Startups Nationwide to See Job Losses Absent Urgent SBA Rule Fix

126 pro-startup groups representing 39 states urge Trump Administration to save startup jobs by fixing SBA rule

WASHINGTON, DC – TechNet and the National Venture Capital Association today led 126 local, state, regional, and national groups representing 39 states across the country in urging the Trump Administration to ensure startups and their workers are eligible for the emergency relief loan program included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The full letter and list of signatories is below and is available as a PDF here.

The groups sent a letter to the Administration this afternoon regarding startups with equity investors being forced to potentially count employees from unrelated companies as their own employees – pushing startups over the 500-employee threshold that is used to determine eligibility for the loan program, under the Small Business Administration’s (SBA) Affiliation Rules.

In 2019, 2.27 million Americans worked at startups.  According to the job site Indeed, 98 percent of firms have fewer than 100 employees and between small and medium sized companies, they jointly employ 55 percent of employees.  Without access to this loan program, some of these startups could face preventable layoffs and be forced to shut down research and development projects that could set back our country’s competitiveness, as well as delay new tools to combat the COVID-19 pandemic.

“[W]e are gravely concerned that application of the current Small Business Administration’s (SBA) ‘Affiliation Rules’ to these companies will create confusion and delays in administering the program, and could effectively exclude many startups that are trying to survive this economic crisis,” the letter states.  “Such a result would be contrary to the intent of the legislation to provide assistance broadly across all sectors of the economy.  Without clear guidance enabling startups and small businesses supported by equity investment to access the loan facility, many of these startups may be rendered ineligible.”

TEXT OF LETTER:

Dear Secretary Mnuchin and Administrator Carranza:

Thank you for your service to our nation and support for America’s small businesses and their workers, especially during this challenging time.

We, the undersigned organizations representing America’s startup community, respectfully urge you to clarify as quickly as possible that small businesses with equity investors will not be excluded from the 7(a) loan program under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.  In particular, we are gravely concerned that application of the current Small Business Administration’s (SBA) “Affiliation Rules” to these companies will create confusion and delays in administering the program, and could effectively exclude many startups that are trying to survive this economic crisis.  Such a result would be contrary to the intent of the legislation to provide assistance broadly across all sectors of the economy.

The CARES Act takes many positive steps forward to provide relief to the U.S. economy.  However, the goals of the program will be undermined if the “Affiliation Rules” prevent many small companies with equity investment — as is the case with most startups — from qualifying for the emergency relief made available by the CARES Act.  This relief is intended for companies with less than 500 employees, other firms that qualify based upon eligible size standards, and entities that already have an explicit waiver.  Depending on how the SBA assesses questions of “control” under current “Affiliation Rules,” many of these companies could be required to aggregate the employees of unrelated companies in which their investors are affiliated and count them in their employee count, pushing many above the employee size threshold.  Regardless of the purpose of these rules for traditional 7(a) loans, allowing the rules to exclude some of our country’s most innovative startups in this new loan program is manifestly contrary to the intent of the legislation: to help small businesses keep their lights on and their employees working despite the double financial squeeze created by the economic and financial market downturns.

Without clear guidance enabling startups and small businesses supported by equity investment to access the loan facility, many of these startups may be rendered ineligible.  The confusion alone could lead to waves of preventable layoffs.  These layoffs will also have broad short-term downstream economic consequences, including for service-oriented businesses like restaurants, coffee shops, and bars, who rely on these workers as customers.

In addition to laying off workers, startups will have to shut down critical research and development (R&D) projects in fields like bio-research, medical technology, and artificial intelligence, setting back our country’s competitiveness and delaying the creation of new tools to combat the COVID-19 pandemic.  Bottom line: not providing this critical support to startups now will cause both short-term pain and long-term consequences that linger for years.

In 2019 alone, 2.27 million jobs were created in the U.S. by startups across our nation.  According to the job site Indeed, 98 percent of firms have fewer than 100 employees and between small and medium sized companies, they jointly employ 55 percent of employees.  When implementing the CARES Act, we urge the SBA to issue guidance that makes clear affiliation rules do not arbitrarily exclude our most innovative startups.  Thank you for considering our concerns.

