U.S. GOVERNMENT PUBLISHING OFFICE

31–302 WASHINGTON : 2019

S. HRG. 115–400 

THE INNOVATION ECONOMY, ENTREPRENEURSHIP, 

AND BARRIERS TO CAPITAL ACCESS 

HEARING 

BEFORE THE

JOINT ECONOMIC COMMITTEE 

CONGRESS OF THE UNITED STATES 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

JULY 25, 2018 

Printed for the use of the Joint Economic Committee 

( 

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JOINT ECONOMIC COMMITTEE 

[Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress] 

HOUSE OF REPRESENTATIVES 

ERIK PAULSEN, Minnesota, Chairman 

DAVID SCHWEIKERT, Arizona 

BARBARA COMSTOCK, Virginia 

DARIN LAHOOD, Illinois 

FRANCIS ROONEY, Florida 

KAREN HANDEL, Georgia 

CAROLYN B. MALONEY, New York 

JOHN DELANEY, Maryland 

ALMA S. ADAMS, PH.D., North Carolina 

DONALD S. BEYER, JR., Virginia 

SENATE 

MIKE LEE, Utah, Vice Chairman 

TOM COTTON, Arkansas 

BEN SASSE, Nebraska 

ROB PORTMAN, Ohio 

TED CRUZ, Texas 

BILL CASSIDY, M.D., Louisiana 

MARTIN HEINRICH, New Mexico, Ranking 

AMY KLOBUCHAR, Minnesota 

GARY C. PETERS, Michigan 

MARGARET WOOD HASSAN, New Hampshire 

COLIN BRAINARD, Executive Director 

KIMBERLY S. CORBIN, Democratic Staff Director 

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C O N T E N T S 

OPENING STATEMENTS OF MEMBERS

Hon. Erik Paulsen, Chairman, a U.S. Representative from Minnesota .............. 1 

Hon. Martin Heinrich, Ranking Member, a U.S. Senator from New Mexico ..... 2 

WITNESSES

Mr. Phil Mackintosh, Global Head of Economic Research, NASDAQ ................. 5 

Ms. Rachel King, CEO, GlycoMimetics .................................................................. 7 

Ms. Lisa Mensah, President and CEO, Opportunity Finance Network .............. 9 

SUBMISSIONS FOR THE RECORD

Prepared statement of Hon. Erik Paulsen, Chairman, a U.S. Representative 

from Minnesota .................................................................................................... 28 

Prepared statement of Hon. Martin Heinrich, Ranking Member, a U.S. Senator from New Mexico .......................................................................................... 29 

Prepared statement of Mr. Phil Mackintosh, Global Head of Economic Research, NASDAQ .................................................................................................. 31 

Prepared statement of Ms. Rachel King, CEO, GlycoMimetics ........................... 40 

Prepared statement of Ms. Lisa Mensah, President and CEO, Opportunity 

Finance Network .................................................................................................. 49 

Prepared statement of Mr. Michael Brown, General Partner, Battery Ventures ...................................................................................................................... 84 

Slides submitted by Representative Maloney 

Fact: Business lending has increased 75% after Dodd-Frank ...................... 93 

Total number of banks in U.S. (1998–present) .............................................. 94 

Response from Mr. Mackintosh to Questions for the Record Submitted by 

Senator Sasse ....................................................................................................... 95 

Response from Ms. King to Questions for the Record Submitted by Senator 

Sasse ...................................................................................................................... 96 

Response from Ms. Mensah to Questions for the Record Submitted by Senator 

Sasse ...................................................................................................................... 97 

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THE INNOVATION ECONOMY, 

ENTREPRENEURSHIP, AND BARRIERS 

TO CAPITAL ACCESS 

WEDNESDAY, JULY 25, 2018 

UNITED STATES CONGRESS, 

JOINT ECONOMIC COMMITTEE, 

Washington, DC. 

The Committee met, pursuant to call, at 10:03 a.m., in Room 

1100, Longworth House Office Building, the Honorable Erik Paulsen, Chairman, presiding. 

Representatives present: Paulsen, Comstock, Handel, Maloney, and Delaney. 

Senators present: Lee, Heinrich, and Peters. 

Staff present: Ted Boll, Colin Brainard, Daniel Bunn, Ryan 

Ehly, Hannah Falvey, Connie Foster, Ricky Gandhi, Colleen Healy, 

Beila Leboeuf, Allie Neill, Neomi Parikh, Ruben Verastigui, Kyle 

Westra, Jim Whitney. 

OPENING STATEMENT OF HON. ERIK PAULSEN, CHAIRMAN, A 

U.S. REPRESENTATIVE FROM MINNESOTA 

Chairman Paulsen. I call the committee hearing to order. 

The United States has fallen to 11th place in the 2018 Bloomberg 

Innovation Index, and one thing is clear: Our job as policymakers 

is to figure out how to find the right mix of policies to spur innovation along. After all, economists agree that innovation is critical to 

growth and prosperity, and with the headway we have made since 

the passage of the Tax Cuts and Jobs Act, this momentum must 

continue. 

Innovators start their work from a difficult place. After all, great 

ideas don’t appear fully formed. They take research, development, 

and testing. Innovation is just as likely to happen in a suburban 

garage as it is in a corporate lab. That is because people of all 

walks of life can come up with the next big thing. 

Are we advocating for the best policies to assist that? The Joint 

Economic Committee has held two previous hearings on this topic. 

Witness testimony, combined with analysis by our staff of economists, makes clear that too many barriers stand in the way of 

innovators and the life-improving ideas that they have to offer. 

Today’s hearing is about innovation, entrepreneurship, and barriers to capital access, and how can we ensure that innovators have 

access to financial resources they need to succeed. Nearly 70 percent of all startup businesses received less financing than they apLAP51NQ082 with DISTILLER

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plied for. Nearly 28 percent of startup businesses were not approved for any financing at all. 

Innovators know that if an idea is entirely new, it shows promise, the first challenge is to finance its development. As such, each 

innovator has to, not only create something entirely new, but also 

fund the work involved by means that require more effort and persuasion than simply applying for a commercial bank loan. 

Access to capital is one of the most challenging parts of starting 

a new business, especially in the tech sector where companies are 

at the forefront of new technologies and are developing products 

and services for which there is no track record. The risks are high, 

and subsequently, it is difficult to raise money from investors. 

For there to be progress, we need to remove obstacles to raising 

seed capital. Take, for example, a company going public via an IPO 

has long offered real advantages. Overregulation, however, has 

driven down the number of IPOs which deprives the entrepreneurial ecosystem of capital access. 

We should take a second look and modernize this system so that 

we would remain competitive. We have already taken major steps 

to help. The Tax Cuts and Jobs Act included several provisions 

that may be helpful in expanding capital access. Ways and Means 

Committee Chairman Brady is embarking on tax reform 2.0, and 

now we must take an innovation-friendly approach that increases 

incentives to invest in new companies and technologies. 

The government itself is not and can never be the prime mover 

in the world of innovation. Washington shouldn’t be subsidizing 

particular companies or activities in the hopes of winning big, because picking winners and losers goes against America’s entrepreneurial spirit and undermines the process by which our strongest 

ideas are honed and improved. Today, I look forward to hearing 

from our witnesses and my colleagues in how we can reduce the 

barriers in empowering those with big ideas to make even bigger 

strides. 

We are facing fierce competition. In 2017, one-third of the world’s 

IPOs happened in China. Domestic IPOs today total nearly half of 

what they were 20 years ago. I am hopeful that our work today can 

help us, not only get back into the top 10 innovative economies in 

the world, but to make us number one overall. 

And I now yield to Ranking Member Senator Heinrich for his 

opening statement as well. 

[The prepared statement of Chairman Paulsen appears in the 

Submissions for the Record on page 28.] 

OPENING STATEMENT OF HON. MARTIN HEINRICH, RANKING 

MEMBER, A U.S. SENATOR FROM NEW MEXICO 

Senator Heinrich. Mr. Chairman, thank you for focusing on 

barriers to capital access. It is an important issue, and I look forward to the insights of our witnesses here today. 

We have talked before about the important role that small and 

new firms play in driving innovation and creating jobs. Yet the 

startup rate has been declining now for years and new businesses 

increasingly are concentrated in the large urban counties, while 

rural communities are struggling to keep up. 

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A big challenge for entrepreneurs in small towns and remote 

areas is getting access to capital to turn their idea into a business 

or to take their business to the next level. JEC Democrats recently 

released a comprehensive report, ‘‘Investing in Rural America,’’ 

that examines the economic challenges and opportunities as well 

facing rural communities. 

Two challenges jumped out: First, insufficient access to 

broadband leaves communities disconnected from economic opportunities and unable to reach customers around the globe; and second, insufficient access to capital constrains growth. The more 

rural you get, the less access to capital there is. 

Many rural communities have seen their financial institutions 

disappear and with them access to the loans that people need to 

build and to expand their businesses. 

In New Mexico, there are just a handful of cities with 50,000 people or more. Often, small towns are less able to access grants and 

other Federal resources that may be available to them, and smaller 

communities have fewer financial institutions, whether we are 

talking about banks, credit unions, community development, financial institutions, or nonprofits. 

Let’s look at banks. From 2008 through 2016, 86 new banking 

deserts, areas where no banks exist within 10 miles, were created 

in rural communities. We need to reverse that trend. Expanding 

access to capital must go hand in hand with building the know-how 

and the expertise to launch and grow businesses. 

In my State, nonprofits like WESST help budding entrepreneurs 

create new business plans, access micro loans, and build their businesses. More than two-thirds of those that they serve are women, 

and an even larger share are low income. SBA’s Women’s Business 

Center helps fund WESST, but SBA and USDA don’t have the staff 

needed to go out and build awareness of the many programs they 

operate that could support rural business development. We need 

more boots on the ground. 

There are also a growing number of resources available online. 

Online services allow consumers to continue to have relationships 

with financial institutions that no longer have a physical presence 

in a community. But the reality is for this to be a viable option for 

rural and Tribal communities, these communities need to be connected to broadband, and too often that is simply not the case. 

It is not just a shortage of banking options. Venture capital is 

also scarce in rural areas. More than three-quarters of venture capital goes to companies in New York, in Boston, in San Francisco, 

and Los Angeles. There are entrepreneurs across this country with 

good ideas and smart business plans, but they need access to investors who can help transform these ideas into growing businesses. 

The Federal Government has a vital role to play. We need to support small business lending through proven programs at the SBA, 

USDA, and the CDFI Fund. We also need to build the technical expertise to help people access Federal resources, while also promoting increased awareness about the programs that exist at SBA, 

USDA, and Treasury. That is what an organization called Grow 

New Mexico is doing. They connect people, businesses, and communities through resources that can help. 

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Unfortunately, the Trump administration seems to be heading in 

the opposite direction. Instead of doing more to increase access to 

capital, the Administration proposes zeroing out the CDFI Fund’s 

grant making. The White House’s recision package also targeted 

several USDA programs that support rural communities, a sign 

that the Administration is failing to get money out the door. And 

the recent Republican tax law actually makes the Tax Code more 

complex for small firms. 

