a chance to succeed. 

Ms. KERRIGAN. That sounds good to me. 

Mr. NORMAN. As a follow-up, you know, typically the SBA, they 

are the last to get paid. The repayment of equity comes back from 

the private investors. 

Mr. SCHOCKEN. No, no, the SBA gets paid back first. Absolutely. 

Mr. NORMAN. In every case? 

Mr. SCHOCKEN. Well, under the original SBA program, the 

SBA was the debt. The win that was there was for the private investors but the government always got their money back first. I 

was trying to address your question, how do you avoid the government making the wrong decisions? And I think the way to do that 

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is through what you would call a public-private partnership that 

each of these investments are only in investments that are vetted 

by private capital, where they do the due diligence. And let us say 

the government is 40 percent of the investment and private capital 

is 60 percent of the investment. The government gets its money 

back first. The government is the lender in this situation. The upside, the real potential is to the private capital but the government 

gets its capital back first. That is exactly how you should design 

a program like that. 

Mr. NORMAN. I agree. 

Ms. KERRIGAN. Generally, I will just say this, being that I really am not an expert in public-private partnerships, but going back 

to our gap analysis reports that I talked about, we looked at private sector investment. And over the past decade there has been 

a dearth of $1.5 trillion. We really have a problem with private sector investment in this country. So the more that we can encourage 

investment on the private side, perhaps the less we need it on the 

public side. So I think policies really need to get back to encouraging private sector investment incentives, and that is going to 

happen through tax reform. I think it is going to happen through 

regulatory relief across the board, including in the financial services sector. We just need more people investing more of their dollars. I mean, letting go and investing not only in our startups and 

our small businesses, but our economy, their own companies to 

really get the economy going again. 

Mr. CRAWFORD. I agree. I think the companion-type of grants 

that they are talking about, how to bring the public and private together, could also work at the research level as well with some of 

the Federal Governments and their research enterprises, to bring 

those early seed ideas out of the place and having them, sort of the 

due diligence done by the private side as well as the private side. 

And I think the big question is also where are you going to put 

your dollars on the Federal side? Where is the risk assessment 

going to be? Is it going to be where the ideas are so early on and 

you are only going to get one out of 10, or are you going to be down 

further on in the series B and C rounds of venture capital where 

you are going to have a much higher probability of success? 

Mr. NORMAN. Thank you, Mr. Chairman. I yield my time. 

Chairman CHABOT. Thank you very much. The gentleman 

yields back. 

The gentlelady from Florida, Ms. Murphy, who is the Ranking 

Member of the Subcommittee on Contracting and Workforce is recognized for 5 minutes. 

Ms. MURPHY. Thank you, Mr. Chairman. And thank you all for 

being here today. Fascinating testimony. 

Mr. Crawford, I really enjoyed reading through your testimony, 

as well as hearing you talk about Miami University and all of the 

initiatives that you have launched to help build the next generation 

of entrepreneurs and innovators. And my colleagues on this Committee have heard me talk about similar incubators and apprenticeship programs that have been launched by universities and colleges in my district in Florida, specifically at the University of Central Florida, Rollins College, and Valencia College. So I completely 

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agree with you that universities play a vital role in the startup ecosystem. And if that sounded like a shameless plug, it was. 

My first question is for either Dr. Crawford or Ms. Kerrigan. 

You know, as we look at the future of work and think about the 

startup ecosystem, the way that the workforce is engaging with the 

workplace is changing, particularly in the startup ecosystem. And 

even I think the dynamics and demographics of the workforce is 

changing. So right now about a third of the workforce is millennial. 

By 2020, I think about 50 percent of the workforce will be 

millennials. And we are moving away from sort of the idea of working for one large corporation for the period of your entire life. When 

it comes to benefits and the other sorts of programs that are normally provided through that type of employment, what do you 

think we could do? What can Congress do to adjust to these 

changes in what work will look like, particularly as it relates to the 

startup ecosystem? 

Ms. KERRIGAN. I mean, that is a great point because, I mean, 

I think you are talking about the gig economy; right? 

Ms. MURPHY. Yes. 

Ms. KERRIGAN. And really, this desire to do your own thing. I 

mean, there are some people that really like that arrangement a 

lot, but they really do wish they would have the benefits that go 

along with full-time work. 