Sincerely,

National Organizations

TechNet

National Venture Capital Association

Technology Councils of North America

Engine

Advanced Medical Technology Association (AdvaMed)

Biotechnology Innovation Organization (BIO)

Center for American Entrepreneurship

Angel Capital Association

Medical Device Manufacturers Association

Female Founders Alliance

Information Technology Industry Council (ITI)

Clean Energy Business Network

Blockchain Association

StartOut

Commercial Spaceflight Federation

LatinX VC

Hello Alice

Dental Trade Alliance

State Science & Technology Institute (SSTI)

Regional Organizations

Mid-Atlantic Venture Association

Mid-America Healthcare Investors Network

New England Venture Capital Association

Rocky Mountain Venture Capital Association (Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah, Wyoming)

Southeast Life Sciences

Western Association of Venture Capitalists

Alabama

Tech Birmingham

Arizona

Arizona Bioindustry Association, Inc. (AZBio)

Arizona Technology Council

California

Alliance for SoCal Innovation

Bay Area Council

BioCalifornia

Biocom – Life Science Association of California

California Technology Council

California Business Incubation Alliance

California Cybersecurity Information Sharing and Analysis Organization (CalCISO)

California Life Sciences Association

Octane

Silicon Valley Leadership Group

sf.citi

Tech San Diego

Colorado

Colorado Technology Association

Rockies Venture Club

Delaware

Delaware BioScience Association (Delaware BIO)

Florida

BioFlorida

Domi Station

eMerge Americas

Florida Medical Manufacturers Consortium (FMMC)

Florida Venture Forum

Georgia

Technology Association of Georgia

Indiana

Indiana Health Industry Forum

Indiana Technology & Innovation Association

TechPoint Indiana

Illinois

1871

Illinois Biotechnology Innovation Organization

Illinois Venture Capital Association

MATTER

mHUB

Open Prairie

TechNexus Venture Collaborative

Iowa

Iowa Venture Capital Association

Kansas

KC Tech Council

Wichita Technology Corporation/Wichita Technology Ventures

Kentucky

Technology Association of Louisville Kentucky

Maine

Startup Maine

Maryland

Maryland Tech Council

Massachusetts

Massachusetts Medical Device Industry Council (MassMEDIC)

Mass Technology Leadership Council

Michigan

Ann Arbor SPARK

Michigan Biosciences Industry Association (MichBio)

Michigan Venture Capital Association

Minnesota

Medical Alley Association

Missouri

Arch Grants

BioGenerator

BioSTL

Cortex Innovation Community

KCRise

KC Tech Council

Missouri Biotechnology Association (MOBIO)

Technology Entrepreneur Center

Nebraska

Invest Nebraska

New Jersey

HealthCare Institute of New Jersey (HINJ)

New Jersey Tech Council

New York

MedTech (NY)

NY Tech Alliance

Tech:NYC

Upstate Capital Association of New York

North Carolina

Council for Entrepreneurial Development

North Carolina Biosciences Organization (NCBIO)

North Carolina Technology Association

Ohio

Cintrifuse

JumpStart

VentureOhio

Oklahoma

36 Degrees North

Oregon

Oregon Bioscience Association

Technology Association of Oregon

Pennsylvania

Ben Franklin Technology Partners

Life Sciences Pennsylvania

Philadelphia Alliance for Capital and Technologies

Pittsburgh Technology Council

Pittsburgh Venture Capital Association

Rhode Island

Tech Collective

Tennessee

EO Nashville

Greater Memphis IT Council

Greater Nashville Technology Council

Texas

Austin Tech Alliance

Austin Chamber of Commerce

Caruth Institute for Entrepreneurship

Geekdom

Houston Exponential

The Ion

Kauffman Fellows

Launch SA

MassChallenge Texas

Rice Alliance for Technology & Entrepreneurship

Southwest Venture Forum

Texas Healthcare & Bioscience Institute

Texas Venture Capital Association

Utah

BioUtah

Silicon Slopes Commons

Vermont

Vermont Technology Alliance

Virginia

Northern Virginia Technology Council

Roanoke-Blacksburg Technology Council

Washington

Life Science Washington

Washington Technology Industry Association

Wisconsin

BioForward Wisconsin

TitletownTech

Wisconsin Technology Council

Wisconsin Venture Capital Association

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About TechNet

TechNet is the national, bipartisan network of technology CEOs and senior executives that promotes the growth of the innovation economy by advocating a targeted policy agenda at the federal and 50-state level.  TechNet’s diverse membership includes dynamic American businesses ranging from startups to the most iconic companies on the planet and represents over three million employees and countless customers in the fields of information technology, e-commerce, the sharing and gig economies, advanced energy, cybersecurity, venture capital, and finance.  TechNet has offices in Albany, Austin, Boston, Chicago, Olympia, Sacramento, San Francisco, Silicon Valley, Tallahassee, and Washington, D.C.

About National Venture Capital Association

The National Venture Capital Association (NVCA) empowers the next generation of American companies that will fuel the economy of tomorrow. As the voice of the US venture capital and startup community, NVCA advocates for public policy that supports the American entrepreneurial ecosystem. Serving the venture community as the preeminent trade association, NVCA arms the venture community for success, serving as the leading resource for venture capital data, practical education, peer-led initiatives, and networking. For more information about NVCA, please visit www.nvca.org.