We need to realign our priorities. Expanding access to capital 

means providing more and better options, and ensuring that people 

and communities are able to utilize those options. 

I look forward to hearing from our witnesses on how we can 

build an innovation economy that supports innovation and growth 

in all parts of our country. 

Thank you, Chairman. 

[The prepared statement of Senator Heinrich appears in the Submissions for the Record on page 29.] 

Chairman Paulsen. Thank you. 

And with that, we will introduce our witnesses. And I thank each 

of you, first of all, for taking the time to be here for a second time 

on a reschedule. Our fourth witness wasn’t able to be here, but we 

will make sure his testimony is inserted into the record. 

First, Mr. Mackintosh is the global head of economic research at 

Nasdaq, where he leads initiatives in the U.S. and Europe to improve market structure, capital formation, and trading efficiency. 

Mr. Mackintosh has nearly 30 years of experience in the finance industry and is an expert in index construction and ETF trading. He 

has published extensive research on trading ETFs and market 

structure. 

Before joining Nasdaq, Mr. Mackintosh was head of trading 

strategy at Virtu Financial, where he authored numerous papers of 

market structure, trading, retail flows, and ETFs. Prior to this role, 

he was a managing director at Credit Suisse. Mr. Mackintosh holds 

a BA in commerce from the University of South Wales in Sydney 

and a master’s in quantitative finance from the University of Technology in Sydney. 

Also with us is Ms. King, who is cofounder and CEO of 

GlycoMimetics, a clinical-stage biotechnology company developing 

treatments for serious diseases. Before founding GMI, Ms. King 

was an executive in residence at New Enterprise Associates, NEA, 

one of the Nation’s leading venture capital firms. Ms. King joined 

NEA after serving as a senior vice president of Novartis Corporation, where she was CEO of Genetic Therapy, Inc., a subsidiary of 

Novartis. Ms. King also worked previously at ALZA Corporation in 

California, and at Bain and Company in Boston. 

Ms. King is a past chair of the Emerging Companies Governing 

Board and of the Board of the Biotechnology Innovation Organization, BIO, and continues to serve on the BIO’s Executive Committee. Ms. King received her BA from Dartmouth College and her 

MBA from Harvard Business School. 

Ms. Mensah, who is with us, is the president and CEO of Opportunity Finance Network, OFN, the Nation’s leading network of 

community development financial institutions. In this role, Ms. 

Mensah expands sources of capital and provides greater visibility 

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for CDFIs. Ms. Mensah joined OFN in March of 2017, bringing private and public sector experience and expertise in using financial 

tools to improve the economic security of the working poor. 

In 2014, Ms. Mensah was nominated by President Obama and 

confirmed by the U.S. Senate for the position of Under Secretary 

of Agriculture for Rural Development. Previously, Ms. Mensah was 

the founding executive director of the Initiative on Financial Security at the Aspen Institute. Ms. Mensah also holds a BA from Harvard University and an MA from the Paul H. Nitze School of Advanced International Studies of the Johns Hopkins University. 

And our fourth witness who was going to be with us this morning, Mr. Michael Brown, from Battery Ventures, was scheduled 

also to testify. And without objection, I would like to make sure his 

testimony is also submitted for the record for members as well. 

[The prepared statement of Mr. Brown appears in the Submissions for the Record on page 84.] 

And with that, we would like to welcome each of you to be here 

this morning with us. And we will recognize Mr. Mackintosh for 

your opening statement, not to exceed 5 minutes. 

STATEMENT OF PHIL MACKINTOSH, GLOBAL HEAD OF 

ECONOMIC RESEARCH, NASDAQ 

Mr. Mackintosh. Okay. Good afternoon—or good morning, 

Chairman Paulsen, Ranking Member Heinrich, and all of the members of the Joint Economic Committee. Thank you for the opportunity to testify on capital formation and to share Nasdaq’s views 

on how to maximize economic growth and job creation, as well as 

providing quality high-growth investment options for Americans 

who need to grow their savings. 

In our view, this is best achieved if we modernize the public company model, while preserving critical investor protections. So today, 

I will be focused on why capital formation is important, not only 

to help grow the American economy, but also to provide retirement 

security to Americans. 

So how do companies access capital for growth? In the beginning 

stages of a company’s life, they are usually cash flow intensive. 

Startups often use crowdfunding or angel investors, in addition to 

their own funds, but as investment needs get larger, better organized and deeper sources of funds are often used, like private equity or public markets. 

There are two key reasons why growing our public or listed markets is important: Firstly, American investors will benefit. Most 

American workers, including teachers, nurses, and firefighters 

aren’t qualified investors. This generally means they can only invest in the listed companies. 

If American workers are to benefit from the wealth effect of new 

growth companies, we need to attract as many as possible at early 

stages into the public markets. For example, this wealth effect, consider that just five Nasdaq listed companies—Apple, Microsoft, 

Amazon, Google, and Facebook—have added more than $2.5 trillion 

of combined value to shareholders since their IPO. 

But secondly, the U.S. economy will benefit. Companies that list 

in the U.S. mostly have head offices in the U.S., so they are likely 

to also hire more Americans. In fact, one study found that the IPOs 

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between 1996 and 2010 collectively employed 2.2 million more people in 2010 than before they went public. 

But our public markets need to be able to compete domestically 

and internationally, not only with less regulated forms of investment here, but also with exchanges from overseas. In fact, a recent 

Wall Street Journal article about the strength of the 2018 IPO 

market highlighted that Hong Kong has attracted new listings 

after it changed its standards to allow dual-class shares, which begins to answer the question: Do we actually have a problem attracting IPOs to list here? The data seems to show that we do. 

Firstly, there is evidence that companies are choosing to stay private longer. There are 2,000 less companies with market cap below 

$250 million now compared to 2003. Second, there is no lack of entrepreneurs. The number of private companies has grown since 

1998, while the U.S.-listed companies have roughly halved. And 

thirdly, this is not a global phenomenon, quite the opposite. Over 

the same time that U.S. listings have halved, offshore listings have 

roughly doubled. 

So what are the reasons? Well, academics and economists have 

suggested many reasons for the decline in U.S. listings, including 

a more organized and competitive private equity market. Our 

issuers also claim that regulatory and reporting burdens, as well 

as the cost to shareholders in proxy fights and litigation, distract 

management and make it harder to grow their business. 

Clearly, excessive regulation and costs place the U.S. public markets at a competitive disadvantage. But the value that investors 

get from listing standards and corporate accountability cannot be 

underestimated. The cost of those standards needs to be weighed 

against the benefits. 

So what do we propose for the U.S.? Many of the solutions we 

propose were included in our revitalized report released 1 year ago. 

Over the past year, we have seen many positive developments on 

these suggestions, including the SEC has made changes to help remove repetitive, unsuccessful proxies. 

Congress has moved to improve transparency of proxy advisers, 

businesses have started to support more flexibility in quarterly reporting, the SEC has an interest in helping small companies to 

trade better by consolidating liquidity into a single exchange, and 

the House Financial Services Committee Chairman Jeb Hensarling 

and Ranking Member Maxine Waters’ proposals under the moniker 

of JOBS Act 3.0 passed the House with a vote of 406 to 4, and we 

look forward to the Senate moving to pass this bipartisan bill. 

We also listed a number of tax reform proposals, including some 

to improve competitiveness of public listings on an aftertax basis 

for investors. While on that topic, I would like to commend Congress on the passage of tax reform legislation last year. This is having a positive impact on the ability of small companies to grow and 

expand. 

In conclusion, we shouldn’t ignore the fact that the U.S. has the 

deepest, most liquid, and most efficient capital markets in the 

world, but we need to make sure we keep it that way in the face 

of increasing competition. We appreciate the opportunity to present 

Nasdaq’s views on such an important topic for American investors 

and the economy. 

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Thank you, Mr. Chairman and all members of the Joint Economic Committee. 

[The prepared statement of Mr. Mackintosh appears in the Submissions for the Record on page 31.] 

Chairman Paulsen. Thank you, Mr. Mackintosh. Perfect timing. 

Ms. King, you are recognized for 5 minutes. 

STATEMENT OF RACHEL KING, CEO, GLYCOMIMETICS 

Ms. King. Thank you. 

Good morning, Chairman Paulsen, Ranking Member Heinrich, 

and members of the Joint Economic Committee. You both touched 

on issues in your opening remarks that are very close to my heart 

and are really critically important to small innovative companies 

like ours, so I am very happy to be here to be able to share our 

thoughts on that. 

I run a biotechnology company based in Rockville, Maryland, 

Congressman Delaney’s District. And in the biotechnology industry, 

we are working on therapeutics that are highly dependent on our 

access to capital. Our timelines are long. We are developing drugs 

at substantial risk, and these are critical issues to us. 

More than 90 percent of biotechnology companies in this country 

are actually in the R&D stage, which means we are preapproval. 

We don’t yet have an FDA-approved drug on the market. So virtually every dollar that we spend is a dollar that we have to raise 

from an investor. 

And most drugs that are in development actually fail, so when 

you account for the cost of those failures, the average cost to develop a new drug is over $2 billion. These are very expensive and 

very long efforts that we undertake, in some cases up to 15 years, 

to get from the labs to the market. 

So the key point I want to bring to you today, though, is that 

what you are doing in Congress really makes a difference. The policies that you put in place really make a difference to companies 

like ours, and I would like to touch on a couple of those. 

First, a bit of background on GlycoMimetics. We are a clinicalstage company that is developing two drugs now in advance testing, one for sickle cell disease and one for leukemia. We completed 

an IPO successfully in January 2014, and we benefited from the 

on-ramp provisions and from some of the regulatory relief provisions for emerging growth companies that were part of the JOBS 

Act. 

We also benefited from another law known as FDASIA, and because of that law we were able to get breakthrough therapy designation for our leukemia product. And that was critical to our ability then to raise, over the past 12 months, almost $250 million 

through the public markets in order to now finance the trials that 

will help us to determine whether, in fact, that is a drug that can 

bring breakthroughs to patients. 

So together these policies have dramatically improved our ability 

to raise financing, which enables us to potentially develop these 

lifesaving or life-enhancing therapeutics. So I encourage you to continue to focus on these important types of legislation. 

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I want to make some comments today on a provision of the JOBS 

Act which relates to Sarbanes-Oxley 404(b) exemptions, which are 

important to our companies, and then make some comments on 

patents. 

So the JOBS Act has been a tremendous success for the biotechnology industry, and one of the provisions that has been important in that has been an exemption from Sarbanes-Oxley 404(b) 

auditor attestation requirements, and that is a very specific type 

of extra audit that is required under 404(b), that without additional action by Congress, many of the pre-revenue biotech companies like GlycoMimetics will lose that JOBS Act exemption. So in 

our particular case, that means that our financial reporting requirements will nearly double to over $1 million a year in order to 

comply with Sarbanes-Oxley 404(b). 