I think there is a lot that can be done, you know, hopefully or 

potentially on the portability front. And I would encourage the 

Congress to look at things a little more innovatively as well. Say 

for example that you do have an independent contractor who wants 

to be independent and wants to stay independent and perhaps is 

working for a larger enterprise or a larger business, is there any 

way that they can tap into their benefits without losing that independent contractor status? If both of them agree, he wants to be 

or she wants to be independent but I value this person, so is that 

a possibility, sort of looking at the independent contractor test and 

making that a little bit more flexible? I mean, that is one idea that 

I think of right now. 

Mr. CRAWFORD. And I do think it is interesting. I mean, on the 

front end, when you graduate college and you get out there and 

benefits and so forth are not a big deal, we see the kids that are 

going out to San Francisco and Silicon Valley and they will spend 

every last penny of their disposable income on rent and it does not 

matter to them, and we have seen the uptick in the crowd of 55- 

plus and the entrepreneurship, so they are more stable and they 

can actually get out there. And I think one of the questions is when 

you graduate school, you go off and work 3 to 5 to 8 years, how 

do we get those folks back in after they have worked at a big company and how to get them back in to the startup economy? And I 

think that is when benefits play a big role. If people have families 

and so forth, other responsibilities, and so how you could kind of 

be innovative on that front as a Congress in terms of pulling them 

back in or how we call it in Cincinnati, the boomerang effect where 

we can pull the 30-somethings back into the entrepreneurial economy. 

Ms. KERRIGAN. And I think anyway, we can allow independent 

contractors to either, you know, if they are joining some type of 

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business group or some type of association, or some type of entity, 

you know, where they can pool, whether it is health care, whether 

it is retirement benefits, or et cetera, I think that would be a great 

solution as well. I know that would take some regulatory changes 

at the Federal and probably state level as well. But I think having 

those places where independent contractors can go where they can, 

again, use sort of the collective power of all of them to negotiate 

for better prices for healthcare, et cetera, or to share their risks I 

think would be ideal. 

Ms. MURPHY. That is great. And just another sort of follow-up 

question. There has been some talk about how the Millennials do 

not really know where to go, the know-how for starting up a business. I know we try to address it a bit in some of the universities 

and school systems, but there are also SBA entrepreneurial development programs, and this Committee has done a lot to try to enhance those programs. How do you think we can enhance the programs so that they are meeting the needs of Millennials entrepreneurs and that they are more accessible or readily available or 

they know more about them? 

Ms. KERRIGAN. Well, yeah, I think, you know, in terms of a lot 

of the programs at the SBA or educational programs that the SBA 

provides, you know, both nationally and then within the SBD, I 

think we really need to look at this and see the way that 

Millennials and younger people are getting their information is 

that is there that connectivity? And so I think that is critical. How 

do we reach them? So I think all the programs we need to look at 

to sort of go where these people get their information. And using 

more social media, using sort of the next thing that comes along. 

I know it continually changes in terms of the platforms that they 

use, but I do think that we need to get a little bit more innovative 

in terms of how we reach, but also the programs. Are we staying 

relevant in terms of what is happening in the marketplace and the 

training that is actually provided? 

Ms. MURPHY. Great. Thank you. 

Chairman CHABOT. Thank you. The gentlelady’s time is expired. 

The gentlelady from North Carolina, Ms. Adams, who is the 

Ranking Member of the Subcommittee on Investigations, Oversight, and Regulations is recognized for 5 minutes. 

Ms. ADAMS. Thank you, Mr. Chairman. Thank you, Ranking 

Member Vela ́zquez. And thank you all for your testimony and 

being here today. I spent 40 years on a college campus, small campus in Greensboro, North Carolina, Bennett College. So we were always looking for new ways to do things. But I want to thank you, 

Mr. Crawford, for serving in the capacity that you do and what you 

do for students. And I wanted to ask you what you would recommend to those colleges or universities with smaller budgets, 

lower endowments to cultivate business leaders and to promote entrepreneurship among the graduates. 

Mr. CRAWFORD. Well, I think the entrepreneurship programs 

in many ways, when you get faculty members that are entrepreneurial, them and of themselves, and students that are entrepreneurial, they will actually create the programs, just like they were 

a true entrepreneur out in the marketplace. And so in many cases, 

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I think when you have that kind of entrepreneurship on campus, 

you can kind of do things on a shoestring and so forth. And so, I 

think the way that we have done it at Miami and the way that my 

past experiences at other fine institutions, has really been through 

the partnerships that we created, both for the city and the state 

and the Federal Government and so forth, because the resources go 

a lot further. And universities, you should never underestimate 

that you have what the marketplace wants and that is talent, talent, talent. And so to use that talent as a way in which you can 

offset or fund entrepreneurship programs through those relationships with corporate and industry. 

