[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
INNOVATION AS A CATALYST FOR NEW JOBS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ECONOMIC GROWTH, TAX AND CAPITAL ACCESS
OF THE
COMMITTEEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
APRIL 18, 2013
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 113-012
Available via the GPO Website: www.fdsys.gov
_____
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80-821 WASHINGTON : 2013
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HOUSE COMMITTEE ON SMALL BUSINESS
SAM GRAVES, Missouri, Chairman
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
BLAINE LUETKEMER, Missour
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
JAIME HERRERA BEUTLER, Washington
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
DAVID SCHWEIKERT, Arizona
KERRY BENTIVOLIO, Michigan
CHRIS COLLINS, New York
TOM RICE, South Carolina
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
YVETTE CLARKE, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRAD SCHNEIDER, Illinois
RON BARBER, Arizona
ANN McLANE KUSTER, New Hampshire
PATRICK MURPHY, Florida
Lori Salley, Staff Director
Paul Sass, Deputy Staff Director
Barry Pineles, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Tom Rice.................................................... 1
Hon. Judy Chu.................................................... 2
WITNESSES
Jack Roach, Director, Southeastern Institute of Manufacturing
Technology, Florence, SC....................................... 4
Julie Lenzer Kirk, Co-Chair, Startup Maryland, Columbia, MD...... 6
Steve Johnson, President and CEO, CreatiVasc, Greenville, SC..... 9
Michael D. McGeary, Co-Founder, Engine Advoacy, San Francisco, CA 11
APPENDIX
Prepared Statements:
Jack Roach, Director, Southeastern Institute of Manufacturing
Technology, Florence, SC................................... 25
Julie Lenzer Kirk, Co-Chair, Startup Maryland, Columbia, MD.. 28
Steve Johnson, President and CEO, CreatiVasc, Greenville, SC. 33
Michael D. McGeary, Co-Founder, Engine Advoacy, San
Francisco, CA.............................................. 40
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
James Bessen, Boston University School of Law and Michael J.
Meurer, Boston University School of Law, submitted by Hon.
Judy Chu................................................... 44
CONNECT - An Innovation Agenda for the 113th Congress,
submitted by Hon. Judy Chu................................. 80
INNOVATION AS A CATALYST FOR NEW JOBS
----------
Thursday, April 18, 2013
House of Representatives,
Committee on Small Business,
Subcommittee on Economic Growth,
Tax and Capital Access,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:00 a.m., in
Room 2360, Rayburn House Office Building. Hon. Tom Rice
[Chairman of the subcommittee] presiding.
Present: Representatives Rice, Chabot, Schweikert, Chu, and
Barber.
Chairman RICE. Good morning. Thanks for being
with us today. I now call this hearing to order.
Today's hearing is the first in a series that will examine
how to bolster America's competitiveness and propel economic
growth through innovation and entrepreneurship. America is the
most innovative nation in the world. As a global hotspot of
breakthroughs and emerging technologies, entrepreneurs have
embraced our country's creative spirit for decades and have
brought innovations into the marketplace creating jobs and
spurring economic growth. Only 20 years ago, the transformative
``IT Wave'' struck the nation, generating new industries, and
with it, new jobs and heightened economic prosperity.
Currently, we stand at a critical juncture. The United
States remains number one in innovation, but with unemployment
at 7.6 percent and a sluggish economy, communities across the
nation are fighting to regain strength and bring back economic
prosperity. The question remains - where do these new jobs come
from and how can America's competitive advantage in innovation
drive economic growth?
To address this question, various entities are taking a
variety of approaches to capitalize on America's innovative
spirit. For example, in my district, we have the Southeastern
Institute of Manufacturing and Technology's Manufacturing
Incubator Center, that aids startup manufacturers to transform
innovative ideas into commercial products. This sort of focus
reinvigorates local communities and recognizes the unique
strengths of South Carolina's 7th Congressional District, and I
am happy to have Mr. Roach, the Director of the Southeastern
Institute of Manufacturing and Technology, with us here today
to discuss their work.
Additionally, ADP, human capital management solutions
company, which has an office in my district, works with small
businesses to find innovative solutions to their business
challenges. While a representative of ADP was unable to be here
today, I wanted to highlight the work that they and similar
companies are doing around the country to help small businesses
innovate to address challenges with everyday tasks such as cash
flow, regulatory and tax compliance, and human resource
management.
It is evident that creating innovation-friendly conditions
is necessary to allow entrepreneurs to thrive and generate new
jobs, yet for each community, this may mean something
different. Today's witnesses truly understand the challenge and
conditions necessary to succeed, and I thank you all for being
here. And I look forward to your testimony.
I now yield to Ranking Member Chu for her opening remarks.
Ms. CHU. Thank you, Chairman Rice. And before I begin, I
want to congratulate you on your appointment as chair to this
Subcommittee on Economic Growth, Taxes, and Capital Access.
Chairman Rice certainly knows about small business economics
and taxes. He owned his own tax law practice before he came to
Congress, so he is certainly well qualified and I look forward
to working closely with Chairman Rice on the many critical
issues facing this Committee.
Today's hearing is the first in a series that will focus on
making America more competitive. Innovation is at the center of
what makes America the greatest nation in the world. The
ability to turn new ideas into reality drives the U.S. economy
forward, creating entirely new industries and the employment
opportunities that come with them. It comes as no surprise that
small business startups are responsible for leading this
charge, seizing on opportunities and growing rapidly.