So to alleviate these burdens, we encourage the Senate now to 

pass the Fostering Innovation Act, which I know just passed the 

House, and we were very happy to see the overwhelming support 

for that, particularly the strong bipartisan support. 

We wanted to commend Senators Thom Tillis and Gary Peters 

for sponsoring the Fostering Innovation Act in the Senate; and 

Representatives Kyrsten Sinema and Trey Hollingsworth for sponsoring it in the House; and also thank Representative Delaney for 

his cosponsorship of that legislation. 

Tax issues are also very important to us, and even though we 

don’t have current income tax liability, the Tax Code still could 

have significant impact on us, in particular as it relates to NOLs, 

net operating losses. We want to thank you, Chairman Paulsen, for 

your work on NOLs, which is critical to companies like ours. 

I want to also touch on patent reform, which is another critical 

issue for us. There are very few areas in the Nation’s economy that 

are as dependent on patents as the biotechnology industry. Our investors rely on the strength of patents in order to make investments in companies like ours, and we need to ensure that these 

rights are robust and enforceable. 

Unfortunately, there have been a number of changes recently, 

both through legislative action, through agency actions, and 

through court decisions that have made the patent system weaker, 

and, in particular, the fact that challenges can now be brought 

under a new process called IPR. That greatly concerns us and that 

weakens our ability to enforce patents. 

So we urge Congress to advance the bipartisan STRONGER Patents Act, which would address many of these deficiencies in the 

IPR process. And here I want to applaud Representative Steve 

Stivers and Bill Foster for sponsoring that legislation in the House 

and Senators Chris Coons and Tom Cotton for introducing the bill 

in the Senate. 

So in conclusion, policies enacted by Congress really do make a 

significant impact on our ability to raise money to do the work that 

we are doing to try to develop these lifesaving potential therapies 

in biotechnology, so we thank you for your work in that regard, and 

we ask you to continue to support the type of legislations that will 

support that kind of innovation. Thank you. 

[The prepared statement of Ms. King appears in the Submissions 

for the Record on page 40.] 

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Chairman Paulsen. Thank you. 

And, Ms. Mensah, you are recognized for 5 minutes. 

STATEMENT OF LISA MENSAH, PRESIDENT AND CEO, 

OPPORTUNITY FINANCE NETWORK 

Ms. Mensah. Thank you, Chairman Paulsen, Ranking Member 

Heinrich, and members of the Joint Economic Committee. I am 

pleased to be here, Lisa Mensah, as President and CEO of the Opportunity Finance Network. 

I represent a network of community development financial institutions. Those are mission-driven community banks and credit 

unions, loan funds, and venture capital funds who are all investing 

to create a strong economy. 

CDFIs fill the market gaps that you both mentioned, and public 

sector support for this role is critical. Key Federal programs help 

CDFIs assure that more communities, including those in rural and 

native and persistently poor areas, have access to the capital and 

the chance to participate in the innovation economy. 

A few months ago, I attended the 40th anniversary of Coastal 

Enterprises, a CDFI located in rural Maine, actually in Portland, 

Maine, that serves rural businesses throughout the State. And at 

this celebration, I met Tilson Technology Management, a Portlandbased IT company that builds broadband infrastructure across the 

U.S. 

And Tilson was founded by an Army veteran, Josh Broder. It 

started with only three people in 2007, and by 2013, it had grown 

to 50 people. But then they got stuck. They needed financing to expand, and so that is when Tilson turned to Coastal Enterprises for 

an initial round of capital, and it enabled the company to grow now 

to over 230 employees in now eight locations. 

Subsequently, the company expanded, and its investor base went 

beyond Coastal to many other range of private sector investors. So 

Tilson is not only creating jobs, they are building that vital physical infrastructure that Senator Heinrich mentioned: broadband 

networks. 

As the JEC report ‘‘Investing in Rural America’’ notes, more than 

one-third of rural residents currently lack access to broadband, impeding them from reaching new markets and growing businesses. 

So small businesses like Tilson turn to CDFIs when they can’t 

access capital from traditional lenders. Tilson’s technology success 

is really just one example of the way that CDFIs are spurring the 

economy and encouraging entrepreneurship. 

But there is a challenge of small businesses. Since the recession, 

the availability of capital for small businesses has contracted and 

credit standards have tightened. Small business loan originations 

are 30 percent below their 2007 levels, and rural areas are especially hard hit. Small business lending in rural communities remains less than half of what it was in 2004. And, in fact, when you 

adjust for inflation, lending to rural small businesses is below 1996 

levels. 

But CDFIs are hyper local financial institutions with a proven 

ability to reach deep into hard-to-serve rural and native and persistently poor communities. When formal credit markets for small 

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business contract, CDFIs step up to meet the needs of businesses 

not well served by those traditional financial institutions. 

And during periods of economic contraction, like the Great Recession, CDFIs play a counter-cyclical role. Between 2007 and 2009, 

while SBA 7(a) lending contracted by more than 35 percent, CDFI 

business lending actually grew by more than 26 percent. 

So I am here today to commend the Congress for its continued 

support of Federal small business lending programs that expand 

the CDFI capacity to help small businesses succeed. And my recommendation today is for Congress to sustain and enhance Federal 

programs that bring about the kind of innovation economy we 

need. 

I have three recommendations: First, I urge a continuation of the $250 million appropriation for the Department of Treasury’s CDFI 

Fund. For every $1 awarded by a CDFI Fund, a CDFI is able to 

make $12 in investment. Second, at the Small Business Administration, I urge you to make permanent the community advantage 

program. And, finally, at the Department of Agriculture, I urge full 

funding for rural development small business lending programs. 

Now, what do these big Federal programs look like on the 

ground? Well, in New Mexico, because of the Treasury CDFI Fund, 

Accion New Mexico can lend to native-owned small businesses, like 

the I Knead Sugar bakery and other micro enterprises. 

And in Saint Paul, Minnesota, because of this SBA’s Community 

Advantage Loan Program, Meda can offer its line of credit to 

4RM+ULA, a minority-owned architectural business, allowing it to 

reach its full growth potential. 

And in South Dakota, because of the USDA, the Lakota Fund 

can provide financing to help the Lafferty family on the Rosebud 

Reservation expand one of the only native-owned cattle businesses. 

The Federal Government is such a vital partner to CDFIs, helping to close the market gaps that prevent too many Americans from 

participating in the innovation economy. And that is why I am 

here, and I look forward to a continued dialogue and your questions. Thank you. 

[The prepared statement of Ms. Mensah appears in the Submissions for the Record on page 49.] 

Chairman Paulsen. Thank you. 

We appreciate all of your testimony and your being here this 

morning. 

With that, we will begin the questioning period for our members. 

I will just begin. 

Mr. Mackintosh, you mentioned in your testimony, you talked 

about the concerning decline in IPOs, which negatively impacts the 

entire economy. And if Congress can’t help address this problem 

with legislation that eases the burden imposed by Sarbanes-Oxley, 

it is going to have a long-term impact. What do you think that 

long-term impact will be? Do you think this will have—what will 

it have on technological progress, economic growth here in the 

United States without attention? 

Mr. Mackintosh. So I think there are two aspects to that question: One is the fact that the investors themselves in America won’t 

have access to a lot of these companies, unless they start to invest 

money offshore. And, in fact, we are actually starting to see that 

LAP51NQ082 with DISTILLER

11 

trend play out already. So if you look at mutual fund holdings over 

the last 10 or so years, there has been around about $1.5 trillion 

coming out of U.S. mutual funds, and a third of that has gone back 

to equities overseas. So I think one of the problems that you might 

have is that U.S. investors buying U.S. companies aren’t going to 

have access to the growth, which is going to be worse for their retirement savings. 

The second thing is that the companies that end up IPOing overseas, where the environment is better, are more likely to grow their 

businesses overseas, have head offices overseas, and that is going 

to affect employment. And it is eventually, to your point, going to 

affect where the technology resides and where the IP resides as 

well. And from that, like I think the industries and the network effect as well of the IP and the sophisticated developments being 

overseas will make it harder for us to keep up and catch up. 

Chairman Paulsen. Ms. King, speaking of intellectual property, 

in a lot of the work and the background that you have you talked 

about long-term investments. You also mentioned section 382 of 

the Tax Code that was put in place to prevent companies from acquiring operations that lose money just to offset their taxable income. But it also represents an impediment to startups that have 

no tax liability and then accumulate net operating losses. 

I have been concerned about this issue for a while. You mentioned a number of bipartisan initiatives in your testimony. Speaking of section 382, the legislation that I am working on right now 

to address this problem would help the disadvantaged side of the 

startup community, particularly technology startups that conduct 

that valuable research with the potential to help improve and 

maybe even save lives. It is unfair to those companies and then 

damaging to the overall economy that discourages investment in 

innovation. 

So while section 382 was intended to prevent loss trafficking, 

how should we weigh its benefits against the costs that have been 

borne largely by startups? 

Ms. King. And thank you for your work on this because this is, 

in fact, something that is really critical. And we have actually had 

to address this in the context of some of the financing that we have 

done at GlycoMimetics. 

So the problem, as you point out, is that you want to prevent 

what is known as loss trafficking. But what you don’t want to prevent is smaller companies raising money, which also sometimes results in significant ownership changes through the natural course 

of investors coming in and out of a company like ours. 

That is the kind of situation where we want to be able to preserve our net operating losses, because we hope someday to be profitable and to be able to use them. But we don’t want to discourage 

the kind of investment that needs to come into companies like ours 

that have to raise a lot of money from a number of different investors. 

So I think the objective of preventing trafficking in NOLs is a 

reasonable objective, but we really don’t want to inhibit the ability 

of companies like ours to raise the significant capital that we 

raised that also could inadvertently be prevented by the law, by 

this section 382. 

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Chairman Paulsen. Would you like to see legislation accomplish anything in particular in this area? And what effect do you 

predict it would have if we were able to move something forward 

on capital formation for startups? 

Ms. King. Well, yes, what we don’t want to—what we don’t want 

to do is we don’t want to discourage large investments in companies like ours. So I think when we look at these reforms, we have 

to be very careful, as I know you are, to look at specifically continuing to encourage investment without limiting the ability for 

companies to retain those NOLs for future uses. 

Chairman Paulsen. Thank you. 

Ms. Mensah, you mentioned several recommendations that you 

had with the Small Business Administration, continuing appropriations for CDFIs. Do you sense continued bipartisan support, or 

what other message would you have for us as we go through the 

appropriations process and focus on some of these initiatives right 

now? 

Ms. Mensah. I think these initiatives, the three recommendations that I raised, all have bipartisan support, particularly at the 

CDFI Fund. We were so pleased to see Congress move forward, and 

I urge this bipartisan continuation. I had the privilege to meet with 

the small business administrator who said we are aligned, but this 

program needs to move from pilot to permanent. 

And the Department of Agriculture has traditionally been heavily bipartisan, so I see no losers here in doubling down just when 

the economy needs a push into the very areas that don’t rise easily 

with market forces. So I look forward to seeing more bipartisan 

work and to your leadership and encouraging this. 