Ms. ADAMS. Thank you. So your institution was successful in 

developing your ecosystem. Did Miami have any contact with Small 

Business Administration in setting up your programs? 

Mr. CRAWFORD. Yeah, historically it has. Yes. And then also, 

you know, we do work with our students, too, to get the word out 

on the various programs for the SBA and so forth, and the other 

programs that are available through the Federal Government for 

those startup companies. 

Ms. ADAMS. So did they offer their services or did you partner 

with them? Did you see them out? 

Mr. CRAWFORD. I think we sought them out on the front end, 

and then of late we have been doing a lot more work also with our 

local chambers and the ones in the state and how we actually get 

the word out. And then working with the Minority Accelerator 

Chamber also to women and minority-owned businesses. And so we 

have been making the connections not just at the Federal level but 

all throughout the state. 

Ms. ADAMS. Thank you. 

Mr.—is it Schocken? 

Mr. SCHOCKEN. Schocken. 

Ms. ADAMS. Schocken. The difficulties that minority-owned and 

women-owned businesses encounter trying to obtain capital for 

their businesses is well documented. However, venture capital 

seems to be particularly difficult to obtain. One report suggests 

that women-owned businesses drew only 5 percent of all U.S. venture capital. In your testimony, you outlined recommendations to 

address the geographic concentration of venture capital and the 

concentration of control of venture capital, but do you have any recommendations to address venture capital’s lack of investment in 

minority and women-owned businesses? 

Mr. SCHOCKEN. Thank you. Great question. And I have two answers to you. The first answer is cut the innovation economy loose. 

Do the kind of access to capital proposals that we have made because it will benefit everybody in that ecosystem. That is the general answer. 

The specific answer is that we have this tremendous concentration of venture in this one state and this lack of venture capital 

availability to minorities, to women, and geographically around the 

country. In my view, that is a role for the Federal Government, and 

in my view, you bring back the SBIC program and you specifically 

target it to those states, regions, women, and minorities that have 

had such difficulty accessing capital. It is such an important issue, 

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25 

selves. It is, therefore, in my opinion, and I am a business guy, this 

does not come naturally to me, it is a correct and proper role for 

the Federal Government to step back in, and I think that is the answer. 

Ms. ADAMS. Great. Thank you very much. 

Mr. Chairman, I am going to yield back. 

Chairman CHABOT. Thank you. The gentlelady yields back. 

And the chair would note that we have been joined by Chad 

Pergram, who not only is a Capitol Hill correspondent for FOX 

News, but more importantly, Dr. Crawford mentioned the internship program, and Chad heads up the Inside Washington program, 

which many Capitol Hill offices have taken advantage of over the 

year, and the Small Business Committee actually has an intern at 

this time, Nick Tracewell, who is also in the back of the room here. 

So we are definitely benefitting from Miami’s program here and 

gave FOX News a plug, I guess. That was not the intention. We 

wanted to recognize how it is working here on Capitol Hill. 

I apologize to Mr. Lawson. I am not taking up any of this time, 

but I did want to get that in before he went on. So thank you. 

Our final questioner, I think, is the gentleman from Florida, Mr. 

Lawson, who is the Ranking Member of the Subcommittee on 

Health and Technology, is recognized for 5 minutes. 

Mr. LAWSON. Thank you very much, Mr. Chairman. And I 

would like to welcome a Hurricane to a section of Florida, up in 

Tallahassee. We always enjoy bringing the Hurricanes up and 

sending them back where they belong in South Florida. And I see 

a Florida State tie over there. 

But my question centers around 36 years ago I was going into 

small business and I was trying the only access. I think it was 

$10,000 or $15,000 to go into—I was leaving coaching at FSU and 

said I am going into small business. And so, as a result, my question always centers around the access to capital because—and I 

really did not understand at the time. The only thing I had was 

an FHA loan for about $121,000 on a house, you know, and that 

was blocking me from getting access to the capital, even though the 

payment was only about $131 a month. And so how can we work 

together? I mean, do they work together? So 36 years later, I was 

still in the business until I got hauled off to Congress. So my concern is that the way I have this question here is how can communities, partners, including local government, entities, and banks 

guarantee that those who want to start small business have the resources to do so, including the main question is access to capital? 

