[House Hearing, 117 Congress] [From the U.S. Government Publishing Office] INNOVATION AS A CATALYST FOR NEW JOBS: SBA's INNOVATION INITIATIVES ======================================================================= HEARING BEFORE THE SUBCOMMITTEE ON ECONOMIC GROWTH, TAX, AND CAPITAL ACCESS OF THE COMMITTEE ON SMALL BUSINESS UNITED STATES HOUSE OF REPRESENTATIVES ONE HUNDRED SEVENTEENTH CONGRESS FIRST SESSION __________ HEARING HELD JULY 14, 2021 __________ [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] Small Business Committee Document Number 117-025 Available via the GPO Website: www.govinfo.gov __________ U.S. GOVERNMENT PUBLISHING OFFICE 45-124 WASHINGTON : 2021 ----------------------------------------------------------------------------------- HOUSE COMMITTEE ON SMALL BUSINESS NYDIA VELAZQUEZ, New York, Chairwoman JARED GOLDEN, Maine JASON CROW, Colorado SHARICE DAVIDS, Kansas KWEISI MFUME, Maryland DEAN PHILLIPS, Minnesota MARIE NEWMAN, Illinois CAROLYN BOURDEAUX, Georgia TROY CARTER, Louisiana JUDY CHU, California DWIGHT EVANS, Pennsylvania ANTONIO DELGADO, New York CHRISSY HOULAHAN, Pennsylvania ANDY KIM, New Jersey ANGIE CRAIG, Minnesota BLAINE LUETKEMEYER, Missouri, Ranking Member ROGER WILLIAMS, Texas JIM HAGEDORN, Minnesota PETE STAUBER, Minnesota DAN MEUSER, Pennsylvania CLAUDIA TENNEY, New York ANDREW GARBARINO, New York YOUNG KIM, California BETH VAN DUYNE, Texas BYRON DONALDS, Florida MARIA SALAZAR, Florida SCOTT FITZGERALD, Wisconsin Melissa Jung, Majority Staff Director Ellen Harrington, Majority Deputy Staff Director David Planning, Staff Director C O N T E N T S OPENING STATEMENTS Page Hon. Sharice Davids.............................................. 1 Hon. Dan Meuser.................................................. 3 WITNESSES Mr. E. LaVerne Epp, Executive Chair, KU Innovation Park, Lawrence, KS................................................... 6 Mr. Benjamin Robert Johnson, Chairman, Innovation Advocacy Council, Westerville, OH....................................... 7 Dr. Gabriel R. Burks, Vice President and Head of Research and Development, FrostDefense Envirotech Inc., Champaign, IL....... 9 Mr. Jeffrey Maguire, Managing Partner and Co-Founder, Clearly Clean Products, LLC, South Windsor, CT......................... 11 APPENDIX Prepared Statements: Mr. E. LaVerne Epp, Executive Chair, KU Innovation Park, Lawrence, KS............................................... 25 Mr. Benjamin Robert Johnson, Chairman, Innovation Advocacy Council, Westerville, OH................................... 29 Dr. Gabriel R. Burks, Vice President and Head of Research and Development, FrostDefense Envirotech Inc., Champaign, IL... 43 Mr. Jeffrey Maguire, Managing Partner and Co-Founder, Clearly Clean Products, LLC, South Windsor, CT..................... 46 Questions for the Record: None. Answers for the Record: None. Additional Material for the Record: The cost of `tax and spend' by Rep. Dan Meuser............... 50 University City Science Center............................... 54 INNOVATION AS A CATALYST FOR NEW JOBS: SBA's INNOVATION INITIATIVES ---------- WEDNESDAY, JULY 14, 2021 House of Representatives, Committee on Small Business, Subcommittee on Economic Growth, Tax, and Capital Access, Washington, DC. The Subcommittee met, pursuant to call, at 1:10 p.m., in Room 2360, Rayburn House Office Building and via Zoom, Hon. Sharice Davids [chairwoman of the Subcommittee] presiding. Present: Representatives Davids, Newman, Bourdeaux, Chu, Evans, Mr. Kim, Meuser, Ms. Young Kim, and Van Duyne. Chairwoman DAVIDS. All right. Good afternoon, everybody. I am calling this hearing to order. Without objection, the Chair is authorized to declare a recess at any time. This is a remote hearing on innovation as a catalyst for new jobs, SBA's Innovation Initiatives Committee on Small Business, and this is the Subcommittee on Economic Growth, Tax, and Capital Access. So we have called the hearing to order. Let me begin by saying that the standing House and Committee rules and practice will continue to apply during remote proceedings. All members are reminded that they are expected to adhere to these standing rules including decorum when they are participating in any remote event. With that said, the technology we are utilizing today requires us to make some small modifications to ensure that members can fully participate in these proceedings. House regulations require members to be visible through a video connection throughout the proceeding, so please keep your cameras on. If you have to participate in another proceeding, please exit and log back in later. In the event a member encounters technical issues that prevent them from being recognized for their questioning, I will move to the next available member of the same party and the I will recognize that member at the next appropriate time slot provided they have returned to the proceeding. Should a member's time be interrupted by technical issues, I will recognize that member at the next appropriate slot for the remainder of their time once their technical issues have been resolved. In the event a witness loses connectivity during testimony or questioning, I will preserve their time as our staff addresses technical issues. And I may need to recess the proceedings to provide time for a witness to reconnect. And then finally, remember to remain muted until you are recognized so that we can minimize any background noise. In accordance with the rules, staff have been advised to mute participants only in the event there is an inadvertent background noise. Should a member wish to be recognized, please unmute yourself and seek recognition at the appropriate time. I will now move to my opening statement. For many years, America's innovative spirit has certainly propelled our nation to become the world's preeminent economic power. Our economic dominance in part was driven by Federal investment and research and development by prioritizing innovation, the federal government has financed inventions and discoveries that have benefitted the economy and improved lives across the globe. Innovations have also increased productivity, made American workers more efficient and lowered the price of goods and services. Unfortunately, since the 1970s, America has lost its footing as the world's most innovative nation. In fact, in the 2021 Bloomberg Innovation Index, the U.S. fell outside of the top 10 entirely. This slowed pace of innovation has profound implications leading working Americans to experience wage stagnation or outright age reduction when adjusted for the cost of living. High barriers to entry are also stifling our entrepreneurial ecosystem. Over the years, geographic and demographic gaps have formed excluding many folks from creating new products or starting new businesses. Where a person is located heavily influences their economic opportunities. Economic clustering has limited the ability of Americans living outside of a handful of major metropolitan areas to develop new products. Women and minority groups are also frequently at a disadvantage when it comes to launching startups. On average, minority and female entrepreneurs have less access to capital and are more likely to rely on personal funds to finance their business. Minority entrepreneurs are approved for credit for their businesses at lower rates than that of their peers and are less likely to receive the full amount of their loan request. It is clear that too many Americans are being denied the opportunity to create new business. Boosting innovation and making the innovation ecosystem more inclusive will be critical for rebuilding our post-pandemic economy. Achieving these goals is going to require a sustained Federal investment and improving our innovative capacity. The CBO, Congressional Budget Office, reports that Federal investment can promote long-term economic growth, yet the Federal investment and research and development that we have seen has been steadily declining from its peak of 30 percent of Federal spending in the 1960s. Today, only 12 percent of all Federal spending and 2 percent of gross domestic product goes toward innovation. An investment in innovation is an investment in our country's future so it is vital that we are spending adequately at the Federal level. It is critical that we empower existing programs at the SBA to better reach and serve startups and entrepreneurs. For example, SBA's Office of Investment and Innovation, the OII, leads programs that provide high growth small business with access to capital and R&D funding to develop their products. These SBA programs are training entrepreneurs and providing them with mentoring and technical assistance so they can launch America's next great companies. Funding from programs under OII's umbrella has helped develop successful companies like 23 and Me, Qualcomm, Symantec, and Da Vinci Surgical Systems. And I hope that today's hearing is going to allow us to examine these programs and find ways to improve SBA's innovation initiatives to help create more startups that will benefit Americans and support our economy. As our country recovers from COVID, boosting innovation is going to be vital to getting our economy back on track. By focusing on expanding innovation to underserved entrepreneurs, Congress can certainly unleash economic potential that has long gone untapped. I am going to take this time now to yield to Ranking Member Meuser for his opening statement. Mr. MEUSER. Thank