Starting Up America’s Innovation Engine

New White House Initiative Aims to Unleash America’s Entrepreneurial Potential

SOURCE: AP Photo/Charles Dharapak Entrepreneur Jennifer Zeszut from San Francisco, Calif., right, speaks during the launch of "Startup America," a national campaign promoting entrepreneurship with new initiatives to encourage private sector investment in job-creating startups and small firms, Monday, Jan. 31, 2011, in the Eisenhower Executive Office Building across from the White House. From left are: Carl Schramm, president and CEO of the Kauffman Foundation; Steve Case, co-founder of AOL and chairman of the Case Foundation; Small Business Administration Administrator Karen Mills; Energy Secretary Steven Chu; Commerce Secretary Gary Locke; and National Economic Council Director Gene Sperling.

In what is fast becoming a trademark move of the Obama administration, White House and agency officials met with business leaders and entrepreneurs yesterday to launch another public-private partnership called Startup America. The initiative, backed by the White House, the Kauffman Foundation, and the Case Foundation, will combine commitments from dozens of leading technology companies—among them Intel Corp., Hewlett Packard Co., and Internet giants Google Inc. and Facebook Inc.—with a number of federal policy initiatives to help the entrepreneurs finance and commercialize innovative ideas, start new businesses, and create jobs.

The Obama administration is no stranger to public-private partnerships. As part of the president’s Educate to Innovate campaign, the White House helped launch Change the Equation, “a non-profit organization dedicated to mobilizing the business community to improve the quality of science, technology, engineering and math education in the United States,” and secured commitments from a number of other corporations to help fund math and science education programs for children. This way of using executive authority and prestige to leverage private capital toward socially beneficial goals is in and of itself an innovation in policymaking.

Startup America follows this trend by leveraging private capital from a long list of more than 20 major corporations to invest in an array of programs to spur entrepreneurship in the United States. The initiative focuses on three main goals:

• “Education: Expanding high-impact entrepreneurship education programs to more high schools, community colleges, and universities, reaching thousands of additional students.
• Commercialization: Clearing the path to market for primary research in more universities, through a combination of regional ecosystem development, faculty engagement, and streamlined technology licensing.
• Acceleration: Replicating successful entrepreneurship accelerator programs in more cities and universities, by recruiting more experienced mentors to support more startups.”

In pursuit of these goals, specific commitments include:

• “Intel’s venture capital arm, Intel Capital, will commit $200 million of new investment in U.S. companies. Senior Intel leadership will also serve the Startup America Partnership and share best practices from years of successful programs designed to support Intel portfolio companies.
• IBM Corp. will invest $150 million in 2011 to fund programs that promote entrepreneurs and new business opportunities in the United States.
• Hewlett Packard is investing more than $4 million in 2011 in its HP Learning Initiative for Entrepreneurs, a global program launched in 2007 that uses educational and technology outreach aimed at helping entrepreneurs and small business owners create and grow commercial opportunities.
• Facebook will launch Startup Days, a new series of 12-to-15 events around the country designed to provide entrepreneurs with access to expertise, resources and engineers to help accelerate their businesses.
• The Blackstone Group LP’s charitable foundation plans a $5 million expansion of the Blackstone LaunchPad program piloted at two Detroit colleges as part of its overall $50 million commitment to entrepreneurship in higher education. Based on a model created by the University of Miami, LaunchPad will be replicated over the next five years in five other distressed regions around the country.
• The Network for Teaching Entrepreneurship, or NFTE, a nonprofit group that provides entrepreneurship education for at-risk high school students from low-income communities, launching a number new programs supporting young entrepreneurs and their teachers in partnership with Startup America’s corporate partners:
  • The Pearson Foundation is working with NFTE to build its Digital Teacher Network, a free online community for teacher collaboration and training that will be used not only by NFTE’s 5,000 certified teachers but also by any educator interested in entrepreneurship.
  • Google is sponsoring two new efforts in NFTE’s Bay Area programs: The Flat Classroom Exchange will allow local educators to team-teach the NFTE program in real time and leverage each teacher’s individual expertise, while the Makers Class project will integrate NFTE’s curriculum with invention and engineering lessons.
  • New Markets Education Partners is providing NFTE with seed capital to launch in 2011 an interactive, online business planning course and social network connecting mentors, teachers, and students.”