And that is all I really needed. And they were asking me to get 

someone to stand for the loan. And I did not really have the access 

that I needed, but ever since then the main question has been how 

do people like myself those years back have access to capital to 

start a small business? 

Mr. SCHOCKEN. Well, if your question is how do we guarantee 

that access to capital, I do not think there is an answer. 

Mr. LAWSON. Okay. 

Mr. SCHOCKEN. But I would begin an answer by pointing to equity crowdfunding. That is specifically what equity crowdfunding 

was designed to do. For the smaller businesses, whether they are 

neighborhood bakeries or small manufacturers, that was the goal 

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of equity crowdfunding, so that you could bring together people 

who could then own a stake in that business. That is an extremely 

important concept. You see the success of Kickstarter and 

Indiegogo where they can finance early-stage projects by providing 

t-shirts and merchandise. It shows the hunger around the country 

to back early-stage ideas. But until the Jobs Act passed and we legalized equity crowdfunding, there was no way to provide ownership in these new ideas to people who wanted to invest in those 

companies. And unfortunately, the regulations that were developed 

for equity crowdfunding has really made it not work. In this enormous economy, I think the number is $37 million and maybe $50 

million nationally that has been raised around equity 

crowdfunding. 

And so to me the answer to your question is, first of all, fix equity crowdfunding. And the second answer is in each state there 

ought to be a major concerted effort to simplify the regulations required to start new businesses because, I mean, it is just daunting 

for entrepreneurs with all the various steps and regulatory things 

that they need to go through. Those are the two major barriers for 

getting new businesses off the ground. 

Ms. KERRIGAN. I agree on the fix crowdfunding front. You 

know, the early players that have been raising money, there has 

been some, I think, some very promising success. So we need to 

allow that, leverage that success, and really make that available to 

everybody, but we need regulatory fixes. 

The congresswoman, I know she asked about sort of the concentration in capital and how we sort of fix that as well. I know 

there is legislation that has also been introduced in the House to 

develop opportunity zones, if you will, that really would leverage 

private sector money out there. And allow for certain incentives or 

benefits, whether it is capital gains exclusion, if they are investing 

in those areas of the country. So I think there are a lot of different 

solutions and I do agree a lot happens at the lower local level, too, 

in terms of the regulatory front that we need to lower those barriers. 

Chairman CHABOT. The gentleman’s time has expired. 

The ranking member is recognized for 5 minutes. 

Ms. VELA ́ ZQUEZ. Just one question. 

Chairman CHABOT. For one question, which may or may not 

take 5 minutes. 

Ms. VELA ́ ZQUEZ. Mr. Schocken, are you aware of any work, 

interagency work in terms of innovation economy? I know that the 

White House put together a working group that is basically comprised of CEOs, to address the issue of the innovation economy and 

what could provide answers to the lack of business formation in our 

country, if there is anything that is done by the SEC, for example, 

or even SBA that you are aware of? 

Mr. SCHOCKEN. Thank you. So first of all, the innovation name 

in that commission on the White House I think is an inaccurate 

name. That Innovation Commission was put together by the White 

House to bring in best business practices into government; it was 

not to address the needs of the innovation economy. And I agree 

with you; that is a very misleading name and kind of implies they 

are paying attention to the innovation economy and I think they 

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are not. They did create a commission of businesspeople in the 

White House but that really deals with big business. And I think 

they were very smart to do that, but there is nobody on that commission that represents the small companies and the innovation 

economy, and they should have a similar commission for that. 

Now, to your question, no. I do not see interagency cooperation 

on this issue, and I think this issue is just hugely important. We 

have got this train coming through the tunnel right at us on 

globalization and automation. You have seen the studies, something like 20 million jobs are going to get destroyed by automation 

over the next 20-25 years. We have to replace those jobs. The only 

place you were going to be able to replace them is from the innovation economy. And so that is why we have proposed this commission on the innovation economy. Bring in the smart guys, the bankers, the lawyers, the academics who really understand the innovation economy and be there to give you, as the Congress, to give the 

White House, here are the easy, short-term things you can do. I 

have outlined five of those today that are pretty easy fixes that 

would have major impacts. But we also need to begin to address 

the major long-term systemic issues that I have also identified that 

nobody is paying any attention to. And that would be a way to 

bring all of these agencies, White House, Congress together and 

prioritize the innovation economy. 