you, Madam Chairwoman. Thank you very much for holding this hearing today. Thanks to all for participating. Small businesses, entrepreneurs and startups are resilient organizations that continue to innovate and adapt to the everchanging marketplaces. Prior to COVID-19 pandemic, small business entrepreneurs were opening new factories throughout my district and throughout the commonwealth and the country. Along main street, hiring more workers, creating new jobs. Manufacturing the next great American products and services really with rapid speed. This was, prior to COVID, in large part due to the pro-growth policy agenda that created an empowering environment and empowering innovators and entrepreneurs to reduce regulations and independence in running a small business. After such a harrowing year for public health that resulted in state and local lockdowns, capacity restrictions and so many numerous challenges for small businesses, I do believe the entrepreneurship of the economy can thrive again if we make the right decisions to help create the environment to empower that growth. A recent survey of more than 2,500 Goldman Sachs 10,000 Small Business participants found that 78 percent of small businesses believe 2021 will be better than 2020. That is good. But only 36 percent believe it will be better than the economy they knew before COVID-19 hit. That is not so good and hopefully, perhaps that is where we come in. The pandemic impacted businesses differently based on industry, longevity, location and other factors. However, meeting small businesses' workforce and capital needs will be a key to the continued recovery in all sectors. I believe this can be an American decade if we do, in fact, help unleash the power of the American innovators and entrepreneurs but we cannot do that under the yoke of untargeted unemployment compensation supplements, government mandates that do not make sense to business, higher taxes, and runaway inflation which just adds a cost to everyone. To this point, I recently wrote an op ed on the cost of Tax and Spend which I have submitted for the record. Unemployment incentives continue to plague small businesses with an unprecedented worker shortage. The U.S. Chamber of Commerce poll of the COVID-19 unemployed found that roughly 49 percent of Americans who became unemployed during the pandemic said they are not actively or not very actively looking for work. And 61 percent of respondents say they are in no hurry to return to work. There are various factors for this. We know with the randomness of school closures and just the fear of COVID and other societal factors, the NFIB June Jobs Report found that 46 percent of all small business owners reported job openings they could not fill. So that is the bottom line. As we continue to see small businesses place help wanted signs in their doors, and very often that help wanted sign is followed by $20 per hour or $19 an hour or $22 an hour, this is a prime reason innovation and productivity is being limited further and is on the decline. Small businesses across the nation are also feeling---- Madam Chair, how am I doing on time? Chairwoman DAVIDS. For your opening statement, I do not think that you have a---- Mr. MEUSER. I see. All right. Thank you. I do not want to go too long. But we are dealing with stretched budgets, higher cost of goods and supply shortages. Inflation is, of course, being something that is of great concern as stated, raising the costs of businesses. Business owners as early as this past April to May found that 80 percent of their cost of supplies are up compared to pre-COVID levels; 22 percent say that there are costs of increase by 25 percent or more. This is very concerning to the fundamentals of our economy and to the vibrancy of small businesses. As small businesses are reopening their doors to only be met with labor shortage and inflation, there simply cannot be a worse time to raise taxes on the American worker. President Biden's promise to repeal President Trump's Tax Cuts and Jobs Act would immediately raise taxes on small businesses by increasing marginal income tax rates and eliminating the 20 percent small business deduction. By eliminating the TCJA, this would also decelerate the bonus depreciation. Limiting the ability for businesses to deduct on their capital investments in a 10-year window. It will be extended far past that. As well, capital gains is a big issue for small business. It directly impacts returns an entrepreneur will find in their work but also in the value of their companies. So investing in new ideas and gaining that access to capital would be mitigated and would have a higher level of risk and uncertainty. So reducing potential returns through higher capital gains tax does disincentivize investment and creates additional barriers to access to capital. So we must grow our opportunity for our nation's entrepreneurs, not government. The SBA's resource partners and innovation programs that are congressional authorized remain important and serve as a valuable tool to small businesses. However, we must continue to examine these programs closely to ensure they are effectively and efficiently serving small business entrepreneurs, delivering the value that small businesses need but also preventing waste, fraud, and abuse. I spent my fair share of time in the small business world, happened to grow a small business. I do know that is where you can learn the most by dealing directly with small business or being a small businessperson yourself, we as part of this Committee and as members of Congress in helping do all we can to create an environment for recovery and for long-term growth of small businesses certainly need to listen intently and respond favorably and that is why I am very pleased that this Committee has been pulled together and we have those testifying that we do. So with that, Madam Chairwoman, I yield back. Thank you. Chairwoman DAVIDS. Thank you, Mr. Meuser. The gentleman yields back. I would like to take a moment just to explain how the hearing is going to proceed. Each witness will have 5 minutes to provide a statement and each Committee member will have 5 minutes for questions. Please ensure that your microphone is on when you begin speaking and then return to mute when you conclude your remarks or questions. With that, I will go through and introduce all of the witnesses. Mr. Meuser will introduce a witness as well, and then we will get started. So our first witness today Mr. E. LaVerne Epp, Executive Chair of the KU Innovation Park. As the leader of the KU Innovation Park, Mr. Epp has experienced and received several rounds of SBA growth accelerator fund competition awards. His work has helped many small businesses and entrepreneurs in my home state of Kansas here to achieve their dreams. And I am really excited to have them join us to share his expertise today. Welcome, Mr. Epp. Our second witness is Mr. Benjamin Johnson, the Chairman of the Innovation Advocacy Council (IAC). The IAC works to educate policymakers on issues related to innovation, economic development, entrepreneurship, and technology. Welcome, Mr. Johnson. And then our third witness is Dr. Gabriel Burks, the Vice President of FrostDefense. Mr. Burks's company is participating in the Enterprise Works Growth Accelerator, a recipient of the SBA Growth Accelerator Fund Competition Award. And I am excited to learn more about your company and how the growth accelerator has helped in its development. Welcome, Mr. Burks. And I will now yield to the Ranking Member to introduce our final witness. Mr. MEUSER. Thank you, Chairwoman. Our next witness is Jeffrey Maguire. Jeffrey Maguire is Managing Partner and Co-Founder of Clearly Clean Products, LLC, which invented, patented, and manufactures 100 percent recyclable food trays. Mr. Maguire also was a co-founder of Tabby Tools, which manufactures tile installation tools that are available nationwide through Lowe's home improvement stores. Additionally, he is a certified public accountant and a graduate of the University of Connecticut. This morning I did have the opportunity to tour Mr. Maguire's company at Clearly Clean's Frackville campus, their office in my district, and certainly saw firsthand the level of innovation, their technologically advanced manufacturing of their high quality and environmentally friendly products. Clearly clean is an all Made in America manufacturer that creates ecofriendly products with features that surpass non-sustainable alternatives which is very important, I think. The company holds the world's only patents of 100 percent recyclable PET. That is polyethylene terephthalate--perhaps I pronounced that right--overwrap food trays with a rolled edge. Since acquiring the first of many patents on a rolled edge tray in 2016, Clearly Clean has grown from three people to more than 200. Most of that growth has been in the last 3 years. Clearly Clean has been named the fastest growing manufacturer in Northeast Pennsylvania 2 years in a row and received the Ameristar Award and the Dupont Award for packaging innovation. Mr. Maguire, good to see you again. We all really appreciate you being here. Thank you for taking the time out from your busy day and from your business to answer our questions. And with that, Madam Chairwoman, I thank you and I yield back. Chairwoman DAVIDS. Thank you, Mr. Meuser. And thank you all again for being here and for your patience as we were getting everything going. We are