Chairman Paulsen. Thank you. 

Senator Heinrich, you are recognized for 5 minutes. 

Senator Heinrich. Thank you. 

Ms. Mensah, you—in your last comment, you brought up something that really keeps me up at night, and that is, as we have 

come out of the recession of 2009, 2010, and the Great Recession, 

as they called it, response to that has been fairly robust in the 

coasts and in urban areas. That recovery has not extended to every 

part of our country. And I think, you know, the thing that worries 

me the most is us falling back into recession before many of those 

communities can see the full benefit of this recovery. 

I want to ask you about one thing in particular. I have got a 

number of team members who are meeting with small businesses 

in New Mexico this week to learn about the sort of current state 

of the challenges that they face. And one of the things that you 

mentioned in your testimony is just the very real challenges that 

when you have bank closures and consolidations, and those have 

accelerated in recent years, it really has left a lot of high-need communities in the lurch. 

What does it mean—can you speak to the—what the absence of 

a physical bank presence in a community means to the ability to 

access capital and to develop new business plans? 

Ms. Mensah. Thank you, Senator. I think the absence of a physical bank, you lose two things. You lose trusted relationships; you 

lose human beings who can talk with you, even if there is a turn 

down; you lose connections for firms; and you lose a regulated apLAP51NQ082 with DISTILLER

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proach to providing capital. And while we applaud new moves in 

technology, we regret those loss of tight connections. 

Where the CDFI field can step in is to become the partners. 

Many, many bank CDFI partnerships exist, and so—but it is clear 

that, particularly in our rural areas, when you see—it is a people 

touch and it is a fairness and it is someone to talk through. It is 

additional expertise that I think we—is a social capital to this that 

we miss. 

Senator Heinrich. How does that CDFI role change in those 

places I mentioned that are banking deserts, where we no longer 

have a credit union, we no longer have a community bank that is 

playing that trusted role of somebody that you know in your community and you can go access capital through? 

Ms. Mensah. CDFIs I think of as the Swiss Army knives of a 

local economy. They are able—they are mission driven, so they are 

able to take time. They can often make the loan, like in my example of Coastal, when other financing sources aren’t yet ready to 

play. So they have time, they have ingenuity, they can build portfolios. 

We estimate that even amongst our own memberships, we have 

been lending over $50 billion as a network, cumulatively. And so 

it is not a little field. It is a serious field with balance sheets ready 

to help the kind of small businesses that we are talking about. So 

a CDFI steps in, partners, gets those businesses to permanent, 

larger markets, like what we have been talking about here. So I 

see it as part of the growth. And I commend you for your concern 

about those parts of the economy that didn’t rise yet and that will 

need to be given an extra push. We do know what to do. 

Senator Heinrich. One of those places, and there is a whole lot 

of overlap, but rural communities and Tribal communities face 

some of the same challenges here, and one of them is obviously the 

lack of the physical connection to parts of the economy that are 

thriving, to be able to access those markets. So broadband connection, in particular, if you don’t have it, it really does cut you off 

from all sorts of avenues to growth. 

Do you have thoughts for how we do a better job of making sure 

that those Tribal communities, those rural communities, how much 

of a governor is that on growth in the places that haven’t yet seen 

this recovery? 

Ms. Mensah. I am so glad to have mentioned our rural areas 

and our Tribal areas. And the very core infrastructure, as I saw in 

my time at the Department of Agriculture, broadband infrastructure is one of the things that is critical. It is critical not only for 

our students and our elders to learn, but it is critical for businesses 

to be able to sell. 

You have the titles that exist, both—and significant ones at the 

Department of Agriculture. So I think there is a bipartisan moment. And I believe CDFIs are here to be partners to both the construction, the furthering of broadband infrastructure. And I see it 

as one of the true ways I saw agreement on this to keep building 

in that final mile. They call it the last mile in broadband. 

Senator Heinrich. Ms. King, do you want to add just a real 

short statement on venture capital with your experience? How can 

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14 

we do a better job of making that venture capital available to more 

geographically? 

Ms. King. Well, actually, when you made the comment about the 

geographies, that also struck close to my heart, because it is true 

that even for companies like ours, which are somewhat larger than 

the very small ones you are talking about in rural areas, even for 

us getting venture capital outside of those major cities is a significant concern. 

I think we can do things like what we are talking about in terms 

of improving access to capital, because this is the type of thing that 

helps really any company located anywhere. So if we are talking 

about, for example, the 404(b) legislation that we are looking at exempting us from, these things that help support the emerging 

growth companies in general will, I think, increase the flow of capital to other regions around the country. And I think that is a critical issue. 

Many of the things that support biotech companies come out of 

Federal labs. I think things that come out of Federal labs that need 

to get that financing to get over that hurdle, I think, can certainly 

be helped with the type of legislation we are talking about to improve capital access generally. 

Senator Heinrich. Thank you, Mr. Chairman. 

Chairman Paulsen. Thank you. 

And I recognize the Vice Chairman, Senator Lee, for 5 minutes. 

Senator Lee. Thank you very much, Mr. Chairman. 

Thanks to all of you for being here. 

There is an old saying in politics that goes something like this: 

Don’t tax you, don’t tax me, tax the guy behind the tree. The trick 

being to pass at least some of the cost of government along to 

someone who either doesn’t vote or can’t vote or is imperceptible 

to the common voter. 

In some ways, our corporate tax system hides taxes and ends up 

being a fairly regressive tax, one that is paid for by poor and middle class Americans, even without their knowing about it. They pay 

higher prices on goods and services, basically everything they purchase, as a result of corporate taxes. They sometimes pay for it 

through diminished wages, unemployment, and underemployment. 

It does end up being paid for, one way or another, to a significant 

degree by America’s poor and middle class. 

It is one of the reasons why in the past I have proposed the idea 

of eliminating the corporate tax and replacing the revenue lost 

from that by taxing capital gains as ordinary income. In my view, 

this policy would accomplish a few things: Number one, I think it 

would make the United States one of the most competitive and attractive places in the world for people to invest their money; and 

number two, I think it would also help free up the workers’ share 

of businesses’ corporate tax expenses. 

In addition to this, we can see other benefits by way of making 

the market more efficient and therefore reducing the passthrough 

price on goods and services, wages, unemployment, and underemployment that consumers ultimately experience. 

So, Mr. Mackintosh, I would like to ask you, do you think this 

sort of corporate integration tax policy would impact the competiLAP51NQ082 with DISTILLER

15 

tiveness of the United States when it comes to decisions on where, 

when, and how to locate workers? 

Ms. Mensah. I think tax policy is definitely an incentive that 

will redirect investments, and I think that we should try to encourage people to invest in companies. I think it is fair to say that 

workers—and ideally, as we go towards the future—workers’ retirements are more self-funded and their investments are coming from 

investments in companies and in listed companies and the growth 

of those companies. 

So you want to make sure that the taxes on those company earnings and also on the distributions of those company earnings and 

the returning of capital and returning of the profits back to the investors are also not excessively taxed. So I think that that is one 

of the more important things as well to consider is the workers 

that we are talking about protecting also have savings. Ideally, 

they would have even more savings, and we want to make sure 

that we don’t overtax the savings that they have as well. 

Senator Lee. For the last—for centuries, traditional brick-andmortar manufacturing has served as the primary source for building tools for infrastructure, transportation, for technology. But 

today, we have got a lot of advances in automation that are changing that. Certain technologies, including things like 3D printing, 

are pointing us toward a future in which we can imagine the end 

consumer being able, in some ways, to manufacture their own toys, 

their own houses, or at least major components thereof, and even 

things like prosthetic limbs, simply by plugging in a few inputs to 

the right machine. 

What can you tell us about how this might impact our economy, 

how things like 3D printing, how this might affect workers in manufacturing industries like automobile manufacturing assembly, food 

processing, and so forth? 

Mr. Mackintosh. I guess my expertise is not in manufacturing. 

But from the perspective of automation and the markets, there has 

definitely been huge cost savings brought to the stock market and 

to a lot of markets because of automation. The stock markets themselves, especially in America, are one of the most transparent and 

electronic and equal and cheap to trade markets. 

So I think that automation has brought a lot of change to the 

stock markets, but that has been overwhelmingly good for investors. And because it has been good for investors, it has been overwhelmingly good in terms of the micro structure for trading for the 

issuers that are trying to list their stocks as well. America has 

some of the tightest spreads and the lowest volatility across all of 

the markets in the world. 

Senator Lee. Ms. King, the Food and Drug Administration plays 

a pretty critical role when it comes to innovation in both food and 

medicine. I am personally a strong supporter of the right-to-try 

concept, and I am hopeful for the results of policies like that and 

what they can bring. 

What, in your opinion, are some other reforms to drug policy that 

we should pursue in order to ensure that we are striking the right 

balance between the need for regulation while also promoting innovation and protecting health? 

LAP51NQ082 with DISTILLER

16 

Ms. King. Yes, well, I think I would say that I strongly support 

a strong and effective FDA, and I think that that is one of the 

things that has enabled our industry to really deliver what we 

think of as the gold standard for regulatory approval. So I think 

having a strong FDA is critically important. And I do think we 

need to maintain the standards that the FDA has in terms of giving their drug approvals. 

Some of the things that have been instituted recently, for example, I mentioned the FDASIA law in my testimony, which enabled 

the FDA to grant breakthrough therapy status. That is an example 

of something that gives the agency, gives companies like ours an 

opportunity to work closely with them during the development 

process in order to streamline the regulatory process. 

So I think to the extent that we are able to continue to streamline that process, improve communications, improve the FDA’s ability to hire and retain the critical people that they need, those are 

the kinds of things that I think can continue to ensure that we get 

a gold standard that we can have confidence in and that we get delivery—and that we are able to deliver cures rapidly to the patients 

who can benefit from them. 

Senator Lee. Thank you very much. 

Thank you, Mr. Chairman. 

Chairman Paulsen. Thank you. 

Representative Maloney, you are recognized for 5 minutes. 

Representative Maloney. Thank you, Mr. Chairman and Mr. 

Ranking Member, for calling this hearing, and all of our panelists. 

Capital is the life blood of our businesses. As one of our witnesses, Mr. Mackintosh, said today: The United States has the 

deepest, most liquid, and most efficient capital markets in the 

world, end quote. And I am very proud to represent Nasdaq and 

also the city of New York, one of the greatest financial centers in 

the world. But not all businesses can access the capital they need 

to grow and create jobs, so this is particularly true for small businesses and underserved areas, as the Ranking Member’s report recently showed. They depend on small banks and institutions that 

support them, and I will get to my questions on that. 

But first, I would like to address a claim that we have heard so 

often and even in this hearing that Dodd-Frank, Wall Street reform, that Sarbanes-Oxley reform, and the Consumer Protection 

Act have severely limited business lending and access to capital. I 

would say that this is false. In fact, as this slide shows, business 

lending has increased 75 percent since the passage of Dodd-Frank. 