Ms. VELA ́ ZQUEZ. Thank you. Thank you. 

Chairman CHABOT. Thank you. And I think I will recognize myself for one question just to kind of follow up on that. 

Ms. Kerrigan, let me ask you this. I think the impression, or perhaps misimpression has been given that the new administration, 

relatively new, they have been in office about 6 months now, that 

they are not doing anything about small business. Now, I know we 

have a new Small Business Administrator, Ms. McMahon, who has 

testified before this Committee a couple of times and appears to be 

very serious about kind of shaking up the SBA and making it much 

more business friendly. Could you comment on your view as to 

what you have seen with respect to her? 

And secondly, one of the other things the administration has announced fairly early on is that they would like to get rid of two regulations for every new one that comes out of Washington because 

the small business community in particular has been burdened by 

being overregulated for many, many years now. So if you could 

comment on those two things, I would appreciate it. 

Ms. KERRIGAN. Sure. Well, I think there are two things. One 

is there are small businesses and the small business community, 

existing small businesses, and then sort of what is happening to 

encourage more startups. So sort of take those two things. 

I do think Administrator McMahon is doing a great job. I mean, 

she is traveling the country, talking to people, visiting her centers, 

talking to small business people to really see what needs to happen 

at the SBA in terms of their programs and services. 

Chairman CHABOT. Now, is she talking to Boeing and to the oil 

companies? Or who is she talking to? 

Ms. KERRIGAN. She is actually talking to roundtables of small 

business owners in these local communities, in addition to the staff 

themselves, to really understand sort of how the SBA works. You 

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know, sort of the impression that small business owners have of 

the SBA. And she is doing this everywhere. And I think that is a 

really good idea to listen to the customers, if you will, to see what 

they need, if the SBA is relevant, what else it can do to help small 

businesses. 

So from a policy perspective, I think the executive orders that 

the President put forward are just really good ideas to look at sort 

of the regulatory environment in all of the departments in all the 

agencies and see what needs to be done to update, to streamline, 

to repeal, to clean out the regulatory underbrush. I know we are 

taking part, providing comments, going to meetings. The U.S. 

Treasury had a big roundtable, very diverse roundtable of stakeholders, in terms of what needs to happen from a financial service 

regulatory perspective. So I think all those things are positive, and 

hopefully, when the White House gets these ideas and recommendations, they will actually move forward on this. 

I agree though, I think the President, he has his larger business 

council. I think it is a great idea that he is listening to bigger businesses, but I think it would be a fabulous idea if he put together 

a startup council and listened to entrepreneurs, young entrepreneurs. I mean, they are the ones that are on the ground. They 

are going to have the innovative solutions to a lot of these countries’ problems, and he will really get a sense of where the economy 

is. And I think that if you focus on entrepreneurship and small 

business and their policies, you will get the broader policies right. 

Chairman CHABOT. Thank you very much. We will make sure 

that that gets conveyed. 

Mr. SCHOCKEN. Mr. Chairman, if I could just for a moment, 

you raised the question of the SBA. And I would like to advance 

the idea that business and the innovation economy has changed so 

much that it is time to consider perhaps dividing the SBA. The 

SBA is designed to deal with small businesses, the franchisees and 

the local stores and that traditional part of the American economy. 

The needs of those businesses are dramatically different than the 

needs of the high growth innovation economy that is so important 

to job creation. And so you have got kind of a mixed mission for 

the SBA. And so let me just suggest considering really splitting the 

SBA into its traditional constituency and the needs of the high 

growth innovation economy. 

Chairman CHABOT. Thank you very much. 

We want to thank all the witnesses. I think you all three did a 

great job here this morning. 

Obviously, encouraging entrepreneurship is absolutely critical because an awful lot of the new jobs created in America today are 

created by entrepreneurs and small businesses. And the information that you have conveyed to us, I can assure you on both sides 

of the aisle, we will do everything we can to put it to good use. So 

thank you for sharing that with us. 

I would ask unanimous consent that members have 5 legislative 

days to submit statements and supporting materials for the record. 

Without objection, so ordered. 

And if there is no further business to come before the Committee, 

we are adjourned. Thank you very much. 

[Whereupon, at 12:33 p.m., the Committee was adjourned.] 