going to go ahead and kick things off now. I will begin by recognizing Mr. Epp for 5 minutes. STATEMENTS OF E. LAVERNE EPP, EXECUTIVE CHAIR, KU INNOVATION PARK; BENJAMIN ROBERT JOHNSON, CHAIRMAN, INNOVATION ADVOCACY COUNCIL; DR. GABRIEL R. BURKS, VICE PRESIDENT/HEAD OF RESEARCH AND DEVELOPMENT, FROSTDEFENSE ENVIROTECH, INC.; JEFFREY MAGUIRE, MANAGING PARTNER AND CO-FOUNDER, CLEARLY CLEAN PRODUCTS LLC STATEMENT OF E. LAVERNE EPP Mr. EPP. Thank you. Good afternoon, everybody. And thank you for inviting me to offer comment about small business and innovation. And a special thank you and a warm Jayhawk greeting to Chairwoman Davids. Congresswoman, we appreciate your service to our state. You have all read and received my written testimony which describes the KU Innovation Park and the important role the SBA and particularly the growth the Accelerator Fund competition plays in supporting our work in innovating new technologies and starting companies. I will talk about some of those unique attributes that make that fund so important. But first I would like to begin with a brief story. Several years ago, a private, not-for-profit foster care agency in Kansas approached my colleagues at the KU Innovation Park. As part of its work in placing foster children, the agency developed an algorithm which through the identification of a field of dominant characteristics was able to match foster children with foster parents in homes. Match.com for foster kids. The effectiveness of these matches was validated by research conducted by KU's distinguished School of Social Welfare. What followed was the development of ECAP, Every Child A Priority, a software platform. It was an innovative solution that reduced replacement of foster kids, the cost of multiple placements, and in the process improves the lives of children. A new small business was born. Today, Foster Care Technologies has engineered over 25,000 placements in numerous states and counties across the country. The company was created, capitalized, and managed by the KU Innovation Park and its small team of professionals. These resources were funded in part through the SBA and the Growth Accelerator Fund competition. Over the last 6 years, the Innovation Park has received over $200,000 through the Accelerator Fund competition. We have another pending grant today. We have used those funds to provide impact assistance to entrepreneurs who discover new technologies and then commercialize them. Innovating, producing jobs has become a catalyst for creating small businesses. Small businesses like ClaraBio Tech, another company that was created in the laboratory of former KU professor of chemical and petroleum engineering who, through her remarkable career, has become a prolific inventor. ClaraBio's technology helps enable medical breakthroughs using exosomes by solving the critical issues of purification and isolation. The applications of this technology are enormous, including early cancer detection. And with the help of the Innovation Park and our tea, the company recently achieved a major capital raise. The Growth Accelerator Fund competition was part of this important underwriting, giving the company resources and funding to acquire that capital. The Accelerator Fund's unique attributes serve small businesses like Foster Care Tech and ClaraBio. The fund is valuable because of its flexibility and minimal burden on entrepreneurs themselves. It is valuable because it is relatively free of restriction, allowing multiple uses with minimal tracking and reporting. And the Accelerator Fund competition is valuable because it supports organizations like the KU Innovation Park who work closely with early stage companies and develop intimate understanding of their needs and potential, usually at critical junctures in the company's life cycle. Companies like Foster Care Tech and ClaraBio are alive today in part because of the Growth Accelerator Fund competition. Thank you to each of you for recognizing the value of small business and the innovations that lie at the heart of their creation. They are worthy of your support and I thank you. Chairwoman DAVIDS. Thank you, Mr. Epp. Mr. Johnson, we are going to go ahead and go over to you. You are now recognized for 5 minutes. STATEMENT OF BENJAMIN ROBERT JOHNSON Mr. JOHNSON. Thank you very much. Good afternoon, Chairwoman Davids, Ranking Member Meuser, distinguished members of the Committee. My name is Ben Johnson, Chair of the Innovation Advocacy Council, a National Coalition for Innovation Based Economic Development. I am honored to join you here today. My work with small businesses started 17 years ago in Southern Indiana. Coaching entrepreneurs and making loans to businesses like painting, landscaping, catering services that lifted families out of poverty. And for the last 16 years in St. Louis, I have seen how growing an industry cluster around a community's innovation strengths can help transform a regional economy. But today I represent a broader network. The IAC is the policy arm of SSTI, which represents more than 150 organizations across 44 states, including state and local economic developers, universities, nonprofits, and small businesses, all dedicated to creating a better future through science, technology, innovation, and entrepreneurship. Based on the successes of our members, I would like to present three principles that drive impactful economic development, especially through tech-based small business growth. One, job creation is best fostered through locally designed strategies that capitalize on unique regional strengths. Two, the needs of innovation-based businesses, and therefore the tools and talents necessary to support their growth, are different than traditional microenterprise or so-called main street businesses. And three, programs specifically targeting innovation businesses, like SBA's growth accelerators and regional innovation clusters, are necessary complements to other existing supports for traditional small businesses, especially in rural communities and among women and minorities. On principle one, my full-time job is with BioSTL, a consortium of 50 corporate, philanthropic, academic, and public sector leaders dedicated to leveraging St. Louis's research and industry strengths in medical and agricultural sciences. We capitalize on those strengths to build homegrown startups, attract innovation from across the globe, and harness entrepreneurship to foster a wholly inclusive ecosystem bridging urban and rural economies. In other communities, the strategies and sectors differ based on the assets and history and geography and population and even personality of each region. While the shorthand often is to build the next Silicon Valley, successful regions recognize there is only one Silicon Valley and the right mix of business supports and the right organizations to deliver them vary depending on the needs of the unique market. Second, innovation-based businesses create high-quality jobs and result in a higher standard of living. They modernize and diversify regional economies and they solve global challenges, like feeding a growing population, curing disease, addressing climate impact, and ensuring national security. But they are different. They vary in the type of support they need to mature a technology from idea to market. In capital raised, they often take longer to reach revenue and, so, traditional models of bank and even SBA financing often do not apply. And they vary in that their industry-specific networks must be deeper and more defined than the broad networks generally applicable to all types of business. Third, I do not envy my peers at the SBA and its resource partners. They must be generalists--triaging all types of businesses from pharma companies to flower shops, and that is where innovation focused programs augment the resources of SBA. Programs like the SBIR and SBA's Fast Program and especially growth accelerators and regional innovation clusters provide communities with the perfect complements to SBA's array of other activities. They are designed specifically to address the needs of innovation businesses. Recognizing there is no national economy; rather, a combination of regional economies that differ in their strengths and needs and no one type of organization positioned to support all the needs of all types of business. Growth accelerators, as you heard, catalyzes a wide array of small business supports. Clusters augments SBA's broad activities with specific, deep domain expertise. Allowing regions to define their own unique clusters enables growth of distinct and diverse communities across the country--from advanced wood products in rural Appalachia, Southeast Ohio; to smart grids in Chicago; and unmanned aerial systems and manufacturing in Kansas; to defense in Minnesota. Clusters are a unique glue that bring people together, that align business supports in a system and that augment the programs of SBA. But these programs need additional support and direction from Congress. Flexibility in the growth accelerator program to allow for a wider range of project types. And, clusters should be fully authorized, especially because a recent interpretation from SBA narrowed the eligible applicant organizations. Congress should provide clarity to establish a broad range of eligible applicants and allow freedom for regions to define their own types of support. Thank you for the opportunity and I look forward to more discussion and to