America has a long tradition of cultivating innovation.
About 40 percent of Nobel Prizes have been awarded to American
citizens, and almost half of the world's 100 most innovative
companies are located right here in the United States. Whether
it was providing electricity throughout the country, putting
men on the moon, developing the Internet, or decoding the human
genome, we can be proud of our legacy of discovery. Not only
that, these innovative new businesses created new jobs, an
average of 3 million a year.
However, though America has the largest economy in the
world, a highly-skilled workforce, top tier companies, and a
second-to-none higher education system, there are signs that
America's innovative performance is beginning to slip. In the
most recent world economic forum, rankings of the national
global competitiveness, the U.S. dropped from fifth to seventh
place. In fact, in 2008, America ranked number one but we have
been steadily outranked ever since.
We can reverse this trend if we take certain key and
critical steps. This means investing in education, funding
federal research and development, strengthening our patent
system, and reforming our nation's immigration system. Because
of the timeliness of the last two issues, I'd like to make a
few comments on them.
Patents certainly incentivize creativity and innovation,
rewarding people for their ideas. Businesses must also know
that our nation's patent system is strong and their
intellectual property will be protected. If we want to
encourage more startups to invest in their businesses here in
the U.S., then it is critical for us to ensure that their
developments receive the protection they need.
As a member of the Judiciary Subcommittee on Intellectual
Property, I am happy to say that we did pass a law providing
the greatest reform to patent law in 40 years. We are also,
however, continuing discussions on supporting innovations
through patents. Just yesterday we had a hearing examining the
effect of abusive patent litigation. Unfortunately, there are
bad players out there that abuse the system and impose
obstacles for real innovative startups. Companies called patent
assertion entities are what some call patent trolls, acquiring
patents that they had no role in developing. Their business
model is to sue companies that have related products and then
seek as many settlements as they can for profit. According to a
recent Boston University study, 90 percent of defendants in
these suits are small- and medium-size companies. This poses a
significant problem for startups, especially technology
startups, and I am hopeful that we can find a solution to this
issue.
Comprehensive immigration reform is a key issue in Congress
right now and is certainly related to the issue of innovation.
Immigrants have made extraordinary contributions to America's
innovation. Twenty-five percent of the highest growth companies
in America, including iconic success stories like Intel,
Google, Yahoo, and eBay were started by immigrants. In Silicon
Valley, the world's hub of innovation, immigrants helped found
half of all technology companies, many of which were small
startups. But many of these high tech companies cannot find the
workers they need because there are not enough applicants
trained in STEM--that is science, technology, engineering, and
math. To make matters worse, immigrants who study in the U.S.
and want to make their great new idea a reality, cannot get
visas to stay and work on their startup. Instead, they are
taking the next Google back home instead of growing it right
here in America.
It is not just employment-based visas that are critical to
the success of the technology industry. We will not be able to
attract the best and brightest if they cannot live and work in
the U.S. with their families by their sides. Immigrants are
twice as likely to start a business as native-borns, and there
are many who come to the U.S. through family visas. Jerry Yang,
the founder of Yahoo, is a perfect example. His mother brought
him from Taiwan to America when he was 10-years-old on a family
visa. Despite knowing only one English word, shoe, upon
arrival, Yang went on to master the language and thrive in his
new home, ultimately founding one of the world's largest
Internet companies. He created thousands of American jobs and
provides a service that allows millions of Americans to be more
productive.
I believe a strong immigration system needs to work for our
small and innovative businesses. We must reform our system so
that our small businesses have the workers they need and that
the students educated here can keep their ideas and businesses
in America.
With this in mind, I am looking forward to today's hearing
which will provide insights into what our country can do to be
one of the most innovative and competitive economies in the
world. I would also like to submit two documents for the record
under unanimous consent--one documenting the cost to our
American system of abusive patent litigation and the other,
policy recommendations from Connect, a successful program
linking inventors and entrepreneurs with the resources they
need.
Thank you. And I yield back.
Chairman RICE. Thank you, ma'am.
Without further delay, let us get to the witnesses. I
appreciate every one of you all taking your time and making the
trek here to Washington to be with us to help educate us and
the public about what we can do to foster innovation. I see us
as the greatest country that has ever been on earth, and we
have so much potential. And what we need to do is do everything
we can to foster that.
So starting out with Mr. Roach, Mr. Roach and I are
acquaintances. He is the Director of the Southeastern Institute
of Manufacturing and Technology, which is in South Carolina in
my District. And just so you know, my District, eight counties
in South Carolina with the national employment rate at 7.6
percent, statewide unemployment rate 8.6 percent, not one of my
eight countries is even at the state unemployment rate. We have
got a lot of work to do, and it is through institutions like
the one that Mr. Roach is the director of that we are going to
start to deal with this problem. I have got one county in my
district, Marion County, South Carolina, 19.2 percent
unemployment. So there is a lot of work to be done.
Mr. Roach, if you want to--I thank you again for being
here. If you want to tell a little bit about you and what the
Southeastern Institute of Manufacturing and Technology does, I
sure would appreciate that.