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TESTIMONY OF JOSEPH L. SCHOCKEN 

Founder and President, Broadmark Capital, LLC 

Before the House Committee on Small Business 

July 19, 2017 

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Good morning, Chairman Chabot, Representative Vela ́zquez, and 

members of the Committee. My name is Joseph Schocken, and I am 

the founder and President of Broadmark Capital LLC, a FINRA 

member broker-dealer based in Seattle, Washington. I appreciate 

the opportunity to appear before you today to discuss the critically 

important objective of reversing the decline in entrepreneurship. 

Today’s hearing could not be more timely or important. The 

United States is experiencing a serious decline in new company formation just as the economy struggles to absorb the impacts of automation and globalization. In fact, we now see companies disappearing at a faster rate than new companies are forming. I 

thank you for recognizing the significance of this trend and the 

need to take action. 

Automation and globalization have created great benefits to consumers and investors, and at the same time fundamentally disrupted and changed the way our economy works. This paradigm 

shift is permanent, ongoing, and accelerating. A recent study by 

Forrester Research, Inc. projects that automation and robotics will 

displace nearly 25 million jobs—17 percent of the American workforce—by 2027, and cause a net job loss of 9.8 million, or 10 percent of the workforce, over that same time period. While automation and globalization produce economic gains, more mature companies tend to shed US jobs in the process of adopting new technology 

and expanding internationally. 

American workers are justifiably anxious about what this means 

for their futures, and their children’s futures. How can people plan 

for retirement when they don’t know whether their jobs will exist 

in three years? How can they save for their children’s educations? 

How will the new generation joining the workforce be able to afford 

home ownership, or even health care? 

The solution lies in the Innovation Economy, which has and will 

continue to keep our economy resilient in response to these 

changes. Innovation has been responsible for the vast majority of 

American economic growth, and job creation, since the Second 

World War. Young businesses have been the source of all net new 

jobs and nearly 20 percent of gross job creation over the past 30 

years. Furthermore, employee compensation in innovation-intensive sectors increased by 50 percent between 1990 and 2007, a rate 

nearly two and a half times the national average. 

We are here today, however, because the Innovation Economy is 

in trouble. The White House too has recognized this problem, and 

even before his inauguration President Trump announced the establishment of a Strategic and Policy Forum to advise the Administration on government policy to promote economic growth and job 

creation. That forum, however, is led by the CEOs of large corporate employers, whose challenges and economic impacts are 

uniquely different from those companies in the Innovation Economy. 

Startups and small companies don’t have the time or capacity to 

come to Washington to tell you what they need, and thus you don’t 

have the feedback needed to make meaningful changes. The administration has recognized the value of a commission on economic 

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issues; while this too is important, it currently reflects the interest 

of big business. I am therefore urging the formation of a Commission on the Innovation Economy to promote innovation and entrepreneurship. This Commission would collect and synthesize information and make bipartisan recommendations for minor, near-term 

regulatory changes as well as address the long-term systemic 

issues facing the innovation economy. 

This commission would address the two greatest challenges facing would-be entrepreneurs and startup companies: accessing capital and managing regulatory requirements. 

Access to capital has never been easy, but it has become especially difficult in recent years. New businesses must spend a great 

deal of time and energy on finding capital, rather than on executing their business plans, and too often this capital is simply unavailable. Both the number of venture capital firms and the number of public companies have declined by half over the past twenty 

years, and we see capital increasingly concentrated, both geographically and by company. Nearly fifty percent of venture money 

now goes to firms in the Bay Area, and in the second quarter of 

2016, almost 40 percent of all venture money went to so-called 

‘‘unicorn’’ firms, startup companies that already have a market 

value of more than a billion dollars. 

New companies must also wrestle with complex regulatory environments that are often designed for much larger, more mature 

companies. Even understanding compliance requirements often requires hiring personnel or outside expertise that startups cannot 

afford. 

I was honored to be part of the legislative process that produced 

the JOBS Act of 2012, which sought to address these concerns. The 

JOBS Act passed with broad bipartisan support, and has already 

revealed how small regulatory changes can make a difference. The 

regulatory relief provisions of the JOBS Act have led to new capital 

and job creation, with no negative impacts. 

Work, however, remains to be done. Our experience with the 

JOBS Act and the five years of market response since its passage 

suggest a path for further reform. This Congress has a real opportunity to apply the market feedback to refine the innovation economy’s regulatory environment, and make an even greater impact for 

small businesses and entrepreneurs. 