questions. Thanks. Chairwoman DAVIDS. Thank you, Mr. Johnson. The Chair will now recognize Dr. Burks for 5 minutes. STATEMENT OF GABRIEL R. BURKS Mr. BURKS. All right. So I am Dr. Gabriel Burks, Vice President of FrostDefense and Biotech, Inc. and post-doctoral research associate in the Department of Material Science and Engineering at the University of Illinois, Urbana-Champaign. I am delivering this testimony today on behalf of FrostDefense Envirotech Inc. positioning for more programs and Federal investments that support innovation and entrepreneurship. We are a national science foundation, SBIR phase one funded startup company who specialize in the development of polymer and analytics-based solutions to mitigate early spring frost damage in vineyards and other fruit crops. Late spring frost causes more economic losses to agriculture than any other climate-related hazards, costing growers more than $10 billion annually. And to quote one of our vineyard partners, ``We need a frost prevention and risk management technology like we need water for our vines and trees.'' Our solution offers growers a nontoxic, biodegradable and environmentally--sustainable compound that delays bud break and increases the freeze resistance of tender fruit tissues while leaving a negligible carbon footprint. So more generally speaking, I have three points for this testimony. The first being innovation is expensive and we can look no further than TVs and how their cost has changed drastically over the past 10 years. But just as televisions have, the cost for innovation also drops over time as the technology becomes better and more developed. Point two. Tech startup success is elusive with failure rates as high as 63 percent but it has been shown that with proper supports the chances for success are greatly increased from these startups. And the third point is that pivoting for early stage tech startups frequently equates to success but funding and resources must be as flexible as the startup environment itself to serve the greatest benefit. What most people do not realize is that all great ideas require refinement and polishing to become viable solutions for society and that the problems that society faces today tend to be extremely complex. To give an example, our company tackles this problem minimizing the impact of frost on delicate fruit crops. One of the first questions we might have to ask is what crop? Every crop has a unique nutritional requirement, growing topography, growth rate, and response to environmental stimuli. Even without a singular crop type, in our case grapes, each variety also has great variance in those same factors. Another question we might ask is what frost? How do we know when and where a frost will occur in a given crop? And what constitutes a frost for the plants? Some crops can be more or less tolerant to these frost events than others. And then the third question, what product addresses these issues? You know, if it is a material solution like ours, you know, what is it made of? How long will it last on the shelf? Who will manufacture it and does it meet the regulatory requirements? And so the final, and probably most important question is, who is going to answer all these questions and where are they going to have the space and resources to answer them? So our team is extremely interdisciplinary in that it compromises a plant physiologist, a polymer scientist, atmospheric scientist, statisticians, agronomists, a systems engineer, a civil engineer, a data specialist among many others. And this list does not include our team of accountants, business managers, regulatory experts, attorneys, and other critical business experts. Our major successes as a company have come as a direct result of timely funding and support from several sources including university incubator, private and Federal. The University of Illinois Enterprise Works AWARE Proof of Concept Award, which is an SBA-funded initiative, enabled us to pivot at a critical time in our development. At the time of the award, our company had recently completed a field trial where we did not obtain the results that we expected but we did discover what we thought would be several key factors for our success going forward. AWARE Funding allowed us to quickly test our new hypotheses over a 3-month time period and develop a new version of our product that would be field tested again shortly after and be found to be a success. This success will go on to serve as the backbone for our petition for new funding. The startup world moves fast and this funding was available to us quickly and was sufficient for our necessary technology pivot. Without this funding, we may not have been able to develop and quickly test our new product ideas. We have a viable product today and have been able to stay on schedule with our company growth because we were able to change and test our product within a timeline synergistic with the grape growing season. Technology startups have traditionally been leaders in new job creation and the competitive salaries. If our company successfully moves on to phase two of the NSF SBIR program, our business will entail the creation of upwards of 20 new tech jobs with nationally competitive salaries. And when we move on to commercialize our product, this number will likely double. So finally, the COVID-19 pandemic has changed how we all have had to conduct business but our funding and infrastructure supports have given us a means to adjust to the circumstances of potential new partners. So with that, this testimony positions for more programs and Federal investments that support innovation and entrepreneurship for the sake of successful tech startups and the prospects of new job creation. So thank you all for your time and the opportunity to share with you today. Chairwoman DAVIDS. Thank you, Dr. Burks. Next, I will recognize Mr. Maguire for 5 minutes. STATEMENT OF JEFFREY MAGUIRE Mr. MAGUIRE. Chairwoman Davids, Ranking Member Meuser, and members of the Committee, I am honored to have the opportunity to testify today on innovation's impact on jobs. My name is Jeffrey Maguire and I am a managing partner at Clearly Clean Products, LLC, which is based in Schuylkill County, Pennsylvania and has nine locations. Our company invents and manufacturers 100 percent recyclable food trays, most notably the roll over wrap tray. This patented tray is made from recyclable PET plastic and its rolled edge does not tear the overwrap film on packaging for meat, poultry, produce, and seafood. Our goal is to provide a sustainable option to foamed polystyrene, more commonly known as Styrofoam. When we began, we were told it would be like David versus Goliath. We invented an ecofriendly overwrap food tray that the industry said was impossible to manufacture up against an entrenched industry of big named companies. Fast forward to today and we are blessed with growing from three people to more than 200 people in less than 5 years and we are forecasting our sales to double in 2022 creating even more jobs. What is at the heart of our growth? Innovation. And what is at the heart of innovation? Patents. These Goliaths I mentioned are now imitating our product and we have been forced to take legal action to defend our patents. Time and money that could have been spent on innovation is instead being spent on protecting our patents from others who seek to capitalize on them. We won our first case but now our patents are being challenged at their very core at the U.S. Patent and Trademark Office via an IPR, by a large company with extensive resources. We are confident in our numerous patents and will continue to fight the good fight but not all small businesses can. What would be helpful is a policy that requires a company challenging the validity of a patent being an IPR to pay for the patent owner's legal fees if that challenge fails. Without this safeguard, small businesses are forced to dig deep and defend what was theirs all along and innovation suffers. Another challenge we face is difficulty hiring employees. We would hire 50 people today if we could but we cannot. The supplemental unemployment and stimulus checks are keeping people home. We are competing with the government and cannot afford to. Before the COVID-19 pandemic, we started employees at the higher end of the pay scale. Now, our daily debate is whether we raise our rates to an unsustainable level to attract new employees or we stop growing. We recently learned that one large company in our area has increased its wages to $25 an hour. Other large companies will likely follow suit. Small businesses like ours are caught between the government and the deep pockets of big business. In the future, when we face a similar situation, we recommend policies that including funding for small businesses to provide supplemental wages to the employees who continue to work. This would help stimulate the economy by providing bonuses to the working. What do the current policies do to small business? They force us to automate which means less jobs. They force us to raise prices, which means inflation. And they force us to throttle back growth which is no one's interest. And yes, innovation suffers. We firmly believe that Congress should enact a comprehensive solution to address the deteriorating infrastructure in the United States. However, that solution should not undue the competitive gains made through the Tax Cut and Jobs Act. The ability to write off capital