STATEMENTS OF JACK ROACH, DIRECTOR, SOUTHEASTERN INSTITUTE OF
MANUFACTURING AND TECHNOLOGY; JULIE LENZER KIRK, CO-CHAIR,
STARTUP MARYLAND; STEVE JOHNSON, PRESIDENT AND CEO, CREATIVASC;
MICHAEL D. MCGEARY, CO-FOUNDER ENGINE ADVOCACY.
STATEMENT OF JACK ROACH
Mr. ROACH. Thank you, Congressman Rice.
I am the director of the Southeastern Institute of
Manufacturing and Technology. It is a wholly owned division of
Florence-Darlington Technical College, which is in Florence,
South Carolina. Historically, innovation has created the bulk
of American jobs, and we believe it will most certainly be the
force that creates jobs tomorrow. We also believe that
creativity and innovation are critical to the success of
business, industry, and the economy. The SiMT, as we call it,
was created to provide support services to existing businesses
and entrepreneurs, to help them be successful. Both existing
companies and entrepreneurs tend to be in need of some of the
same things. These typically include technology, customers,
capital, and talent. The SiMT offers services in support of all
these areas. Since we opened the doors of our 177,000 square
feet Advanced Manufacturing Center in August of 2007, we have
worked on projects for over 200 clients, with approximately
one-quarter of those being entrepreneurs working on innovative
new product ideas.
In support of the first need, that being technology, we
offer services in computer aided design, rapid prototyping/
additive manufacturing, as well as reverse engineering.
Additionally, our 3D-Virtual Reality Center can develop content
that allows clients to do both product and process
visualization and simulation, and virtual prototyping. We have
provided these services to clients that range from Fortune 500
companies to entrepreneurs-inventors who come to us with a
sketch on the back of a napkin--very common. The person that
comes to us with a napkin sketch, and many small manufacturers,
need a resource like SiMT to get their new product innovations
to market. We become a part of their product development team,
and in some cases we become their entire product development
team.
To help our clients with their second need, which is
customers for their new product ideas, we create many sales and
marketing visual presentations for our clients. These could be
a product simulation shown on a laptop computer, or an
Internet-based product demonstration. We use many tools,
including virtual and augmented reality software to create
compelling visualizations of new product concepts.
Entrepreneurs, particularly, use these visual applications to
sell their product idea to both potential customers and
investors. Several of our client entrepreneurs have been able
to generate enough interest in their product idea to secure
funding for their business startup. In some cases, they were
even able to procure purchase orders for their product from
established retail companies, such as Home Depot or Lowe's.
The third need, capital, is always tough to come by for
innovative entrepreneurs. We are not in the venture capital
business. We cannot offer seed money to a client to get his
business going. However, what we can do is offer them some ways
to leverage the capital they do have. In September of 2012, we
finished construction of our new 28,000 square foot
Manufacturing and Business Incubator facility. This facility
provides startup companies both office and light manufacturing
space, which is reasonably priced. It has a potential to house
up to 26 different startup companies. It provides amenities
found in most business incubators--things like Internet access,
telephone service, conference and meeting rooms, shared copiers
and printers, and shared commons areas where tenants can
network together. Additionally, in partnership with our local
Small Business Development Center, we offer training sessions
for tenants on subject areas related to running a small
business.
Additionally, this new Manufacturing and Business Incubator
facility is adjacent to our existing Advanced Manufacturing
Center, which houses our large machining center. The machining
center has state-of-the-art equipment, such as CNC machining
centers, water-jet cutting, and an inspection metrology lab. An
incubator tenant that may have a limited need for this type of
equipment may procure time on our equipment instead of buying
their own. Access to our capital machinery can help get their
business off the ground, while preserving their precious
operating capital.
We currently have our first client tenant in the
Manufacturing and Business Incubator facility. The company,
MatrixXcom, was recently accepted into the Mentor-Protege
Program that the Federal government has by Homeland Security.
They feel that when they are up to full production capacity
they will employ as many as 200 people in our local market. We
have two more companies that we are currently working with to
finish their product development. Ultimately, they will move
into our incubator as well.
The fourth need is talent, and it is almost universally in
short supply today. Companies across the country say they
cannot find enough skilled workers to meet their needs. Our
parent organization, Florence-Darlington Technical College has
its roots in training skilled workers for local industry. The
SiMT carries on that tradition. We provide customized workforce
development training solutions for client companies. When a
startup company needs to train a new workforce or an existing
company's desires to raise the skill level of its current
workforce, they can get that specialized training at the SiMT.
In conclusion, as communities look for ways to create jobs
and drive economic growth, many are finding innovation to be a
key element and startup companies to be the real job creators.
The Southeastern Institute of Manufacturing and Technology is
an initiative to support the innovators and entrepreneurs in
its home state of South Carolina, as well as the southeastern
region of the United States.
Thank you.
Chairman RICE. Thank you, Mr. Roach.
Our second witness is Julie Lenzer Kirk. Ms. Kirk is the
Co-Chair of Startup Maryland, which brings entrepreneurs
together throughout Maryland to stimulate innovation and drive
economic growth across the state. Startup Maryland was launched
on March 30, 2012, and is one of the regional initiatives
within the Startup America Partnership. A serial entrepreneur
herself, Ms. Kirk founded her first company, Applied Creative
Technologies, in 1995.
Thank you for testifying today, Ms. Kirk. You may begin.