In the near term, several minor policy tweaks would have real 

and immediate positive effects on our Innovation Economy. 

First, fix general solicitation. The ability to raise capital from 

accredited investors in an enormously important part of capital formation for early-stage companies. General solicitation under JOBS 

Act reform was expected to boost capital formation by expanding 

Regulation D; from September 2013 through 2015, $70 billion of 

the $2.9 trillion raised under Regulation D used general solicitation. While only a small part of the total Regulation D funding, this 

produced capital which created new companies and jobs. This number, however, would be much higher without the burdensome investor verification requirement. The JOBS Act’s changes to general soSBREP-219A with DISTILLER

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licitation have already had a positive impact, but minor regulatory 

changes could unleash this strategy’s full potential. 

The SEC’s regulations on third-party verification have had a 

chilling effect on capital formation. These regulations fixed a problem that did not exist. Congress should eliminate the requirement 

for investor verification and allow investors to self-certify under 

penalty of perjury, which would be a higher standard than applies 

to other private security offerings. This change alone would encourage capital formation and create millions of jobs. 

Even an SEC whitepaper from October 2015 raised early concern 

that the investor verification requirement may be stifling the success of general solicitation. Industry participants corroborated 

these findings at the SEC’s 2016 Forum on Small Business Capital. 

When Congress considered the general solicitation provisions of 

the JOBS Act, many academics, journalists, and though leaders at 

the SEC expressed concern about the possibility of investor fraud. 

In the spring of 2012, we saw articles in the business press with 

headlines that warned, ‘‘JOBS Act Will Open Door to Investment 

Scams.’’ It is important and gratifying to note that these concerns 

about investor abuse never materialized. In fact, the SEC’s Division of Economic Risk and Analysis last year observed ‘‘no measured increase in the incidence of fraud in the new Rule 506(c) market.’’ 

Second, fix equity crowdfunding. Crowdfunding, perhaps the 

JOBS Act’s boldest provision, has failed to meet expectations. A 

meager $38 million has been raised for 142 companies since May 

2016. By comparison, $1.3 trillion was raised under Regulation D 

for more than 30,000 companies in the most recent calendar year 

reported by the SEC (2014). 

Despite the nominal dollar value, the SEC’s research has shown 

that crowdfunding is providing a new source of capital for small 

businesses that may not have otherwise had access to capital. 

Crowdfunding brings capital to areas underserved by capital markets. Nearly forty percent of crowdfunding campaigns were in areas 

classified as inner city by the Initiative for Inner City Competitiveness, a non-profit dedicated to enhancing inner city property 

through private investment. 

The success of Kickstarter has demonstrated the need for this 

type of capital, and Indiegogo, a rewards-based investor website, 

has partnered with MicroVentures to provide both rewards-based 

and equity crowdfunding. Government policies should make it easier for entrepreneurs to attract traditional investment through 

funding campaigns. 

The rules for crowdfunding, however, remain overly burdensome 

for small entrepreneurs seeking modest amounts of capital. The 

audit requirements for crowdfunding are cumbersome for small 

businesses, as evidenced by the transactions to date, which have 

clustered just at the threshold for required audits. Raising this capital threshold will encourage more businesses to take advantage of 

crowdfunding. The rules should also provide for relief from penalties for startups acting in good faith. 

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Third, make it easier for small companies to make initial 

public offerings (IPSs). Despite the intentions of the JOBS Act, 

high costs and regulatory burden keep the traditional IPO unattractive to small companies. These companies may have access to 

private sources of equity, but the IPO is what creates jobs. Investors in privately held companies prioritize return on investment, 

while investors in public companies expect growth. Growth creates 

jobs. Growth requires innovation. 

Next, expand the pool of accredited investors. Keep the current standards in place, but expand the qualification criteria to 

allow people to meet those standards through employment and/or 

education. Knowledgeable employees of early-stage companies in 

high-growth industries may not have enough money to qualify 

under current rules; they should be allowed to invest in the companies they’re helping to create, based on their education and job experience. 

The SEC is considering a proposal to tighten accreditation standards, which would be exactly the wrong decision. Tightening these 

standards could eliminate nearly 60% of accredited investors, who 

provide more than one trillion dollars of capital yearly, in private 

placements. Such a change would devastate capital formation in 

the innovation economy. We encourage you to support Congressional efforts that maintain current standards, and allow these 

standards to rise with cost of living adjustments. 