expenditures such as equipment has been key to our success. But why is real estate treated differently? If the depreciable life for manufacturing plants and warehouses was reduced from 39 years to 10 years, then small businesses could accelerate depreciation which would enable quicker reinvestment. With many small businesses, Federal taxes are paid at a personal level. Increases in personal tax rates decrease the dollars available for reinvestment. So when Congress increases the personal tax rate, it punishes small businesses and once again, innovation suffers. In short, innovation flourishes when creativity meets investment and investment flourishes when policies enable growth. Increased taxes, paying workers to stay home, and legal fees associated with protecting already awarded patents are all counter to growth and disproportionately impact small businesses. We need to ask ourselves, are we a country that wants to leave innovation in the hands of the rich and powerful, or do we want to encourage fair competition and nurture small business? I know the SBA and this Committee believe the latter. Our only hope is that future policies continue to foster innovation and enable growth so that small businesses can not only compete with Goliath, but just like David, maybe one day even defeat Goliath. Thank you very much for your time. Chairwoman DAVIDS. Thank you, Mr. Maguire. Thank you to all of our witnesses for your testimony today. So I am going to start by recognizing myself for 5 minutes. And Mr. Epp, I am going to come to you first. Thanks for being here today. I have got a couple of things to bring up. I think I will start off by just saying Rock Chalk, Jayhawk. And then we will move on to something you obviously know a lot about. Venture capital funding is often centralized in coastal hubs leaving a lot of entrepreneurs outside those markets struggling to raise capital. I am curious about the approach that KU Innovation Park has taken to address that challenge. You talked about it a little bit in your opening remarks but would love to hear a little bit more. Mr. EPP. Thank you, Chairwoman. We do what many other early stage organizations do. We try to cluster investors that are interested. We have small investor groups. For instance, the Foster Care Technologies example that I provided. We assembled a small group of impact investors for that company and it fits very well for them. But a shortage of capital is a problem for us and we are constantly looking at new opportunities and new ways to raise capital for these small companies. One of the things that the State of Kansas has that is extremely valuable to us is called the angel tax credits which allow an investor to discount significantly its investment over a period of time and help the startup company at the same time. Chairwoman DAVIDS. Mr. Epp, I am sorry. Can we pause for just a second? Is anybody else having a hard time hearing? Okay. Can we put back, yeah. Can we put back like 30 seconds on his time and see if we can fix this echo? I do not know if that is what--I would call it something like a Darth Vader effect. Maybe, Mr. Epp, can you say something real quick? Mr. EPP. Yeah, my sound is really quite good. I mean, I can hear all of you very well. I do not have a problem, so. And I think I have not changed anything with my microphone, so I do not know what is happening. Let me make just one other comment, Chairwoman Davids and then I can be done. When you think ahead about the role that SBA might play in helping the early stage companies, some type of a venture fund or creating some type of incentive for venture funds would be very, very helpful because it can be seen for some of these very early age companies, and each of the witnesses today, Mr. Johnson, Dr. Burks, and Mr. Maguire all referenced that and I think that is extremely valuable. Chairwoman DAVIDS. Thank you, Mr. Epp. And actually, I am going to come to Mr.--sorry, Dr. Burks next. I would love to hear a bit about the experience you all had participating in a growth accelerator and how that participation impacted your business long-term from what you can see so far. Mr. BURKS. Right. Right. So being affiliated with the University of Illinois incubator has been tremendous in the sense that it has given us a home to conduct innovation, a place where we can do research, and the staff here is phenomenal. They surround you by business professionals and all these resources and, you know, their events and development, professional development seminars that are in alignment with early phase startup growth. So just being in that environment really helps accelerate our own growth. And then when we interact with other companies--if we want to form a new partnership or if we need to reach out to figure out manufacturing needs, just having a place that is solid and foundational for us is super, super key. And then with that, things like the SBA-funded Aware grant. This proof of concept award, it came from this incubator space. So all these opportunities to continue to push the idea forward. So if you do have a setback, it is not like you are alone. If you have an idea and you are alone, you are at home and then it goes away and you lose this whole company idea. But when you are supported by an incubator, you know, if you have a setback, you know you have someone there to say, oh, you failed here or something went wrong here. Do not worry about it. We have these resources or access to these resources and people that can kind of keep you going because as a startup, you know, there are all kinds of hurdles that come up but you do not know are going to come up and so being able to pivot and adjust to those different hurdles quickly is extremely important and extremely valuable for us. Chairwoman DAVIDS. And then Mr. Johnson, I just was curious from your perspective. You know, I often talk about the strong entrepreneurial ecosystem we have here in the Kansas City metro area. You spent a decent amount of time speaking about what a robust regional ecosystem can look like. I am just curious in this last like 45 seconds if there was anything else you wanted to add around that, you know, from your perspective of having been a practitioner and now working also on policy stuff? Mr. JOHNSON. Yeah. I think what you heard in my testimony and more in the written testimony is each region is unique. The Innovation cluster in St. Louis is different even than our neighbors in Kansas City, which is different than peers across the country. So, programs like the regional innovation clusters that allow regions to define what their strength is on their own, not a size fits all Federal model but where there is Federal partnership with local communities, that is where I think we democratize, for lack of a better term, the clustering that we typically see on the coasts or in metropolises and we bring that to the heartland. We bring that to rural communities. We better engage women and minority communities left behind in the tech economy. And so regional innovation clusters is unique and really can help drive innovation-based job growth. Chairwoman DAVIDS. Thank you. Thank you, Mr. Johnson. My time has expired. I will now yield to Ranking Member Meuser for 5 minutes. Mr. MEUSER. Well, thank you again, Madam Chairwoman. And certainly, thanks to all the testifiers. All of your opening statements were very interesting and appreciated. So Mr. Maguire, I will start with you. Good seeing you again, Jeff. So with your testimony, you talk about a difference related to the Tax Cuts and Jobs Act. And of course, with small businesses, it was a 20 percent small business deduction and clearly it creates a more competitive atmosphere for small businesses. So if that Tax Cut were to be repealed, what impact would that have on you and your employees? Mr. MAGUIRE. Congressman Meuser, all of the tax cuts that are proposed that really impact small businesses will impact the amount of money that we have to reinvest into our expansion. So everything that we have taken advantage of from the accelerated depreciation we have reinvested back into the business. And if those tax rates increase or some of these items change, then the amount of capital that we have available to reinvest has decreased because we will be using more of that money to pay taxes. Mr. MEUSER. The bonus depreciation is of particular concern to you and we discussed that earlier today. Could you elaborate a little bit on how advantageous that was to your company? Mr. MAGUIRE. Sure. Over the last year we added five production lines to our facility in Frackville. And through the rules that were available to us, we depreciated all of the cost of those assets against our income taxes. And that allowed us to invest it was upwards of $7.5 million in those lines to sit there and continue to grow our company. And since this Committee is talking about innovation, the only way to innovate is to have the available resources to innovate and to sit there and move forward. So that was the most key component of what was in the tax cut law for us because it allowed us to expand our company as quickly as we have. Mr. MEUSER. You obviously have some real smart people but that ability to invest in that technology, that was my next question. That had a great impact on your ability to innovate and be on the cutting edge with your products. Mr. MAGUIRE. Absolutely. I mean, we are in a sustainable part of the economy. I mean, we are trying to provide