STATEMENT OF JULIE LENZER KIRK
Ms. LENZER KIRK. Thank you. Good morning, Chairman Rice,
Ranking Member Chu. I am honored to have the opportunity to
talk to you about innovation as a job creator. It is a topic
that is very near and dear to my heart.
As you mentioned, I am a serial entrepreneur. I call it a
``recovering entrepreneur,'' but I am not recovering very well
because I surround myself by that which I am trying to recover
from. But really, in my current role as co-chair of Startup
Maryland, and as the executive director of the Maryland Center
for Entrepreneurship in Columbia, Maryland, I feel fortunate to
be surrounded by innovation every day. We have entrepreneurs
and aspiring entrepreneurs coming in to us with incredible
ideas and inventions and they are just looking for the
resources that they need to help build their businesses.
Raymond Cooper is an example of one gentleman who had a
great idea. He had filed a patent for his invention. It is an
innovative design for a wind turbine that is smaller and more
efficient than current designs that are out there. But once he
did that he was not really sure where to go to get the help and
the resources that he needed. It is not until he stepped onto
the Startup Maryland bus that he found the resources that he
needed. It was actually on the advice of his mother who saw the
bus on TV that the 39-year-old gentleman came out to Bethesda,
Maryland on the second to last stop of our two and a half week
tour across the state so that he could pitch his business idea.
Little did he know that this unplanned visit to this big yellow
bus with the Maryland State flag draped across it, that that
would be the catalyst that was going to help him take his
invention into the marketplace and go from being a dreamer to a
doer, which is what we focus on.
Contrary to what many people think after seeing phenomenal
successes like Google and Facebook, the road between an idea
and a viable business is highly complex and full of risk. And I
am sure, Chairman Rice, you know this firsthand as a business
owner and working with business owners, and I have been
privileged to assist hundreds of business owners,
entrepreneurs, and help them navigate the path from concept to
viable business.
Unfortunately, we lost a few long the way because of the
risks. But what I found is that while there are many different
paths to building a successful business and there is a myriad
of unanticipated opportunities to what we call ``pivot'' along
the way, we as a community can and should provide assistance
throughout the process. Communities, by way of grassroots
efforts like Startup Maryland and strategic public/private
partnerships, can increase the probability of success and drive
greater outcomes in revenue growth and job creation. They can
do this by encouraging connections, promoting and celebrating a
culture of entrepreneurship, and facilitating access to needed
capital. This is exactly what we at Startup Maryland were told
when we asked entrepreneurs across the state what they needed
and what we have been focused on since we launched in March
2012.
You shared a little bit about Startup Maryland. It is a
regional initiative of the Startup America Partnership, and it
is a great example of what we can do through grassroots
efforts. It is actually organized by entrepreneurs for
entrepreneurs, and we are very much a startup organization
ourselves. We are all working for free and we have no money.
However, that has never stopped an entrepreneur, and that does
not stop us. Our focus for 2013, as we shared at the White
House briefing in February, is to leverage the unique assets of
Maryland to provide entrepreneurial companies with the
connections, coaching, and capital that they need to start and
grow, while celebrating the entrepreneurial journey, which
includes successes and failures. This, we are hoping, will
provide them with an unfair advantage to help them drive
increased scale.
In 2012, as I mentioned before, we conceived of and
executed a bus trip across the state of Maryland called the
Pitch across Maryland, and we invited these entrepreneurs to
come on the bus and pitch their companies to a video camera. We
then posted them on YouTube so that we could get visibility for
these companies and their businesses. We thought we would get
about 50 people to come on the bus--we had 168. We had to start
turning people away. The tour, we made 25 stops throughout all
corners of Maryland, and Maryland is not a huge state.
It was also created as a way to connect these entrepreneurs
with the resources that can help them to start and grow their
business, and also with each other. We tried to shine a
spotlight on them to elevate the visibility of entrepreneurs.
Now, pulling off something of this magnitude with a scant two
months of planning, required collaboration with a lot of people
around the state. Universities, community colleges, incubators,
and economic development agencies all stepped up to help us to
customize the message for their regions and to introduce these
entrepreneurs to their resources. It was amazing. You had
entrepreneurs not even knowing that there was an economic
development organization in their county, and we were able to
make those connections.
The most impactful outcome for many was the connections
that they developed between each other. They were just happy to
share their story and to meet other people that were going
through that very lonely journey. They were excited to be
connected with not only the Startup Maryland community, but
also the Startup America. We had a lot of fruitful connections
and partnerships that came from that.
Bringing together the community of entrepreneurs is also
exactly what I was hired to do by the Howard County Economic
Development authority, under the leadership of county executive
Ken Ulman, from the Maryland Center for Entrepreneurship, not
unlike the incubator that you run. We are leveraging the
resources and programs. We have a technology incubator,
although as an entrepreneur I do not like using the word
``incubator'' because it sounds like a warm, fuzzy chicken, so
we call it an innovation catalyst or the iCat. We also then
connect them with other technology people in the community
through the Howard Tech Council. We ran something called the
Race for Innovation, where we brought in entrepreneurs,
investors, supporters, and nobody knew who anybody else was, so
it was just first name only, in a way to get them to connect
with each other before they have to actually ask for an
investment or ask for services. And that is really what it is
about. It is connecting that community. And we have had mentors
end up investing in or taking a leadership position in some of
these startups and finding partners, getting revenues, and even
getting customers.