Finally, allow early stage companies to sell net operating 

losses to raise capital. If companies are permitted to treat net 

operating losses as an asset, they can leverage the risk capital invested in the company into additional cash—without further investor risk. Profitable companies would be able to provide significant 

new funding to early stage companies that are not yet earning a 

profit. 

The changes discussed above can be made before the establishment of a Commission, although the Commission’s expertise and 

guidance would be valuable. That expertise and guidance, however, 

will be essential as policymakers examine and address the major 

long-term issues that impact the Innovation Economy. These include: 

• The disappearance of small IPOs. Today’s IPOs start 

at $100 million, and the smaller IPOs have disappeared. This 

is a major reordering of the American economy, and requires 

policy changes beyond the small fixes suggested above. The 

disappearance of small IPOs is keeping job growth artificially 

low, and has exacerbated the regional imbalance in entrepreneurship. Regional and mid-sized businesses—small manufacturers, retailers, and craft brewers, for example—used to be 

able to make an initial public offering of $25 million to fuel 

growth that created hundreds, even thousands of jobs. When 

this source of capital disappeared, the jobs disappeared as well. 

Reviving regional IPOs could make a huge difference in parts 

of the country the economic recovery has left behind. Regulation A+, mandated by the JOBS Act, was intended to facilitate 

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pelling option for financing. Structural issues have magnified 

the headwinds facing small companies that seek public capital. 

These include compliance burdens that favor larger companies 

and the move to passive investing and indexing, which means 

lower trading volumes and valuations for equities outside of indexes, and fewer retail brokers to sell an IPO. 

• The decline in the number of public companies. The 

precipitous drop in the number of public companies is harmful 

to the economy in many ways. Public companies enhance the 

transparency of capital markets and broaden the investment 

choices for investors’ portfolios, and their lower cost of capital 

implies more efficient markets. As I have noted, and will repeat, IPOs are also true job-creating events. Investors in public 

companies expect long-term, continuing growth, and this 

growth creates jobs. SEC Chairman Clayton has said that the 

agency is encouraging more companies to go public, noting last 

month that the current trend ‘‘ultimately results in fewer opportunities for Main Street Americans to share in our economy’s growth, at a time when we are asking them to do more 

on their own to save and invest for their future and their children’s futures.’’ 

• Geographic concentration of venture capital. Fifty 

percent of all venture capital currently flows to one state, California. This is a tremendous imbalance that resonates throughout the country, and is already causing systemic distortions in 

the job market. The disparity in access to capital is a major 

contributor to the divergence of wealth among regions throughout the United States. Inventive ideas and people are not confined to the coasts. 

• Concentration of control of venture capital. Venture 

capital has not only become concentrated by region, but it now 

comes from fewer sources and is allocated to fewer companies. 

The number of venture capital firms has declined by 50%, 

while the amount of venture capital in the market remains 

steady. Fewer people and companies are controlling the same 

amount of money, and it’s most efficient for them to allocate 

those funds to fewer projects in larger dollar amounts. The five 

to ten million-dollar first round of professional investment has 

largely disappeared. A Commission would examine the reasons 

for this concentration, consider various reform possibilities, 

and make meaningful policy recommendations. 

The American economy has historically led the world in innovation and entrepreneurship. Today, however, the United States faces 

new levels of international competition as both allies and adversaries recognize the importance of encouraging innovation. As we 

seek to maintain our position in setting the global standards for 

fostering entrepreneurship, the United States can benefit from 

studying other nations’ initiatives—such as France’s Station F, a 

new $265 million startup campus in Paris that brings as many as 

1,000 founders of new companies together from around the world 

to share ideas and pool resources. 

If the United States is to remain the world leader in innovation, 

we must restore the American innovation machine. A bill to create 

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a Commission on the Innovation Economy that would make recommendations for both short-term fixes and long-term policy goals 

is about to be introduced in both houses. I want to thank the members on both sides of the aisle who are leading this effort. You 

know that enacting legislation is a time-consuming and laborious 

process. Action from the White House in this area would also be 

welcome; the administration could establish a commission similar 

to the Strategy and Policy Forum, but for smaller, younger businesses. 

A prospering Innovation Economy is the key to creating jobs, increasing wages, and reducing income inequality as companies compete for good employees. Again, I thank you for taking the time to 

address this crucial issue, and I look forward to working with you 

on solutions that will revive and encourage entrepreneurship. I 

would be happy to answer any questions you may have. 

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