It is now at $2.15 trillion, and commercial and industrial bank 

lending is also at a record high. 

Some claim that Dodd-Frank and Sarbanes-Oxley has killed community banks, an important source of capital and strength to all 

of our small businesses and communities. And, again, this is false. 

As this slide indicates, the total number of banks has been declining since the 1980s, long before Dodd-Frank. 

And let’s look at what business owners themselves are saying 

about access to capital. In a report released just last month in the 

National Federation of Independent Business, which former Federal Reserve Chair Janet Yellen often liked to quote and refer to: 

The NFIB survey of business owners found that only 3 percent reLAP51NQ082 with DISTILLER

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ported that not all of their borrowing needs were not met, and 30 

percent said all their credit needs were met, and only 2 percent reported that loans were harder to get. 

So I think it is a myth that Dodd-Frank has crippled business 

lending and devastated smaller banks. But I think that we have to 

move forward in an economy that takes care of everyone, including 

our rural and underserved communities where it is tremendously 

difficult to get funding for small businesses. 

And I would like to ask Ms. Mensah about CDFIs, community 

development financial institutions, that help make capital available 

to small businesses in underserved communities and rural areas. 

In my District, we have several that are very successful. I want 

to read them into the record: the Lower East Side Federal Credit 

Union, the NYU Federal Credit Union, the Community Preservation Corporation, the Community Development Trust, and the 

Local Initiatives Support Corporation. And they work by leveraging 

private capital to help underserved areas. And how does that leverage work? And what is the approximate return to our government 

investment in these CDFIs? And I thank my colleagues for supporting CDFIs. 

Ms. Mensah. 

Ms. Mensah. Thank you, Congresswoman Maloney, for your interest and your support of these important community development 

financial institutions. 

When they receive a financial assistance award from the U.S. 

Treasury CDFI Funds—I believe all the ones you mentioned may 

have profited from those—that forms a kind of permanent capital 

to which they can lend against. So a $1 million financial institution 

award is able to be converted into 10 million of borrowings on this. 

And then in our rural areas, in our native areas, and in areas 

right in New York City, which are working with new immigrant 

communities or new businesses that are yet to qualify, they are 

pre-Nasdaq, they are pre these stages, they build their track record 

often financed by CDFIs, not only financing the businesses, but 

often the facilities that hold them. 

So this leverage ratio, this is an important role of government. 

It is hard to grow a mission—— 

Representative Maloney. How much is a leverage usually? 

Ms. Mensah. We say 12 to 1. $1, 12 out, so—and that may be 

an undercount. 

Representative Maloney. I would like to ask Mr. Mackintosh 

very quickly about the listings. You mentioned that listings are 

down, but I would say that there is not a level playing field on 

IPOs. I read stories about some countries, they create a business, 

then they buy the business and that is their IPO. 

And also, I would say that it used to be that companies would— 

smaller companies would go to an IPO, and now they seem to be 

waiting till they are larger companies. Why is that happening? But 

I guess the basic question is, what are the benefits for listing in 

America? And could you comment on how many foreign companies 

are still coming to America, or do you find foreign companies going 

elsewhere now? 

Mr. Mackintosh. Sure. So I think looking at the IPO data that 

we see year on year, there is definitely an increase in the larger 

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companies with $1 billion-plus IPOs, and a decrease in the smaller 

companies each year that are listing, the less than $250 million 

companies. 

Representative Maloney. Why do you think that is? 

Mr. Mackintosh. There is a lot of academic research that is 

done on the reasons for the shrinkage of the outstanding companies 

at all. But I think that the private equity market is better organized now. I think that some of the angel investors are much better 

organized, and so that is making it easier to access that capital. 

There are probably tax incentives and also the cost of being public 

that I think make people resist turning themselves into public companies until they are much larger and they have much more economies of scale. 

On your second point about the internationalization of markets, 

one data point that I would draw your attention to is in Nasdaq 

we have a Nordic venture market called First North, and it has actually grown its listings by 300 percent in the last 12 or 13 years. 

So there are countries in the world with much more companies 

coming to markets and listing in venture type markets, and that 

is potentially an avenue that we could pursue to get more companies to list in America and stay in America as public markets here. 

Representative Maloney. So foreign countries are up in listing 

in America, right? Are American companies going abroad to list? 

Mr. Mackintosh. I don’t have data on that right now. I can get 

back to you. 

Representative Maloney. Thank you. I yield back. 

Chairman Paulsen. Thank you. 

Representative Handel, you are recognized for 5 minutes. 

Representative Handel. Thank you very much, Mr. Chairman, 

and thank you to all the witnesses. 

I am going to start with Ms. King, and first, thank you. I am a 

Novartis alum as well, so it is great to have you here. 

I wanted—and I am going to ask all of you this. As we as Congress start to undertake the next version 2.0 of tax cuts, what are 

your thoughts on the critical components that ought to be included 

in the next version or the next step in tax cuts and tax reforms? 

Ms. King. 

Ms. King. So as I said in my remarks, we are a pre-revenue 

company. So for us, the critical issues really relate to this issue of 

NOLs that we were talking about earlier. To be able to get that 

section 382 reform, I think, would be very important to us. 

We look to the day when we are revenue positive, but for us— 

you understand the industry—we spend many years where we are 

just spending and so we are accumulating those NOLs. So for us, 

the critical tax issue is really this NOL issue. 

Representative Handel. Great. Thank you. 

Ms. Mensah. 

Ms. Mensah. Congresswoman, you had a wonderful hearing a 

few weeks back on opportunity zones—— 

Representative Handel. Yes. 

Ms. Mensah [continuing]. Which was part of the new—of the 

first tax reform. I would encourage you to keep moving forward. It 

is rare to get everything right the first time something passes. This 

has created quite a lot of excitement in our field, and yet a big hope 

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that those kind of opportunity zones and opportunity funds can 

have a tighter connection with community development financial 

institutions and can intensify in the way they reach rural areas, 

persistently poor areas. So I would encourage you to take another 

look at how we can deepen that part of the legislation. 

Representative Handel. Okay. Thank you. 

Mr. Mackintosh. 

Mr. Mackintosh. So I think tax incentives for savers are a pretty strong incentive to give to the market to do more saving. And 

it was mentioned in my introduction, I am from Sydney. A couple 

of things that Australians have done, and they have a really strong 

retirement system, is the money that you earn—it is a little bit like 

the 401(k) system here. It goes into a mutual fund structure tax 

free, and you can take it out at a lower tax rate when you retire 

as well. Plus, on dividends, they have made sure that there is no 

double taxing of dividends. And I think things like that can 

incentivize companies to return the money that they have earned 

to investors, and the investors can receive those moneys on a more 

aftertax effective basis. 

Representative Handel. Okay. Thank you. 

In Georgia, Atlanta, Metro Atlanta in particular, has become a 

really robust environment for startups and even access to capital. 

And some of that is being driven by, my observation, of some really 

innovative approaches to how do we get capital, in particular, to 

women entrepreneurs. Georgia is number one in the most number 

of companies that are owned by—women-owned companies. And we 

have some innovative initiatives like the ACE Women’s Business 

Center, The Rich Group, and some other initiatives. 

What more can we do to drive that type of innovation and thinking in how we can create more access to capital? And maybe, Mr. 

Mackintosh and Ms. Mensah, if we have time. 

Ms. Mensah. I will start because you mentioned the Access to 

Credit for Entrepreneurs, ACE, in Georgia. It is a powerful CDFI 

that has led innovation throughout the State, actually. And, again, 

my recommendation is to a full renewed commitment of $250 million appropriation to the Department of Treasury CDFI Fund. 

ACE wouldn’t have grown had it not had the kind of support 

from the CDFI Fund or from the SBA’s community advantage program and from the Department of Agriculture’s business lending. 

So I think those are exactly the kind of programs that can reach 

those women entrepreneurs that can help. At many stages we have 

community development venture capital funds, so I would urge the 

Congress to keep going. 

Representative Handel. Seventy-one women-owned companies 

have gotten loans and financing in investment through ACE. It is 

great, so—— 

Mr. Mackintosh. 

Mr. Mackintosh. Yeah. So I guess coming from a larger company perspective, some of the things that we hear from our issuers 

are just that the reporting obligations are a big problem just to get 

over in terms of getting a company going. So the accounting and 

reporting obligations, I think, would be one thing to streamline for 

new companies so that the entrepreneurs are able to focus on growLAP51NQ082 with DISTILLER

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ing their business rather than focus on all of the bureaucracy and 

administration of the companies. 

Representative Handel. Great. Thank you. 

Ms. King, would you like to add anything there? 

Ms. King. Well, for us, that speaks to specifically the 404(b) 

issue. 

Representative Handel. Yeah. Yep. 

Ms. King. And to the point that Congresswoman Maloney was 

making earlier, I think that we are talking about a specific provision of Sarbanes-Oxley, that it would help us greatly if we could 

retain the exemptions that we got under the JOBS Act so that we 

don’t have to increase the financial reporting obligations beyond 

what we currently have, which we think are sufficient for transparency for our investors. 

Representative Handel. Great. Thank you. 

Mr. Chairman, I yield back. Thank you. 

Chairman Paulsen. Thank you. 

Senator Peters you are recognized for 5 minutes. 

Senator Peters. Thank you, Mr. Chairman. 

And, Ms. King, thank you for talking quite a bit about the Fostering Innovation Act. I am happy to work with Senator Tillis on 

that legislation here in the Senate, and hopefully we will be able 

to move it forward. You mentioned the strong support it received 

in the House. 

Ms. King. Thank you for that. 

Senator Peters. Well, you are welcome, but thank you for what 

you do in your business and in bringing this to our attention as to 

this is an important element for your company. 

I think it is important, you’ve talked about it in response to several questions already, but if you could let folks know for the 

record the fact that you won’t have this kind of reporting requirement, which we, I agree, is being handled in terms of other types 

of reporting and so the transparency is still there. 

What will that mean for your company, and more specifically, 

what will it mean for jobs if this bill passes? 

Ms. King. So, again, I just want to reiterate the point which you 

made, which is that we already have and we already provide what 

I think are very transparent, audited financial statements—— 

Senator Peters. Right. 

Ms. King [continuing]. Transparent audited financial statements 

to our investors. So I think we provide that already. What we are 

talking about is that extra layer, which is going to cost us probably 

about another $600,000 a year. So to us, that is money spent on 

an extra layer of reporting as opposed to being spent on people that 

we can hire or research that we can conduct. So it is a real tradeoff. We don’t have an unlimited pool of capital. 

Senator Peters. Especially your business, which is heavily dependent on research and development. 

Ms. King. Absolutely. 

Senator Peters. That is money that you can put into basically 

the research, which will be the seed corn for your next big thing. 

Ms. King. Exactly. 

Senator Peters. Hopefully that will come out of your company, 

is your goal. 

LAP51NQ082 with DISTILLER

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Ms. King. Exactly. 