Another key need in fostering innovation is promoting a
culture that supports it. Feeding the entrepreneurial mindset
runs through everything we do at Startup Maryland and the MCE,
but our climate does not always make it easy. So being able to
celebrate failure as well as success I think is really
important so that you can get that mindset that it is okay to
try things and fail.
Funding is also important. If you cannot have money, you
cannot be successful. Many examples of state and local funding,
but there is a lot we can do to help that. For example, making
the SBIR process a little bit faster and easier so
entrepreneurs can get that in time for their businesses. There
is also a large and growing gap between sustainable company and
concept, and we need more seed funding for that.
So the work that you are doing here is really important,
and having us here to help highlight these entrepreneurs, we
really appreciate. We need to provide outlets so that we can
spread these stories. We need to simplify the federal SBIR
process, encourage and expand seed funding.
Chairman RICE. I am sorry, Ms. Kirk, if you could wind up.
Ms. LENZER KIRK. Absolutely. Facilitating key decision-
makers to bring innovations to companies to drive revenues.
And then to your point, Congresswoman Chu, creating a
startup friendly track to permanent residency for foreign
nationals so that they can stay in the States and keep their
innovations here.
Thank you.
Chairman RICE. Thank you, Ms. Kirk.
Next we have our third witness, Mr. Johnson, Steve Johnson,
who hails from my home state of South Carolina. Mr. Johnson is
the President and CEO of CreatiVasc, located in Greenville,
South Carolina. In 2012, his firm was competitively selected to
be part of the FDA's Innovation Pathway Program. CreatiVasc was
also an early company to receive support and investment from
the South Carolina Research Authority's SC Launch Program,
which aims to bring high tech companies into South Carolina and
supports the growth of early stage firms.
Mr. Johnson, thank you for being here today. You may begin.
STATEMENT OF STEVE JOHNSON
Mr. JOHNSON. Thank you, Chairman Rice, Ranking Member Chu,
members of the Committee, ladies and gentlemen.
My name is Steve Johnson. I am president and CEO of
CreatiVasc Medical in Greenville, South Carolina. Our company
began full-time operations in 2007, and we are focused on
developing medical device innovations for one of the most
expensive chronic diseases: end-stage renal disease, or kidney
failure. It represents now over a $47 billion burden to the
health care system. These patients must rely on dialysis to
live, but this cost over $86,000 per patient per year. It has
also had very little innovation in the past 30 years.
CreatiVasc developed and now has in clinical trials at
Johns Hopkins an innovative device called the Hemoaccess Valve
System, which has the potential to significantly reduce the
complications and cost of dialysis.
Last year, as you mentioned, CreatiVasc was selected
competitively by the FDA to be one of the three inaugural
companies in the agency's new Innovation Pathway program, which
is designed to accelerate the clinical testing and approval of
promising new technologies without compromising patient safety.
Our company is in South Carolina, which has traditionally been
viewed as a ``fly-over state'' when it came to innovation: you
flew over us to get to either Research Triangle in North
Carolina or Georgia Tech in Atlanta, or Palo Alto, or Boston.
Now, we are proud that South Carolina is quickly becoming a
destination state when it comes to innovation. Over the last
six years, over 280 technology-based companies have started up
in our state.
What has caused this dramatic change? One major stimulus,
as Chairman Rice mentioned, has been a program created by South
Carolina Research Authority (or SCRA) called ``SCLaunch.'' And
while the state of South Carolina fostered the creation of this
program, not a penny of state funding has supported it. This
SCRA program provides tax incentives to support and encourage
private donations which are used to support early-stage
innovations in our state. This SCRA early-stage funding is
provided only after extensive and rigorous scrutiny of not only
the technology but its management team, its competition, its
patents, as well as its paths to market.
Early-stage SCRA funds have triggered over $200 million in
follow-on capital from angel and venture capital investors, and
Forbes Magazine named it as one of the top five economic
programs in the nation.
The SCRA program recognizes that capital is the fuel that
drives the economic engine. Capital transforms ``technology''
into ``products.'' This then translates into manufacturing,
which then translates into jobs. But something has to prime
that pump, and most times, traditional sources of capital, such
as banks and now even venture capital funds, want to avoid the
risk of early-stage technology startups. Programs like SCLaunch
fill that vacuum. Without this program, most of these
innovation startups, including our own company, would not
exist.
As a native South Carolinian, I fully recognize that our
state has rarely been at the top of any ranking. We are usually
48th or 49th. But that is rapidly changing when it comes to
encouraging, supporting, and creating new companies with
breakthrough innovations.
Innovation is the key to economic growth because it is how
we can compete in a global marketplace. It is also how we
create good, high-paying jobs here at home. But for innovation
to succeed there must be adequate capital to mature these
inventions from the lab to the market. I can tell you from
personal experience that the greatest challenge is to find
long-term funding. Even though CreatiVasc was fortunate enough
to be selected by FDA to be one of the top three innovations
for one of the most expensive chronic diseases, it is still
amazingly difficult to find capital, especially for medical
devices which take years to develop, test, and get to market.
This is the opportunity for the future: to provide
attractive incentives that secure private investment to support
innovative but maturing technologies.
Again, thank you for this opportunity. It is something that
obviously you can tell I feel very passionate about. I look
forward to your questions.
Chairman RICE. Thank you, Mr. Johnson. I am now going to
yield to Ranking Member Chu for introduction of the minority
witness.