In addition the administration also announced a set of new initiatives and small business incentives of its own, which, according to the official White House fact sheet, include:

• The president’s budget will propose making permanent the capital gains tax exemption for key investments in small businesses. A temporary form of this provision passed in the 2010 Small Business Jobs Act in September. The budget will also add a New Markets Tax Credit that encourages investment in small business in low-income communities.
• The Small Business Administration, or SBA, will direct $2 billion in existing loan guarantee authority over the next five years to match private-sector investments. $1 billion of this will go toward investments in underserved communities and economically distressed areas where an influx of capital can make the biggest difference. The other $1 billion will back investments in early-stage companies with promising innovations traversing the “valley of death” commercialization gap.
• The Department of Energy, SBA, and the Advanced Research Projects Agency-Energy, or ARPA-E, will launch a high-quality mentorship and business acceleration programs for clean-tech startups. This effort will provide resources to help launch an estimated 100 new clean-tech companies across the country.
• The Department of Commerce, or DOC, will launch the “i6 Green” initiative, which, building on the existing collaboration between six federal agencies, will make $12 million in funding available to help catalyze bottom-up, regional clean energy innovation cluster formation and “encourage innovative, ground-breaking ideas that accelerate technology commercialization, new venture formation, and job creation across the United States.” The Patent and Trademark Office, also within the DOC, also announced a new patent review program that will expedite patent review by as much as two years for some entrepreneurs.
• The Treasury Department will host a conference exploring access to capital for small and entrepreneurial businesses, and will also take steps to simplify the rules for $5 billion in tax credits for private investment in lower-income communities.
• The Veterans Administration will launch a business incubator program and mentorship to help returning veterans start their own businesses.

In his State of the Union address President Obama alluded to the importance of innovation in driving economic growth when he said, “In America, innovation doesn’t just change our lives. It is how we make our living. … maintaining our leadership in research and technology is crucial to America’s success.” Experts including Nobel Prize-winning economists, the Information Technology and Innovation Foundation, the Center for American Progress, Science Progress, the OECD, and others have also pointed this out before, noting how technology innovation accounts for between 50 percent and 85 percent of all economic growth in this century.

The initiatives enacted under Startup America will bring private capital to bear on innovation and business creation at a critical time when the nation’s job growth still lags behind corporate profitability. Small, innovative businesses and startups are among the brighter spots in a dark recession. Research conducted by the Kaufman Foundation finds that small businesses and startups are more recession-proof than larger firms, experiencing fewer layoffs even in tough times.

To entrepreneurs, a recession can also be a time of new opportunities, said Gene Sperling, the recently anointed director of the National Economic Council yesterday. He pointed out that half the companies in the Fortune 500 were founded during a recession, adding “it’s these times when people come together and take a chance.”

By putting entrepreneurship training and private capital in the hands of Americans with good ideas, the Startup America partnership is helping to—as Carl Schramm, founding board member of Startup America and president of the Kauffman Foundation put it— “democratize entrepreneurship.” With the right tools, entrepreneurship is approachable by anybody, he said. And entrepreneurs and small-business owners are in many ways the engines of our economic growth. “‘Every time we help someone start a business,’” he said, quoting Kauffman Foundation founder Ewing Marion Kauffman, “‘we strengthen the nation’s economy.’ The great moment in economics is when a business is started. There is no economy without firms. Recessions are nothing more or less than firms shrinking, and expansion is nothing more or less than firms growing.”

Not only do small firms, startups, and innovative small-technology companies represent a major component of our way out of this particular recession, but they are also key drivers of innovation and long-term economic growth. According to the Kauffman Foundation, 40 percent of our GDP this year comes from companies that did not exist in 1980. More striking is the fact that nearly all net job creation in the economy comes from firms that are less than five years old. The Kauffman Foundation’s recent report went so far as to say that startup companies are “almost solely the drivers of job growth.” As a result, “effective policy to promote employment growth must include a central consideration for startup firms.”

It is good to know that top administration officials are in touch with the most current economic statistics. Austin Goolsbee, the chairman of the president’s Council of Economic Advisers, echoed these sentiments yesterday when he alluded to how small business policies are “big job creators, start-up creators, and innovation drivers.” He went on to conclude that “ultimately, it’s the creation of new ideas that keep America the premier economy in the world. That’s why we’re doing start up America; because everybody deserves at least one chance to change the world.”

In his plan for winning the future, President Obama called on the private sector to help our economy grow by “out-innovating, out-educating, and out-building our competitors.” The CEOs, university presidents, entrepreneurs, foundations, nonprofits, and federal officials involved in the Startup America Partnership are helping make that plan a reality.

Sean Pool is the Assistant Editor for Science Progress.

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