Senator Peters. The IP market, what you are talking about 

today, is one that is incredibly important to keep dynamism in the 

economy. And I have a great deal of concern about the concentration we are seeing in industries all—every industry sector, big companies becoming bigger, buying out companies prior to them having 

an initial public offering. 

You went public last year, I believe? 

Ms. King. 2014. 

Senator Peters. Oh, in 2014. So you have been out for a while. 

Ms. King. Yes. 

Senator Peters. Given the issues related with an IPO, which is 

always complex, more complex than just having a company come 

in and write you a check, walk us through your company’s decision. 

Why did you decide to go forward with an IPO? 

Ms. King. Well, as to the complexity, if I had time, I would tell 

you a lot of stories about that. 

Senator Peters. Well, I would like to do that at some point. 

Ms. King. It is not an easy process. But for us, the critical ability to access that capital is what really made it important to us, 

because as a public company, we are able to access capital so much 

easier and so much more quickly than we can through the venture 

capital network. So it is—and it opens up a huge opportunity for 

us to be able to fund the type of research that we need to fund. 

So it was critical to us to be able to get public, and for that the 

JOBS Act was really important. So I think it really—I mean, for 

companies like ours, for biotechs that have to raise so much money, 

if you can get public, I think generally companies want to do that, 

is the benefit to us. 

Senator Peters. To what extent in your offering were employees 

included in ownership? Was that also a factor in the decision process? 

Ms. King. Well, every employee in our company gets stock options the day they start. 

Senator Peters. Every employee? 

Ms. King. Every employee. 

Senator Peters. Regardless of their position? 

Ms. King. Correct. That is correct. That is an important—that 

is very important to me that every company—every employee in 

our company gets stock options. 

Senator Peters. And tell me why. 

Ms. King. Everybody contributes, and we want to recognize everyone’s contribution, and we want to share the upside, recognize 

the contribution and share the upside. 

Senator Peters. Well, I want to explore that further with Mr. 

Mackintosh, because in response to an earlier question, you talked 

about how folks are investors as well and can benefit as investors 

in these companies or investors in the economy generally. 

To me, that is an incredibly important point, and particularly 

when you look at the tax act that we just passed where the vast 

majority of the tax breaks are basically share buybacks of increased dividends, so it goes to the owners of those companies. 

And yet an awful lot of research shows—and I think Ms. King 

confirmed that—that having employee ownership on the ground 

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does a great deal for a company, and it actually, most studies show, 

enhances productivity dramatically because everybody has a stake 

in that company. 

So my question is, you and your research that you have done, 

how significant is it that employees have a stake in that company 

and are able to participate in profits, whether it is in stock option 

plans, profit-sharing plans and others? And does that indeed lead 

to more productivity and a more dynamic economy? 

Mr. Mackintosh. I mean, honestly, I think your experiences are 

probably better than the research that I have read in terms of motivating staff and getting them to connect with the objectives of the 

business. But from a financial perspective, if the employees have 

a vested interest in the performance of the company, then they are 

going to want to make the performance of the company go better. 

And I think that is kind of the key economic driver of giving staff 

a share of the company, whether it is in options or in stock. 

Senator Peters. Great. Thank you. 

Chairman Paulsen. Thank you. 

Representative Delaney, you are recognized for 5 minutes. 

Representative Delaney. Thank you, Mr. Chairman. 

And I want to welcome all the guests, including Ms. King, whose 

business is located in my District. It is nice to have you. 

Ms. King. Rockville, yep. 

Representative Delaney. Exactly. Thank you for what you do. 

I would like to ask a question, and it may be more targeted towards Mr. Mackintosh, but I will leave it open for anyone on the 

panel. One of the big things that concerns me is that if you look 

at the data, last year, about 80 percent of the professionally managed venture capital in the United States went to 50 counties in 

this country. And there are 3,000 counties in our country. So about 

1.5 or 1.6 percent of the counties got 80 percent of the professionally managed venture capital, which is considered the smart 

money. It doesn’t mean it always is making the right bets, but directionally, these are the people who have been hired by the most 

sophisticated investors in the world to allocate capital to what they 

view are the most promising businesses in the United States of 

America. And they have allocated that capital to a very, very small 

slice of our country. So that is kind of one statistic. 

The second statistic is that 70 percent of the kids in the United 

States of America live in a county where there is no evidence of upward economic mobility, meaning the jobs that are being created 

are not as good as the jobs that used to exist. 

So you have this situation where there is a dire need of new opportunities, new businesses, particularly ones that create jobs that 

have decent standards of living, in the majority of our country. Yet 

a very small slice of our country is getting most of the bets that 

investors are making. 

So from a pure policy perspective, recognizing—and I am sure 

my colleagues talked about things we should do to make it easier 

to access capital, how we need regulatory relief, how there are too 

many burdens, and we have to do all kinds of things at the specific 

kind of tactical level to make sure companies get capital. 

What do you think from a macro policy agenda we can do so that 

in 10 or 15 years, those statistics look different, and so that you 

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see a situation where 80 percent of the professionally managed 

venture capital is not going to 1.5 percent of our counties? It would 

be a huge victory if it went to 20 percent of our counties. I mean, 

what can we do so that in 10 years, those statistics look different? 

Mr. Mackintosh. So I think there is a global trend towards people moving to cities, and that is probably because of the economies 

of scale of actually getting your network and your infrastructure all 

together in one place. At the same time, there is always—also the 

trend of people working remotely. 

Representative Delaney. Yes. 

Mr. Mackintosh. So it is possible that the people with the skill 

sets will actually be at work away from where the head offices are 

and sort of foster that interesting work and innovation and intellectual property in the country areas. It is not a very statistically significant sample, but I was on a venture capital company a few 

years ago which actually relocated itself to San Francisco because 

that is where its venture finance came from. And so potentially—— 

Representative Delaney. Right, because a lot of the venture 

capitalists are like, I don’t even want to get on a plane anymore. 

If you want me to invest, I have to be able to drive to your company. 

Mr. Mackintosh. Yes. So, potentially, what they are—— 

Representative Delaney. Which I can’t blame them, but, you 

know. 

Mr. Mackintosh [continuing]. Claiming is the companies are locating near their finance—— 

Representative Delaney. Right. 

Mr. Mackintosh [continuing]. So that they can be involved with 

the companies more closely and manage the company. 

Representative Delaney. Sure. 

Mr. Mackintosh. You watch Shark Tank, you see that sometimes there is actually a management involvement as well as a financial involvement. 

Representative Delaney. Sure. Right. 

Mr. Mackintosh. With that specific company, half of the board 

of directors were actually still working remotely. So the skill set 

was actually still scattered around sometimes in remote areas of 

America, even though what looked like a San Francisco-based company. 

Representative Delaney. So that is a trend you are observing. 

But what do you think we can do to accelerate those trends? 

Ms. Mensah. Congressman, I would like to hop in. 

Representative Delaney. Please. 

Ms. Mensah. Because I hope, when you invite me back in 2028, 

we will be celebrating the success of the mediating institutions that 

are needed to work with traditional VC. 

There are community development venture capital institutions. I 

testified to one of them in Maine. And what we have seen is that 

when you invest in the CDFIs, whether they are venture capital associations, loan funds, community banks—— 

Representative Delaney. Right. 

Ms. Mensah [continuing]. That is jet fuel for the kind of hyper 

local—yes, it is still local institutions that help companies like 

Tilson Technology to expand a broadband business. 

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If we want to tackle the scale of what you have mentioned, 70 

percent of the kids in low-mobility counties, from the Raj Chetty 

research, we need a bigger scale of investment in the very things 

that we know will reach those communities. This is a 40-year field 

of community investors, and community development financial institutions know how to make those investments. 

So I hope that the 2028 solution that I will be coming back and 

celebrating is one that talked about what we added to the system. 

The channels are here. We need to add more fuel to those channels. 

Ms. King. You are asking a very complex question which has a 

lot of things to do with education, with infrastructure, with where 

people live. Because even in Rockville, which is outside of the Nation’s capital, you know, we talk about the need to incentivize getting venture capital here. 

Representative Delaney. Right. 

Ms. King. So it is a broad challenge. 

Representative Delaney. Because we don’t have many of those 

50 counties actually, which is surprising. 

Ms. King. Yeah, which is really surprising, in spite of the 

strength of our local economy and in spite of the national labs that 

we have here and the universities. 

Representative Delaney. Right. We have all the assets. 

Ms. King. Yes, exactly. So I will just add, and with one encouraging note, which is that you do see some venture capitalists now 

recognizing that good science, good technology, good people are not 

only in those counties and that there are actually opportunities to 

invest there because they may not be as widely known, maybe less 

expensive and therefore, you know, good opportunities for investments. That is also encouraging, I will say. 

Chairman Paulsen. Thank you. 

Representative Comstock, you are recognized for 5 minutes. 

Representative Comstock. Good morning. I wanted to follow 

up a little bit on Mr. Delaney’s comments but focus on not just location but gender. I am happy to see a panel here with women, but 

it is something like 2 to 3 percent of all venture capital goes to 

women, apparently. And since I am late, you may have addressed 

this already. And then, of course, the people you are going to pitch 

are men often. 

And I was reading a column in Forbes about a very successful 

company, ThirdLove, which this woman is saying, I once went to 

a meeting with a venture capital firm to pitch them on my company ThirdLove. At the end of the session, the guy told me, sorry, 

we only invest in things we understand. ThirdLove is a women’s 

very successful underwear company. I think probably Spanx had 

the same issue. 

So not to just focus on, you know, things like that. Obviously, 

this goes beyond just understanding women’s products, but the bigger picture of, you know, whether it is geographically we aren’t— 

you know, the venture capital is not reaching people in equal ways 

throughout the country, and certainly there is talent everywhere. 

And Steve Case has done the Rise of the Rest tour, which I think 

kind of speaks to a lot of what Mr. Delaney was talking about. 

So how do we get the rise of the 50 percent too? 

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Ms. King. Again, this is a challenging question that speaks to 

education and access and networking and a lot of issues. It is true 

that almost all the people that I have pitched in my career of raising money, both as a private company and as a public company, 

they are almost all men. That is true. 

And so I think it is a challenge that over time, I hope, as more 

women become investors and more women become CEOs, we begin 

to kind of seed the future of greater diversity, not just gender diversity but diversity in all respects. So it is a complex question. 

I know you had some specific comments to an earlier question on 

the same topic. 

Ms. Mensah. Thank you, Congresswoman. I love the question 

because we can’t leave out half of the people in the country in our 

solution to how to build an innovative and entrepreneurial economy. And I am proud to represent the community development financial institutions who have overwhelmingly invested in womenowned businesses. 

I would say two things: First, Congress’ ability to support the 

kind of capital that flows close to the ground with our community 

development financial institutions is critical to reaching womenowned businesses; second, Congress’ protections through the Consumer Financial Protection Bureau, through the SBA, that ensure 

that when you start a company, you are not facing a rapacious kind 

of financing, that you are able to get the right, fair, and safe kind 

of financing to build your business so that you don’t get overloaded 

with the wrong kind of credit. 