Ms. CHU. I have the pleasure of introducing Michael
McGeary. Michael McGeary is the co-founder and chief political
strategist of Engine Advocacy, a working group of people in the
entrepreneurial sector based in San Francisco. And it is
working to connect those leaders with government to effect
change on issues that are important to high growth,
entrepreneurial tech businesses. He also serves as a strategist
with Hattery Labs, a San Francisco-based seed stage venture
fund and creative consultancy. And he is working on high level
social and brand strategy. Previously, he worked with Silicon
Valley startup Tune-In, and with a leading California law firm
specializing in political compliance and disclosure.
STATEMENT OF MICHAEL MCGEARY
Mr. MCGEARY. Thank you, Mr. Chairman and Ranking Member
Chu, members of the Committee, thank you for having me here
with you this morning.
I want to spend my time talking about issues that will
impact the true engine of economic growth in this country,
which is our startup community. Starts promise the rebirth and
rejuvenation of the American economy, and far from the idea
that is held by many about startup life, of bespectacled views
and ironic t-shirts gallivanting around Palo Alto or the
Flatiron district of New York, spending their days writing code
for the next great game about unicorns, we will all have our
heads down in our phones, playing as we ride the subway to
work. In fact, the startup community in America reflects the
best of American business. It is dedicated men and women
working in coffee shops and coworking spaces, office parks and
garages in Kansas City and Austin and Pasadena and Nashville,
and yes, San Francisco and New York, creating economic growth
and multiplicative effects not seen in any other industry,
helping power not just their own business but in many cases
countless others across the country. These men and women have
created all of the net new job growth in this country for the
last quarter century, and according to our recent study,
Technology Works, are projected to create 4.3 jobs in local
communities for every job created in a technology concern.
It is for those reasons and so many others that a few of us
got together to form Engine Advocacy, and for those of you who
may not be familiar with our group, we got started about a year
and a half ago with the intention of connecting the startup
community with government at the federal, state, and local
level. We did so with an eye towards turning some of the
workarounds, good ideas, and innovative solutions to common
problems faced by the startup community into new legislation or
government programs or smart regulation that can help make it
just a little easier to start and run those businesses here in
America.
We did that in a number of ways for a community that has
largely been underrepresented here in the halls of government.
Our work is balanced between direct advocacy, convening our
members from all over the country with leaders in government,
such as yourselves, and educating all of the players by arming
them with good stories and strong data that point to the impact
that startups can have in driving economic growth.
And that is really why I came here today. If you took a
survey of startup founders and entrepreneurs, of investors,
technologists, developers, engineers, and the myriad of others
working in startups today, they would tell you that two issues
more than any other threaten the promise and progress of their
companies. These issues--immigration reform and software patent
reform--are Engine's immediate priorities and will form the
basis of our advocacy work in the coming year.
First let me touch on immigration. Despite our historical
competitive edge, we in the United States are facing a growing
gap between the jobs we can create and the skills and employees
needed to fill them. In the long term, we need to continue to
work to evolve our American education system to help power that
growth and give young people the skills they need to compete in
a global marketplace. But in the short term, we must also
realize that that most valuable resource, talent, is already on
our shores. They are attending the University of Wisconsin or
Kansas University or MIT or Stanford and others around the
country. And unfortunately, we seem to be looking for ways in
our current system to send these smart, talented, and
entrepreneurial individuals either back to their countries or
origin or to places like Canada or Chile or South Korea where
they have hung out the welcome sign to these promising minds as
we have done for so many years, going back to Ellis Island and
Angel Island. It is imperative that we find a way to keep
knowledge here, working and building business in America so
that our economy can continue to grow and our businesses
continue to thrive.
Second, for those that cannot stay and others who are
starting business, another specter is lurking, threatening to
choke off innovation nearly at its source, and that is the
danger of patent trolling. According to recent findings by the
Electronic Frontier Foundation, patent trolls are, forgive me,
patent assertion entities account for 56 percent of all
lawsuits filed against innovators. This environment creates a
legal and regulatory thicket, which many young companies of two
and three people find incredibly hard and costly to navigate.
We must find smart ways to protect innovative intellectual
property, and as the constitution says, to promote science and
the useful arts. The current system in place does no such
thing. In fact, it even threatens to kill innovation as young
companies find fewer and fewer avenues for capital as the
prospect of patent troll lawsuits grow.
In the end, what is good for startups is good for small
business on the whole because startups power small business.
Consider a single parent making jewelry in Boise who is able to
sell to consumers all over the world thanks to Etsy or the
rural doctor in South Carolina who is better and more readily
able to diagnose cardiovascular problems in a patient because
of increased computing power and new data from existing MRI
scans paired with 3-dimensional flow visualization. That is the
technology being pioneered right in our office in San Francisco
and being made available by Morpheus Medical. And it is the
bakery in my neighborhood in San Francisco's Sunset district
that accepts credit card payments via Square on their iPad
rather than having to buy a costly point of sale system.
The promise and potential of America's entrepreneurial
future is also so much more. Yes, we can create gaming apps
that distract and delight, but there is also technology being
created that saves lives, that brings people closer together,
and allows us to see our world and ourselves from a reframed
perspective. And startups can power the next generation of
American growth if we let them. It will be in working with this
Committee and with our other allies in Congress which can allow
for that future, our future, to be prosperous.