recyclable trays to food packaging companies. You will see them if any of the representatives go or Congress people go to their local grocery store, you will see it in the Chicken aisle or in that part of the grocery store. But those tax advantages were very helpful in allowing us to grow and then grow as quickly as we did. And without them, we would have reduced our growth and stopped moving forward because it would have been impossible for us to sit here and go out and obtain the capital that we needed to deal with the sales because every bank is going to sit there and look at you as how much are you selling, how much can you afford, and they were very helpful. We greatly appreciate them. Mr. MEUSER. Well, that is great. Well, it is imperative that we do not let those get repealed. And I was also interested in what you had to say about patents and the legal fees being the responsibility of those who were trying to infringe upon your patents. So hopefully that is something we can work on as well. I appreciate it very much. Do you want to say anything more about the patents? Mr. MAGUIRE. No. Well, I would tell you this. Patents for small business are really important for growth. I mean, both of the startups that I have bene working with, we had patents that we leveraged to sit there and grow our business. And if someone challenges your patent, if a plaintiff challenges your patent, I do not mind if they win and I am fighting, you know, and I lose, I will pay my fees if I lose. But if they challenge me and we win and their claim was not acknowledged. Mr. MEUSER. Basically a tort situation. All right, thank you. A quick question I would like to just ask Dr. Burks if I could. Doctor, can you just tell us what you think the biggest need for startup companies or growing companies? You had a lot to say there. Maybe you can just offer a quick comment on that. Mr. BURKS. I would say the biggest need, I think one of the biggest challenges we faced early on is, so because we saw a very big scientific or take problems, sometimes putting the initial teams together. You know, people, you know, you can get people to work sometimes volunteer. You may give away some equity to get them to volunteer to work with you but just getting those people in the beginning to even solve that problem or to get to a viable product, sometimes that can be kind of cumbersome. So assistance early on is important. And I would also add that the having the ability to pivot, like the fund allowed us to do, just that flexibility. So these different startup markets go quick and sometimes you need the money on some timeline that is not on that funding timeline. And so having the ability to get something quickly in and out and really continue to push forward and stay on schedule could be really, really important. Mr. MEUSER. Madam Chair, I am past my time. Dr. Burks, it sounds like red tape is not your friend, and as more of a businessperson, I can appreciate that very. So thank you very much, and I yield back Chairwoman DAVIDS. Thank you, the gentleman yields back. The Chair will now recognize Rep. Newman for 5 minutes. Ms. NEWMAN. Thank you, Madam Chair and thank you Ranking Chair for putting this discussion together. Always really helpful. So a couple of things. By the way, Mr. Maguire, I agree with you on your patent situation. It is okay to challenge things but then do not penalize people on the back end. So I am with you on that. Secondly, as we all know in the proposed increase for the largest of large businesses, it does not include small business just as a friendly reminder to everyone. So that is a good news report from my office. And then thirdly, what I would like to address with perhaps Dr. Burks is you made some interesting comments and I think this is so relevant. Being a former small business owner, getting the right people in the right jobs is critical. Right? And then knowing where to go and knowing where to go for the right resources, not just financial but expertise. Those are really critical things. So this is a blended question for Mr. Johnson and Dr. Burks. What if we extended the Community Navigator program that is currently in PPP and EIDL and some of the other SBA programs into an RFIC designated line item where, in fact, these incubator and business groups could get funding to give companies like yourself expertise in very specific areas. And sometimes it is HR. Sometimes it is accounting. Sometimes it is legal. Sometimes it is in innovation. So I will go to Dr. Burks first. Is that something that you think would be useful coming from that type of organization? Mr. BURKS. I think that kind of supplement would be tremendous. So in a way, the incubator space does that. Right? So we get help in paying to for business management. So we have personnel who can take care of so many different things and help us out. So from what I am hearing, it sounds like what you are saying is an extension of that but we may need a person to do some type of material development. A supplement to help us pay for these things that are expensive early on definitely helps us. And by the time we become sustainable as a business, hopefully we are able to cover those costs on our own but in the beginning it is a pain to pay those when you are trying to accrue funds. Ms. NEWMAN. Right. Right. So Mr. Johnson, if we were to propose something like that from this Committee, would that be helpful to give an addition line item for this group of what formerly was navigators but expanded to be other types of experts that are available to your members and your affiliates? Mr. JOHNSON. Yeah, I think the Community Navigator model is promising as a hub and spoken model to connect with SBA resources. For us in St. Louis, the regional innovation clusters program was sort of that original hub and spoke, Community Navigator program within our innovation cluster. Through the RIC program, BioSTL and our partners were able to support more than 2,000 entrepreneurs in their journey of starting their business, helping create 500 jobs and raising more than a billion dollars in capital, and we did that through a range of activities. Partnering to support Black would-be entrepreneurs with the Family Workforce Centers of American in urban/suburban St. Louis suburb, Wellston. Connecting small businesses at the intersection of biosciences and IT and advanced manufacturing with St. Louis Makes and ITEN. Working with our innovation community, Cortex, on providing small business training and counseling. And then launching a network of growers and producers in rural communities to connect urban and rural communities--ag innovation in urban St. Louis with the growers and producers in rural Missouri who are bringing those to market. All of that connected with our partners at the SBDCs, the veteran business outreach centers, the women business centers, navigating community resources in an area of unique strength in St. Louis for us medical and agricultural sciences. So I think with the Community Navigator model being promising, I think authorizing and bringing additional resources to something like the Regional Innovation Clusters Program that has been, not just promising but, effective in meeting communities is a unique opportunity. Ms. NEWMAN. I agree. And maybe I tis just a model that has worked very well and we need to scale. So good food for thought from my office and I appreciate all of the guests that shared their thoughts today. And thank you to Dr. Burks and Mr. Johnson for your thoughtful answers. And I yield back, Chairwoman. Chairwoman DAVIDS. Thank you. The gentlewoman yields back. The Chair will now recognize Rep. Young Kim for 5 minutes. Ms. YOUNG KIM. Thank you Chairwoman Davids and Ranking Member Meuser. I want to thank the witnesses for being with us today. My district is California's 39th District and the suburban area in North Orange County, LA and San Bernardino counties. And this is the area that I represent and that is home to a robust startup and entrepreneur community. In 2020, the LA area startup ecosystem had approximately $3.5 billion in early stage funding for new startups. But in contrast, the average startup ecosystem globally received about $431 million in early stage funding for new startups. And in Orange County, early stage venture capital investment has grown from $107.5 million in 2010 to $404.2 million in 2019. Unfortunately, the administration's proposal to increase taxes on long-term capital gains will likely disincentivize investment on our entrepreneurs. So I am concerned that the proposal to increase the marginal tax rate will punish small businesses categorized as pass through entities such as sole proprietorships. It is worth noting that 95 percent of businesses file their taxes as pass-through entities. So let me pose this first question to Mr. Johnson. If the Biden administration's proposal is enacted, the U.S. could have the highest top capital gains tax rates among OECD countries. So can you describe what a higher capital tax rate would do to early stage funding? Mr. JOHNSON. Thank you very much, Congresswoman Kim. Tax rates are important, as are programs and investments into entrepreneurship ecosystems. The Kauffman Foundation and the national Start Us Up Coalition in their American's New Business Plan outlines the both/and of policies that create an environment to provide opportunity for entrepreneurs, a level playing field, reduced red tape tax issues, funding the right kinds of