So two things, both the availability of the capital and the fairness and safety of the capital to start pushing forward. I have seen 

tremendous entrepreneurial potential and much of it led by women, 

and I hope we are on the right trend. I know our CDFIs are in 

place to support those kinds of businesses. 

Representative Comstock. Well, thank you. I appreciate it. I 

know this is an area where a lot of it is just understanding that 

that discrepancy exists when you hear the points like 1.6 percent 

of the counties are getting all of that. It is really, it is a boy’s club. 

It is a boy’s club in certain country clubs. 

There is a rise of talent that we need to embrace all across the 

country. And I think, whether it is racially or women who are in 

other parts of the country, I think that discussion needs to be had 

at every level. And certainly, I think we need to shine a light on 

that about that this has been sort of a problem that has been just 

not recognized in the media at all. And not surprisingly, if we look 

at the boards of media, women are not on those boards either in 

any kind of equitable fashion. 

So thank you. 

Chairman Paulsen. Thank you. 

I want to thank all of the witnesses for taking the time to be 

with us this morning. Appreciate that very much. 

And then remind members also, should they wish to submit 

questions for the record, the hearing record will remain open for 5 

business days. As a reminder, Mr. Brown also agreed to answer 

questions with his testimony submitted. He agreed to answer questions for the record as well. 

And with that, the committee is adjourned. 

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[Whereupon, at 11:16 a.m., the committee was adjourned.] 

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SUBMISSIONS FOR THE RECORD 

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I call this hearing to order. 

The United States has fallen to 11th place in the 2018 Bloomberg Innovation 

Index and, one thing is clear: Our job as policymakers is to figure out how to find 

the right mix of policies to spur innovation along. 

After all, economists agree that innovation is critical to growth and prosperity, 

and with the headway we have made since passage of the Tax Cuts and Jobs Act, 

this momentum must continue. 

Innovators start their work from a difficult place; after all, great ideas don’t appear fully formed. They take research, development, and testing. Innovation is just 

as likely to happen in a suburban garage as it is in a corporate lab. 

That’s because people of all walks of life can come up with the next big thing. 

Are we advocating for the best policies to assist that? The Joint Economic Committee has held two previous hearings on this topic. 

Witness testimony, combined with analysis by our staff of economists makes clear 

that too many barriers stand in the way of innovators and the life-improving ideas 

they have to offer. 

Today’s hearing is about ‘‘Innovation, Entrepreneurship, and Barriers to Capital 

Access,’’ and how we can ensure innovators have access to the financial resources 

they need to succeed. 

Nearly 70 percent of start-up businesses received less financing than they applied 

for. Nearly 28 percent of start-up businesses were not approved for any financing 

at all. 

Innovators know that if an idea is entirely new but shows promise, the first challenge is to finance its development. 

As such, each innovator has to not only create something entirely new, but also 

fund the work involved by means that require more effort and persuasion than simply applying for a commercial bank loan. 

Access to capital is one of the most challenging parts of starting a new business, 

especially in the tech sector where companies are at the forefront of new technologies and are developing products and services for which there is no track record. 

The risks are high, and subsequently, it’s difficult to raise money from investors. 

For there to be progress, we need to remove obstacles to raising seed capital. 

Take, for example, a company going public via an IPO has long offered real advantages. 

Overregulation, however, has driven down the number of IPOs, which deprives 

the entrepreneurial ecosystem of capital access. 

We should take a second look and modernize this system so we remain competitive. 

We’ve already taken major steps to help. The Tax Cuts and Jobs Act included several provisions that may be helpful in expanding capital access. 

As my friend and colleague on the Ways and Means Committee Chairman Brady 

embarks on Tax Reform 2.0, we must take an innovation-friendly approach that increases incentives to invest in new companies and technologies. 

Yet government itself is not and can never be the prime mover in the world of 

innovation. 

Washington shouldn’t be subsidizing particular companies or activities in the 

hopes of winning big. 

Picking winners and losers goes against America’s entrepreneurial spirit and undermines the process by which our strongest ideas are honed and improved. 

Today, I look forward to hearing from our witnesses and my colleagues on how 

we can reduce the barriers and empowering those with big ideas to make even bigger strides. 

We are facing fierce competition. In 2017, one-third of the world’s IPOs happened 

in China. Domestic IPOs today total merely half of what they were 20 years ago. 

I’m hopeful that our work today can help get us not only back into the top 10 

innovative economies in the world, but to make us number 1 overall. 

I now yield to Ranking Member Senator Heinrich for his opening statement not 

to exceed five minutes. 

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PREPARED STATEMENT OF HON. MARTIN HEINRICH, RANKING MEMBER, JOINT

ECONOMIC COMMITTEE

Mr. Chairman, thank you for focusing on barriers to capital access. It’s an important issue and I look forward to the insights of our witnesses. 

We have talked before about the important role small and new firms play in driving innovation and creating jobs. 

Yet, the start-up rate has been declining for years, and new businesses increasingly are concentrated in the large urban counties, while rural communities are 

struggling to keep up. 

A big challenge for entrepreneurs in small towns and remote areas is getting access to capital to turn their idea into a business or to take their business to the 

next level. 

JEC Democrats recently released a comprehensive report—Investing in Rural 

America—that examines the economic challenges and opportunities facing rural 

communities. 

Two challenges jumped out. 

First, insufficient access to broadband leaves communities disconnected from economic opportunities and unable to reach customers around the globe. 

And, second, insufficient access to capital constrains growth. 

The more rural you get, the less access to capital there is. 

Many rural communities have seen their financial institutions disappear and with 

them access to loans people need to build and expand businesses. 

In New Mexico, there are just a handful of cities with 50,000 people or more. 

Often, small towns are less able to access grants and other Federal resources that 

may be available to them. 

And smaller communities have fewer financial institutions—whether they be 

banks, credit unions, community development financial institutions, or nonprofits. 

Let’s take banks. 

From 2008 through 2016, 86 new banking deserts, areas where no banks exist 

within ten miles, were created in rural communities. 

We need to reverse this trend. 

Expanding access to capital must go hand in hand with building the know-how 

and expertise to launch and grow businesses. 

In my State, nonprofits like WESST help budding entrepreneurs create their business plans, access micro loans, and build their businesses. More than two-thirds of 

those they serve are women. And an even larger share are low-income. 

SBA’s Women’s Business Center helps fund WESST. But SBA and USDA don’t 

have the staff needed to go out and build awareness of the many programs they operate that could support rural businesses. 

We need more boots on the ground. 

There are also a growing number of resources available online. 

Online services allow consumers to continue to have relationships with financial 

institutions that no longer have a physical presence in a community. 

But the reality is for this to be a viable option for rural and tribal communities, 

these communities need to be connected to broadband, and too often, that’s not the 

case. 

It’s not just a shortage of banking options. 

Venture capital is also scarce in rural areas. More than three-quarters of venture 

capital goes to companies in New York, Boston, San Francisco and Los Angeles. 

There are entrepreneurs across this country with good ideas and smart business 

plans. But they need access to investors who can help transform these ideas into 

growing businesses. 

The Federal Government has a vital role to play. 

We need to support small business lending through proven programs at the SBA, 

USDA, and the CDFI Fund. 

We also need to build the technical expertise to help people access Federal resources while also promoting increased awareness about the programs that exist at 

SBA, USDA and Treasury. 

That’s what an organization called Grow New Mexico is doing. They connect people, businesses and communities to resources that can help. 

Unfortunately, the Trump administration seems to be heading in the opposite direction. 

Instead of doing more to increase access to capital, the Administration proposed 

zeroing out the CDFI Fund’s grant making. 

The White House’s rescission package also targeted several USDA programs that 

support rural communities, a sign that the Administration is failing to get money 

out the door. 

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And the recent Republican tax law actually makes the tax code more complex for 

small firms. 

We need to realign priorities. 

Expanding access to capital means providing more and better options—and ensuring that people and communities are able to utilize those options. 

I look forward to hearing from our witnesses on how we can build an innovation 

economy that supports innovation and growth in all parts of the country. 

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RESPONSE FROM MR. MACKINTOSH TO QUESTIONS FOR THE RECORD SUBMITTED BY

SENATOR SASSE

1. Rural lending has fallen and venture capital investment continues to 

be concentrated in a few major hubs. In your view, what is the single biggest policy change that would spur less concentrated investment and access to capital? 

There are economic reasons why start-up firms are often located near their venture finance. The investors often contribute management, marketing and other 

skills lacking on the entrepreneurial team. Similarly, there are economic reasons 

why venture investors are geographically concentrated, as it creates economies of 

scale when attracting and meeting with investment opportunities. It’s important to 

remember that start-up firms already have high cash-burn and limited resources, 

which makes expensive roadshows or travel prohibitive. 

However, in my limited experience with venture investing, many start-ups also 

leverage telecommuting which allows those with the skills required for the start-up 

business to work from home, or in a city of their choice. Although the head office 

might be near the venture investors, not all investors leave their localities. 

2. In your view, how has tax reform affected your industry and potential 

barriers to capital access? If there has not been any shift so far, do you anticipate future adjustments? 

Tax reform has helped most industries. Many companies have paid bonuses to 

staff, while the strong earnings growth recorded since the changes is supportive of 

hiring and investor returns. 

The changes have also been a boost to biotech companies looking to raise public 

capital to fund their research and investment into drugs and medical advances. 

3. Overall, how do Sarbanes-Oxley regulations drive up costs and 

disincentivize firms from going public? In your opinion, how should these 

regulations change, and should changes/exemptions be limited to emerging 

growth companies? 

Sarbanes-Oxley is among the rules that add to the costs, complexity and business 

risks for entrepreneurs considering going public. Our issuers have told us that regulatory burdens do affect them—this is something we detailed in our Revitalize 

paper. The paper also contains a number of recommendations for both EGCs and 

non-EGCs to reduce costs and burdens without creating greater risk for investors. 

4. What regulatory burden exists to limit crowdfunding as a source of 

capital and what policy changes are needed to encourage the growth of 

this practice? 

Unfortunately I have no experience with crowdfunding. 

5. In your opening testimony, you referenced that initial coin offerings on 

the blockchain may soon be a popular option to fund start-ups. In your 

opinion, how far in the future is this and what are the opportunities and 

challenges with this approach to capital formation? 

In the U.S., this will be significantly affected by the SEC, especially how they interpret and enforce the definition of a Security. However, the technology to allocate 

and track rights exists in the blockchain already. As with many things on the internet, it might be difficult to police investments by Americans into blockchain tokens 

issued in other countries. 

The blockchain may in fact offer opportunities. Specifically, it may streamline custody and ownership rights for these small companies—while also providing access 

to a broader range of investors in a cheaper ‘‘crowdfunding like’’ way. 

The challenges are weighing the lower costs and regulation, with investor protections. Investor protection and transparency are two of the key benefits exchanges 

offer investors. 