Thank you, and I look forward to your questions.
Chairman RICE. Thank you very much for your statement.
So many well-intentioned and very talented people here, and
I just appreciate so much you taking your time to be here with
us today.
Mr. Roach, I want to start with you. I want you to tell me
about particularly these technology programs that you have at
the SiMT and how it is working with attracting students and
what your job placement prospects are.
Mr. ROACH. Yes, sir. The SiMT is part of the Florence-
Darlington Technical College, which is one of the 16 technical
colleges in the State of South Carolina system. In our Advanced
Manufacturing Center in our large machining center in that
facility is where we have the Machine Tool Technology program
run by the college. Those students are learning the science of
machining materials. They start out with fundamental manual
machining processes and by the second year of the program they
are in computer numerical control, CNC Machining Center
operations programming is set up. Those students have a 100
percent job placement rating coming out of that program. In
fact, it is very difficult for us to keep them in the program
for the full two years because once they get marketable job
skills, the local industries out there are trying to hire those
students as quickly as they can to get them in the workforce
because there is a shortage of those skill sets. So that
program in particular is one that is in high demand, it is high
paying, and it is even difficult to get people into the program
because of the science and technology level it includes, and
the young people coming out of high school today typically are
not fully prepared to go under that kind of career path. But we
are doing everything we can to try to encourage them to go down
that path because there are good paying jobs in that field and
they are placed 100 percent.
Chairman RICE. You know, what would you say would be the
average pay scale? And what would be the prerequisites for
entering the program? Are you getting kids that have graduated
from college that are entering this technical program?
Mr. ROACH. Yes, sir. We get students in those programs from
high school graduates to people with four-year baccalaureate
degrees from other institutions who maybe they have got a
degree in English or in History or something and they cannot
find a job in the job market and they are looking for a high
tech skill set that they can market. And they end up coming
back to us. We jokingly refer to ourselves as graduate school
for some of the four-year universities because we get a lot of
their graduates coming back to get a skill that they can
market.
The perquisites essentially are the ability to do math and
science. They need a good strong STEM background. Once they
have got those prerequisites under their belt they make very
good students in these programs.
Chairman RICE. How many students do you take in this
program?
Mr. ROACH. Currently, we have approximately 40 students per
year in the program. That includes both first-year and second-
year, so about 20 in each group.
Chairman RICE. Is that your capacity?
Mr. ROACH. No, sir. That is not our capacity. That is
basically what we are being limited to by the local pool of
candidates willing to go into the program. In our local area we
have had a difficult time with the K-12 system actually
steering students away from these kinds of career paths in
their education going through high school, so we are trying to
bring them in.
Chairman RICE. And I just want your opinion. What is the
status of manufacturing in the United States?
Mr. ROACH. The state of manufacturing is strong. Even
though we are down on job count, the manufactured products
generated by this country are as great as they have ever been.
The big difference is that it is being done with technology
more than with people. So the people that work in industry
today have to have a higher skill set. They have to have more
training, and they get, you know, higher paying jobs. So it is
a question of same output, fewer numbers of heads, greater
skills, greater pay scale. And manufacturing is not dead. It is
not going away. It is just different.
Chairman RICE. And you are there and you are ready to
provide the skills?
Mr. ROACH. Yes, sir.
Chairman RICE. But you cannot find the people to sign up
for your program?
Mr. ROACH. That is part of the difficulty, is getting the
pipeline filled with people that are interested in going into
manufacturing because the news is always talking about
manufacturing is dying, no one wants to go into manufacturing.
We have a hard time with parents steering their children away
from that kind of a career path, even though a machine tool
student graduating from our two-year associate degree program
today starts out anywhere from $17 to $20 an hour with the
possibility of going up to as high as $30 an hour with about
five years experience under their belt. Good paying jobs.
Chairman RICE. These jobs, are you placing them in the
local area or are they going nationwide?
Mr. ROACH. This particular program is local. There is
enough demand in our local market that it is gobbling up all of
our graduates. But we have gotten calls from companies as far
away as Kentucky and the Midwest looking for people with this
skill set. They have heard about our program through the SiMT
and they are asking can we come in and talk to your graduates?
Can we get them to come to our facilities? And we say, yes, you
can come and talk to them but typically they want to stay close
to home and there is a job for them waiting right here in the
local market. We are providing as many as we can get our hands
on to the industry.
Chairman RICE. And one more question. What is your tuition?
Mr. ROACH. Our tuition at Florence-Darlington Tech, I do
not know the exact number because I do not deal with it myself
on a daily basis, but we are about $150 a credit hour. So a
full load is, you know, $1,700, $1,800 a semester. And in our
case, with the State of South Carolina's lottery tuition
assistance program, about 80 percent of our students qualify
for some sort of financial aid, either Federal Pell Grants or
state lottery tuition assistance. So by the time they are done,
most of our students either go for nothing or for $200 or $300
out of pocket a semester, not counting books. Books, of course,
are additional.
Chairman RICE. Can you stand up and turn around and show me
your cape?
Mr. ROACH. No, sir. I don't think I can do that. I cannot
bounce bullets off my chest either.
Chairman RICE. Ms. Kirk, could you please tell me some
specific assistance? I want to know more about--did you say you
work for free?
Ms. LENZER KIRK. The Startup Maryland is all by
entrepreneurs who are donating their time, so we are all
volunteering our time to bring together the ecosystem.