capital at the right time, the knowledge of how to start a business and the types of supports that we are talking about here today with the SBA, and support for the opportunity to take a risk. From our entrepreneurs, we do not often hear about tax issues being their top issue. It certainly is most likely an issue. We heard from Mr. Maguire about the challenges he has faced. What we more often hear, what really bubbles to the top, is that they need support. They need help in developing their business model and de-risking their technology, turning that idea into a new product, into new jobs, in connecting with sources of capital, being able to compete globally for capital and bring it into their community. So the policy environment, it needs to be a both/and, how do we reduce regulation? How do we reduce red tape? How do we balance taxes with investments and supports in ecosystems. Ms. YOUNG KIM. Thank you, Mr. Johnson. I want to stay on the topic. And let me pose the same question to Mr. Maguire. Would you agree that a higher capital tax rate puts our entrepreneurs and startups at a competitive disadvantage compared to other countries? And can you cite an example? Mr. MAGUIRE. Well, absolutely. I mean, I do not care if you are a Republican or a Democrat, no one wants higher taxes. We all needed to decide what the balance is for everyone out there. If you are asking me if the capital gains rate will impact investment in companies, absolutely it will. Will it stop investment in other companies? No, it will not. I mean, we are still going to go out and work hard to sit there and try to make our businesses successful. What I think is more important is what you said before, 95 percent of taxable entities. Once you start messing with taxable gains and the personal income tax rate you are going to impact every small business. I do not care if it is a barber shop or if it is Clearly Clean products. You will start impacting them negative. Ms. YOUNG KIM. Sure. I know I have got a little time left. So Mr. Maguire, I really appreciate your testimony as you talked about the difficulty in hiring employees but I also give you a lot of kudos from growing from a very small three employees to over 300 employees and that is because of your innovation and creativity. But I also wanted to talk to you about the recent CPI that rose to 5.4 percent In June compared to a year ago. This is the highest inflation numbers in 13 years. So can you tell us how the increase in prices and inflation impacts your small business? Mr. MAGUIRE. You are going to see inflation. I do not think anyone on this Committee should sit there and not thing we are going to see inflation. In our business, specifically, we are seeing between 15 to 30 percent increases in our raw material costs and in some of our supplies that are required to sit there and put our product out there at market. It is coming. Third quarter, fourth quarter you are going to see it. I do not think there is any getting away from it. Your CPI, where it is at right now is not where it is going to be in the fourth quarter and the first quarter of 2021. Ms. YOUNG KIM. Well, thank you. I see my time is up, so I yield back. Chairwoman DAVIDS. Thank you. The gentlewoman yields back. The Chair will now represent Rep. Chu from California for 5 minutes. Ms. CHU. Thank you so much. Mr. Epp, I am so glad to hear of the success that your Innovation Park has had as a growth accelerator, and I want to ensure that startups and small businesses that are growing in these accelerators also have access to private investment. That is why 2 weeks ago I reintroduced H.R. 4256, the Investment in Main Street Act with my colleague, Representative Garbarino. This legislation would enable banks to dramatically increase their share of the capital and surplus that can be invested into SBA certified SBIC or small business investment companies from 5 percent to 15 percent. Last year, SBICs made nearly $5 billion in leverage and investments for over 1,000 small businesses. Unlike many private venture capitalists, SBICs are backed by the SBA, and last year made one quarter of their investments in underserved businesses showing that these SBICs are well-suited at funneling capital to the businesses who need it most. So can you talk about the importance of private investment for the startups you work with and how SBICs can help them grow and succeed? Oh, can you unmute? Please unmute. Mr. EPP. Can you hear me now, please? Ms. CHU. Yes. Mr. EPP. I switched to another channel because I was having trouble before using my phone which is why you saw the mute engaged there. Is the sound better now than it was before? Ms. CHU. Yes, it sounds much better. Yes. Mr. EPP. Okay, thank you. And thank you for your support, Representative Chu and for the work that you are doing, particularly with the legislation that you have proposed. I think that is extremely helpful. Small company investors are always looking for match funding and they often do not want to be first in. And so any kind of support that can be provided in this kind of way can be extremely helpful because it kind of opens the gate. It kind of opens the floor gates. And once one investor is in with some match funding or whatever, it is very easy to attract--well, not easy but it is easier to attract other investors. So the focus on venture capital and kind of creating a unique package with Federal funding around creating those venture clusters and those venture packages is very, very effective. And thank you. Ms. CHU. Well, thank you for that. Mr. Johnson, in April, I reintroduced my legislation, H.R. 2680, the Providing Real Opportunities for Growth to Rising Entrepreneurs for sustained success, the Progress Act. This legislation would support the smallest businesses, those without any employees by helping them expand and incentivizing third-party investment, the legislation would create a refundable payroll tax credit for nonemployer firms that hire their first full-time employee and an investment credit to encourage third-party capital investment into nonemployer firms. Nonemployer firms are much more likely to be owned by women, and female entrepreneurs on average stat out with roughly half the capital as male entrepreneurs. So could you talk about how incentivizing third-party investment into the smallest of businesses and helping startups to hire their first full-time employee can improve outcomes for innovative small businesses? Mr. JOHNSON. Thank you very much and thank you for your support of the Progress Act. With the entrepreneurs that we support and serve, we see that hurdle of hiring the first employee is often one of the largest challenges, accompanied with de-risking technologies and trying to bring talent on the team as Dr. Burks referenced, that paving the way to hire the first employee is a big gap. And so anything that can help bring a hire to an individual sole practitioner is important. We know from data that all new job growth in the country over the last decade is from new businesses, businesses that are less than 5 years old and helping them start a hiring process, helping them grow can be really critical. For us, as an example, we used our RIC dollars and our growth accelerator dollars to support an entrepreneur, Jennifer Silva, a cofounder of Senti-AR, helped secure $2.25 million in SBIR funding that was then able to be leveraged and matched with more than $3 million in private venture capital that enabled them to grow the team, de-risk the technology, and bring to market a new, real-time augmented reality in the operating room to help with invasive surgery, in particular cardiac arrythmia when you have an irregular heartbeat. And that hurdle to be able to leverage those dollars to hire the first people to the team, to bring on sales and regulatory expertise was really critical. Ms. CHU. Thank you. I yield back. Chairwoman DAVIDS. Thank you. The gentlewoman yields back. The Chair will now recognize Rep Van Duyne from Texas for 5 minutes. Ms. VAN DUYNE. Great. Thank you. I have been having a hard time with my volume so I am hoping that you guys will be able to hear me. If not, I can dial back in. But I want to thank you, Chairwoman Davids and Ranking Member Meuser for holding this hearing today. This past Tuesday, the Labor Department reported its highest 12-month consumer price index increase since August 2008. In addition, in June, the National Federation of Independent Businesses found that the number of small business owners raising prices was the highest since 1981. A third of small businesses are facing supply chain disruptions. Nearly half of those businesses have job openings they cannot sell. As a former small business owner and entrepreneur, I can tell you that no counseling or training can overcome tone deaf settlement policies. Innovators must understandably cross a high bar to succeed but the federal government should not raise that threshold by threatening higher taxes and paying a qualified work force to stay unemployed. I want to reiterate that point for those who have never run a business before. It is incredibly difficult t run a business with thin margins when you cannot hire workers, and much needed dollars are sent to Federal coffers instead of reinvestment in innovation. At the beginning of 2020, the small business economy saw record levels of optimism and production. And my Republican colleagues and I understand that the best way to support innovation and