6. Can you expand on your comment on how the expansion of companies 

into public markets interacts with retirement savings, potentially saving 

the government and taxpayers some of the financing burden? What data 

supports this sentiment? 

Most 401k accounts are managed by professional asset managers who are typically restricted to holding listed companies. 

The benefit of this is that listed companies offer more transparency and liquidity 

for those investors, as well as better disclosures and investor protections. 

But the risk is that as companies stay private longer, these 401k accounts are unable to access wealth creation from these companies until they are far more mature 

and their growth has potentially started to slow. This can lead to limitations of the 

growth of these accounts which will limit the retirement savings of Americans which 

can lead to greater reliance on public entitlements. 

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1Kickstarter Stats, accessed 6 August 2018, https://www.kickstarter.com/help/stats. 

RESPONSE FROM MS. KING TO QUESTIONS FOR THE RECORD SUBMITTED BY SENATOR

SASSE

1. Rural lending has fallen and venture capital investment continues to 

be concentrated in a few major hubs. In your view, what is the single biggest policy change that would spur less concentrated investment and access to capital? 

I share your concern with the flow of venture capital to areas outside what we 

generally consider to be ‘‘hubs’’ for investment. Even my company, GlycoMimetics, 

which is based in Rockville, Maryland, encountered more difficulties raising capital 

than I think we would have if we had been in one of the major biotech hubs such 

as Boston or San Francisco. That is despite the presence of national labs and universities, and the strength of the local economy. Several policy proposals that I detail in my written testimony—including extending the JOBS Act exemption from 

Sarbanes-Oxley 404(b) for emerging growth companies as well as making certain 

fixes to the tax code to cultivate innovation—will help spur investment and increase 

access to capital in early stage companies located anywhere across the country. 

2. In your view, how has tax reform affected your industry and potential 

barriers to capital access? If there has not been any shift so far, do you anticipate future adjustments? 

I urge policymakers to do more to encourage emerging innovators like 

GlycoMimetics. Pre-revenue innovators that are still in the lab and do not yet have 

a product on the market are still years away from having a tax liability, and thus 

do not benefit from reductions in corporate rates. However, as I detail in my written 

testimony, several simple changes to the tax code can encourage entrepreneurship 

across the country. For example, modest tweaks to Section 382 of the tax code would 

encourage investment in innovation while maintaining the original intent of 382, 

which is preventing loss trafficking. I encourage Congress to take forward these reforms and I welcome further opportunities to exchange insights on how to improve 

our tax code to support innovators like GlycoMimetics. 

3. Overall, how do Sarbanes-Oxley regulations drive up costs and 

disincentivize firms from going public? In your opinion, how should these 

regulations change, and should changes/exemptions be limited to emerging 

growth companies? 

Sarbanes-Oxley (SOX) Section 404(b) was drafted with the intent of ensuring 

oversight over the internal controls over financial reporting of large, complex, multinational companies like Enron and WorldCom. It was not tailored for small, emerging companies, and therefore it has the unintended consequence of diverting money 

from science to compliance. SOX 404(b) is a key pain point for emerging growth 

biotech companies because of its extraordinary expense, our pre-revenue status, and 

the fact that it is of little use to our investors. For example, our external audit costs 

will more than double when we lose our JOBS Act on-ramp in a few months due 

to the SOX 404(b) external audit attestation provisions. This is all despite the fact 

that we, as a public company, are subject to extensive audit and disclosure requirements beyond SOX 404(b) that are designed to protect our investors. I encourage 

the Senate to advance the bipartisan ‘‘Fostering Innovation Act’’ (S.2126/S.488) to 

right-size compliance requirements for emerging growth companies, which I strongly 

believe will improve capital formation and scientific advancement while maintaining 

important investor protections. 

4. What regulatory burden exists to limit crowdfunding as a source of 

capital and what policy changes are needed to encourage the growth of 

this practice? 

To my understanding, crowdsourcing platforms are a growing source of seed capital for entrepreneurs, and most of the successfully funded campaigns generate 

$10,000 or less in funding.1 As I mentioned in my testimony, more than 95% of 

biotech companies are in the R&D phase without an FDA-approved product on the 

market. The enormous financial resources required to develop a single life-saving 

treatment (which is estimated to cost 2.6 billion dollars), the long R&D timeline required to get a product approved by the FDA and on the market, and the science 

and technology underpinning the value of a potential medical breakthrough, generally make biotechs best positioned to raise startup capital from professional, longterm investors (such as angel investors and venture capital firms), rather than 

through crowdsourcing platforms, so I am unable to comment on ways to improve 

them. 

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RESPONSE FROM MS. MENSAH TO QUESTIONS FOR THE RECORD SUBMITTED BY

SENATOR SASSE

1. Rural lending has fallen and venture capital investment continues to 

be concentrated in a few major hubs. In your view, what is the single biggest policy change that would spur less concentrated investment and access to capital? 

While there is not a singular solution to address access to capital issues in rural 

communities, the Federal Government can play a critical role in building the financial and credit infrastructure rural communities need by providing robust funding 

for Federal programs that leverage public-private partnerships like the Department 

of Treasury’s CDFI Fund programs. 

By partnering with mission-driven lenders like CDFIs, the Federal Government 

can enhance its impact and deepen its ability to reach rural communities. As bank 

branches in rural communities continue to close, there are limited options for those 

seeking financing, making the organizations that are working in these communities 

more important than ever in ensuring access to capital. However, even the lenders 

in rural communities encounter challenges accessing the low-cost capital needed to 

successfully lend in rural areas, which can have high transaction costs and require 

significant technical assistance. 

The Federal Government has existing tools that support rural lending by using 

‘‘on the ground’’ partners to channel capital into rural communities like the aforementioned CDFI Fund programs, the SBA’s Microloan and Community Advantage 

programs, or the Rural Development lending programs at the USDA. The low-cost 

capital and credit enhancements provided through Federal programs like these 

make lending in underserved communities financially viable, allowing CDFIs to 

offer a variety of financing tools to meet the needs of rural businesses seeking financing, whether it is a $500 microloan to a new entrepreneur, $100,000 to help 

a business grow, or multimillion dollar financing for more established businesses to 

purchase equipment or real estate. 

However, these programs are not funded at adequate levels to meet the demand 

for financing, preventing critically needed capital from flowing to distressed communities. Strengthening these programs will build the capacity of organizations working in local communities, allowing them to lend to more rural businesses and individuals. 

2. In your view, how has tax reform affected your industry and potential 

barriers to capital access? If there has not been any shift so far, do you anticipate future adjustments? 

The Tax Cuts and Jobs Act created Opportunity Zones, a new tax benefit with 

the potential to catalyze investment in many distressed communities. CDFIs are 

hoping the new tax benefit will encourage additional investors to provide capital to 

finance projects and businesses by directing equity investments into designated lowincome census tracts. 

As CDFIs across the country explore how to use Opportunity Zones (O-zones), 

there is concern that O-zone investments could expedite displacement via real estate 

development booms in O-zone tracts near or within gentrifying areas. Many stakeholders hope O-zone guidelines will be modified to incentivize business investments 

as much as (or more than) real estate to mitigate displacement risk. 

There is a significant opportunity for low-income areas to benefit from private sector O-zone equity investments, but there is also a need for greater accountability 

for investments in selected O-zone census tracts, either through detailed guidance 

from the Treasury and IRS or through legislative changes put forth by Congress. 

3. As you noted, our financial system has become increasingly consolidated, as community banks and credit unions either close their doors or 

merge with larger institutions. What services can these smaller institutions 

provide that larger institutions cannot provide, and in particular, how are 

rural communities like those in Nebraska impacted? 

CDFIs, including banks and credit unions, are an important part of the small 

business lending ecosystem, providing capital to businesses that cannot access traditional financing. For lenders, transaction costs are similar whether the loan amount 

is $10,000, or $1,000,000, causing most financial institutions to focus their attention 

on the higher dollar loans. CDFIs, on the other hand, are committed to meeting the 

credit needs of their borrowers, who seek smaller loans and have nontraditional financing needs. 

While other lenders have exited the market or charge high interest rates and fees 

to borrowers, CDFIs have figured out how to lend successfully in the most distressed markets by taking a localized approach to lending, adjusting their strategies 

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1Deonna Anderson, Fund Wants to Show North Omaha Entrepreneurs ‘‘ ‘Nebraska Nice,’ ’’ 

Next City, August 23, 2017. Accessed August 9, 2018. https://nextcity.org/daily/entry/omahasmall-business-fund-lending-north-omaha 

and products to meet the needs of their communities, and being accountable to the 

communities they serve. 

CDFIs offer a variety of financial products including working capital, equity investments, bridge loans, senior and subordinated debt—sometimes at below market 

rates with lower and fewer fees. Often CDFIs can employ more flexible underwriting 

criteria, credit standards, collateralization and debt service requirements than what 

is otherwise available in the marketplace. CDFIs also provide financial education, 

technical assistance, and capacity-building development services to their borrowers, 

including business training and access to social and professional networks. 

CDFIs also have referral relationships with local financial institutions, whereby 

a bank may refer a potential borrower who is not quite ready for conventional financing to a CDFI where the business owner can receive any needed training or 

technical assistance as well as financing. A CDFI may also refer small business 

owners that need larger amounts of financing to their partners. For example, OFN 

Member Nebraska Enterprise Fund, a statewide business loan fund based in Oakland, NE, will refer small business owners they cannot serve to a partner like the 

Greater Omaha Chamber of Commerce, Small Business Association or Catholic 

Charities.1 For many CDFIs, the goal is to help the borrower strengthen and grow 

their business, improve their financial position, and eventually be able to ‘‘graduate’’ 

to traditional financing from a mainstream financial institution. 

In addition to providing financing and technical assistance to individuals and 

businesses in distressed communities, CDFIs can be partners in addressing bank 

closures in rural areas. Community development credit unions like HOPE, a Jackson, MS-based credit union that works in rural communities in the Delta region, 

and Self-Help, a Durham, NC-based credit union, have worked with regulators to 

reopen shuttered bank branches when traditional lenders leave the market, ensuring communities continue to have access to financial services in their local areas. 

CDFIS IN NEBRASKA

There are currently 10 certified CDFIs headquartered in Nebraska, including two 

Native CDFIs: Ho-Chunk Community Capital, Inc. in Winnebago and Native360 

Loan Fund, Inc. based in Grand Island. Some organizations like Nebraska Enterprise Fund or Midwest Housing Development Fund serve a statewide or multistate 

region, while others are focused on rural communities like Chadron Federal Credit 

Union, which serves Dawes, Sioux and Sheridan counties in Northwest Nebraska, 

or the Rural Investment Corporation, a Lyons-based business loan fund operated by 

the Center for Rural Affairs. 

Communities throughout Nebraska benefit from CDFI lending. From FY2005 to 

FY2016, CDFI Fund grantees provided $35,716,181 in financing to communities in 

Nebraska that created 540 permanent jobs, developed 846,514 square feet of commercial space, developed 790 housing units, and financed 786 microenterprises and 

small businesses. 

Æ 

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