Tech Startups Seek Finance Breaks from Congress

Startups could sell tech to agencies, House Small Business Chairman says.

The new low cost smartphone of Motorola, 'Motorola Moto G', is displayed in Sao Paulo, Brazil, on November 13, 2013.
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Opening a small business is a challenge, but it can be even more difficult to get loans or customers for a tech startup with aims of reshaping markets.

Tech startups in certain areas can seek financial help from state programs and technology innovation funds, but House Small Business Committee Chairman Sam Graves, R-Mo., says he is interested in what more can be done to help startups with loans and taxes. When considering financial aid for startups Graves says he wants to be careful "not to create an unfair situation" since the goal of tech entrepreneurs is to compete with larger existing businesses and disrupt existing business models. Making it easier for startups to contract technology work with the government is another possible measure Congress could take to encourage innovation, Graves says.

"I think there is a huge opportunity when it comes to agencies and startups," Graves says. "I think startups in many cases, and a lot of small businesses overall can do it more efficiently and cheaper than a lot of businesses. That's the reason we are trying to do contractor reform."

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Many startups are scrapped by entrepreneurs to make way for better ideas, and it takes many startups to generate a profit independent of grants or venture capital funding. Twitter launched in 2006 and the company still has not created a profit.

On average, only one in three startups makes it to their 10th year, but if they survive they create new markets and increase competition, said Rep. Nydia Velazquez, D-N.Y., ranking member of the small business committee, during a hearing Wednesday. According to the Census Bureau startups create jobs at twice the rate of the national annual net job growth rate, she added.

"Traditional bank lending, via loans, is ill-suited to the high-risk nature of startups," Velazquez said.

The U.S. Small Business Administration offer resources for startups, but "it is between a rock and a hard place" because of high demand from startups and shrinking federal budgets, Velazquez explained.

Tech startups are "big businesses in the making" since they often aim for growth in a way that a brick-and-mortar storefront does not, so they need different financial programs to make that happen, says Anton Gelman, CEO of Cont3nt, an online marketplace for freelance video and photos. The only physical property his startup owns is five laptops, he says.

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"We need Congress to find a way to move faster to keep up with the pace of these companies," Gelman says. "If the government has a program that takes six months to apply to, the company does not know where it's going to be in six months, it might be out of business. If you have a program that requires any collateral for a bank loan, it's impossible. We have no collateral."

Tech startups could help the government spend less and get new technology if Congress made it easier for tech startups to procure contracts with government agencies, said Allison Lami Sawyer, founder of Rebellion Photonics, an optics technology startup. The main product of Rebellion Photonics is a gas cloud imaging camera to increase safety at oil and gas facilities, but the company could also make cameras for drones with the Department of Defense, "which could also lower costs for that industry," Sawyer said.

The government contract procurement process is keeping Sawyer's company from doing this project because the process "practically demands" companies to only work for the government, potential contracts are poorly advertised and accounting and infrastructure fees associated with government contracts are "unnecessarily high," Sawyer said.

"The U.S. government has boxed itself out of the free market due to the extremely complex procurement process," he said.

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