entrepreneurship is getting the government out of the way. Unfortunately, this point seems to be lost on the current administration. There is no doubt that COVID-19 was a disaster for small businesses. In a time of crisis, the federal government responded but this pandemic is ending and we need to empower Americans to transition back to back. The government cannot continue to hold businesses and the workforce back through their failed policies. The strength of the American economy is in its innovate and the key to innovation is in the American people. If we want to spur innovation, the simple solution is to get government out of the way and let people prosper. And with that, I want to thank Mr. Maguire for his testimony today. You talked about your company's rapid growth in hiring. Do you think that that growth would have been possible in today's labor market? And do you think that the economic environment today compared to what it was before the pandemic is more or less friendly to small business innovation? Mr. MAGUIRE. Well, with COVID-19 it has been an extremely difficult challenge. So, you know, it was easier to hire before the pandemic. And in 2018, there is no doubt about it. We have gone through an incredible phase in trying to deal with our situation and trying to have the appropriate people on the production line to make things work but there is no doubt that it has been more difficult, much more challenging right now. And the current situation, you know, I do not see it getting better for the next 6 months. Ms. VAN DUYNE. In your testimony you had said something I found really interesting. Innovation flourishes when creativity meets investment. When you think about the tax proposals coming from this administration, how do you think they would affect not only your margins but small business capital at large? Mr. MAGUIRE. Oh, it is going to be extremely difficult because most small businesses are self-funded. I mean, you may sit there and think that small businesses have the ability to go out and get resources and all of the other panelists that are talking, it is incredible. The opportunities that you provide to entrepreneurs is phenomenal. I applaud every one of you, and Dr. Burks, I applaud you the most. But I wills It there and will come back to you and I will tell you, it is extremely hard. and you will not be able to build a business in the environment that taxes are increased because we took every penny of our savings and put it back into our business. And that is really how most small businesses work. I mean, you work, you try to make a profit, you use that profit to build your business and you continue to do so. And if you change the rates and if you change some of what is going on out there, it is negatively impact small businesses and there is no two ways about it. Ms. VAN DUYNE. So without sacrificing ay of the waste, this is for Mr. Epp, without sacrificing any of the waste, fraud, and abuse protections that need to be required, how can we eliminate some of the paperwork burden for small businesses participating in SBA's innovations programs? Cannot hear you. Mr. Epp? Can anybody else hear him? Mr. EPP. Can you hear me now? Ms. VAN DUYNE. I can hear you. Mr. EPP. Can you hear me? Ms. VAN DUYNE. Yeah, I can hear you. Mr. EPP. Can you hear me now? Ms. VAN DUYNE. Yes. Mr. EPP. I am sorry. I am still trying to figure all this out. You know, as I mentioned, that is one of the really very good attributes about the accelerator growth competition is the minimal restrictions on it, the minimal paperwork that is required. I am sorry to be so picky but more of that. Ms. VAN DUYNE. All right. Thank you. I yield back my time. Chairwoman DAVIDS. Thank you. The gentlewoman yields back. The Chair will now recognize Mr. Evans. Mr. EVANS. Thank you. Thank you, Madam Chair. Thank you, Ranking Member. The question I would like to ask is to Dr. Burks. Access to capital is a persistent issue for small businesses and entrepreneurs, and particularly for Black businesses and women. What types of funding have you utilized? Mr. BURKS. Good question. As a startup, you usually use as much as you can find but we have been able to utilize funding from the University of Illinois. Probably our largest supporter is Federal. The National Science Foundation SBIR funding, so we are in that pipeline. We are a phase one SBIR funded company at this point and we are in advanced review for NSF SBIR phase two. Those are the largest funding sources that we have received thus far. We have also received the Proof of Concept Award through the Illinois incubator which is an SBA funded initiative. And for certain aspects of like development we have gotten support from private vineyards. So vineyards who believe in our product. You know, the problem we are trying to solve is extremely huge, so the vineyards that could benefit from our product being a success, they have been giving us resources, whether it is manpower, whether it is access to data, whether it is equipment and to space on their farms to do work. We had an international partner who we could not pay for but they put the money up to fund us to do a field trial at their site internationally. So I would say those are our primary sources. But without the government funding, particularly the SBIR, I mean, none of this would be probably possible because that has funded salaries, that has funded initial material costs, that has funded personnel. It just goes on and on what it has funded. And it has given us the ability to be housed in this incubator in a way because we have to pay rent to the incubator for our laboratory space and so that has paid for all of that. So the NSF SBIR has been tremendous and huge as part of our funding. Mr. EVANS. Let me follow up a little bit. How does this work? Can you talk a little bit about it? Mr. BURKS. How does what work? Mr. EVANS. How does the Committee, in terms of the funding issue, how does it work? As you said, you are housed in the incubator. How does it work? Mr. BURKS. So it is a long process but the incubator recognized our idea as something that had a lot of potential, so that gave us access to the incubator. And in the beginning the incubator has funds available to house us there. And then from there you continue to grow your pot for other funding and then that is where the NSF funding came into play. We also had NSF I-Corp, which involved going out to do customer discovery, figuring out what the customer needs are. There was funding involved in that to kind of also help offset costs of being in the incubator. But then in our world for like material tech startups, you know, if you get the NSF SBIR it is a huge, like that is like you kind of made it in a way. And so from there you use that funding to continue to develop your efforts in this incubator. And the hope for the incubator is that they can give you all the resources that you need so that you can eventually fly away on your own and be able to be a self- sustaining business. So we have to apply. And so the NSF SBIR has a vetting process where basically we submit our idea in an organized, scientific way and it is vetted by other scientists for its technical feasibility and then after that it is kind of vetted from a financial standpoint to see if it is financially suitable, like our money and things like that add up and we are a responsible company in our accounting practices. So, but it is nice because it is scientifically vetted first, which means there is a higher likelihood that what we are proposing is going to be technically successful going forward. And then as we all know, all the business owners here know, you know, just because you are a good scientist does not make you necessarily a good businessperson. So then there is this leap that we also have to make to become good businesspeople or to hire good business people or to have good business advisors to help us grow in that capacity as well. Mr. EVANS. I would like to thank you, Dr. Burks. I yield back the balance of my time, Madam Chair. Mr. BURKS. Thank you. Chairwoman DAVIDS. Thank you. The gentleman yields back. I want to start off by saying thank you to all of our witnesses today. I definitely appreciate you being here. Your compelling testimony has certainly helped shed light on the importance of SBA's innovation initiatives. And of course, as always, input from stakeholders, folks like you, it is critical as we make our innovative ecosystem more inclusive and prolific here in this country. Obviously, we have more work to do if our country is going to reclaim the title of world's most innovative. Small businesses are going to play a critical role in achieving that and that is why we have to work together on this Committee to ensure the SBA programs have the support that they need to guide entrepreneurs and ensure that they have the support they need to support the entrepreneurs with what they need. So, I am looking forward to working with members on this Committee to ensure that these programs are operating at their full potential and serving small businesses effectively. And with that I would ask unanimous consent that members have 5 legislative days to submit statements and supporting materials for the record. Without objection, so ordered. And if there is no further business to come before the Committee, we are adjourned. [Whereupon, at 2:28 p.m., the subcommittee was adjourned.] A P P E N D I X [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] [all]