Chairman RICE. I bet you have a pretty big cape, too.
Ms. LENZER KIRK. No, no, no. It is a great community of
support. Everybody pitches in. I think any entrepreneur that
has been successful, or even if they have failed and have
really enjoyed the process which most of them do, they want to
give back. They want to go and help. I am always amazed at the
generosity of entrepreneurs to help other entrepreneurs.
Chairman RICE. Now, does this entity, I assume, get some
kind of funding? No funding at all?
Ms. LENZER KIRK. No. In fact, it was interesting when we
said we wanted to do a bus, everybody just kind of looked at us
and said, ``How are you going to do that?'' And so we figured
it out. We went out and raised money from corporations. We got
some money from, like, the Howard County Economic Development
Authority put the first money in for the bus. And once you
start going we were selling the idea before we had it fully
funded. I mean, that is kind of what entrepreneurs end up
doing. We then charged all of the stops a stoppage fee so that
they actually helped to supplement the bus tour. So it is about
being creative. It is about figuring out a way, and that is
what entrepreneurs do. It is not sitting back and waiting. I
mean, we would love to take money and the Maryland State
Government did support us but we got started before we had
that. We went out and started raising money and talking about
getting people excited about the idea, which is what
entrepreneurs have to do.
Chairman RICE. It sounds like you are doing a considerable
amount of marketing and letting people know about available
resources that are already there.
Ms. LENZER KIRK. A lot of it is just grassroots, Twitter
and Facebook, and people talking about it to their friends. It
is more of a grassroots-type of an effort. No marketing budget.
Chairman RICE. The bus tour sounds like it was a very
innovative, brilliant marketing plan.
So when an entrepreneur--how do they contact you?
Ms. LENZER KIRK. How do they contact Startup Maryland? We
have a website startupmd.org. And in fact, Startup America has
several startup regions--38 regions across the country, s.co is
the--s.co, that is all you have to type in, is Startup America,
and you can get access to the region that is closest to you.
Chairman RICE. Tell me more about the national Startup
America Partnership.
Ms. LENZER KIRK. So the national Startup America was a
partnership with the Case Foundation and Kauffman Foundation.
And they set out to help to do what we are doing--help
entrepreneurs across the country. And so they are pulling in--
--
Chairman RICE. How old is this entity?
Ms. LENZER KIRK. Two and a half years, I think. It is
fairly new.
Chairman RICE. I did not mean to interrupt.
Ms. LENZER KIRK. Yeah, no, that is okay. Obviously, I could
go on, right?
So what they realize is that each region really needs
something a little bit different, and so they formed the
regional initiatives so that the folks in the region could
figure out what does that region need the most? So, for
example, in Tennessee, they had no incubators, so they
connected Startup America. They formed Startup Tennessee and
now they have incubators across the state of Tennessee and are
doing an amazing job of getting innovations and turning them
into businesses. There is a Startup California. There is a
Startup Virginia, Maryland, and D.C. We call it the Startup DMV
where we try to work together because we are so close. And each
region is focused on whatever that region needs. In Maryland,
we needed to connect all these great resources we have. We have
Johns Hopkins University of Maryland, but they operated in
silos, and so they needed that connective tissue, and that is
what we have been providing to them.
Chairman RICE. Thank you very much.
Moving on to Mr. Johnson.
Now, I had one more question for you, Ms. Kirk. So when
somebody contacts you, gets in touch with you through your
website, what specific aid can you give them?
Ms. LENZER KIRK. Well, first we figure out what they need,
what stage they are at. And then we will often connect them
with their local jurisdictions, the resources there. But within
Startup Maryland, we have started a couple of new programs. We
have a web portal called Co-Founders Lab that connects team
members. It is like the EHarmony for entrepreneurs, so you can
go in and find a team member. We have a program that we are
just kicking off called ``Raise Your Game,'' that is for
existing companies that can connect them into a community and
help them go to their next growth inflection point. We have
another startup that we have partnered with called Fosterly
that is a resource map of all the resources in the state. It is
crowd sourced. So we figure out really what it is that they
need and then connect them into the network to find it.
Chairman RICE. Thank you, Ms. Kirk.
Mr. Johnson, thank you again for coming all the way here
from Greenville. Wow, it sounds like you've done big things
coming up with help for people with dialysis needs. That is
wonderful.
How specifically did SCRA help you get off the ground?
Mr. JOHNSON. When we were forming the company in 2007,
obviously we realized that with an implantable mechanical long-
term blood exposure device, this was not going to be either a
short-term or inexpensive process. We needed, if you will, the
term we use is ``runway.'' We needed a runway to raise money.
We went to South Carolina Launch and pitched them on the
concept of our device, the kind of need that there was in the
market, the fact that there had been no innovation in the field
in 30 years, and we were able to get a $200,000 grant from
South Carolina Launch that basically bought us about nine
months of time. During that period of time we went to the
private investors in the area. We brought together 40 angel
investors and we raised $3.4 million. That $3.4 million was
based upon our achieving set milestones, and I think that is a
key, too, to our success and to any----
Chairman RICE. Was SC Launch or SCRA involved in pulling
together these investors?
Mr. JOHNSON. We pulled together the investors, the
mechanism that gave us the funding to allow us that time to
pull those investors together. But in that six month period of
time we were able to raise $3.4 million as a total commitment
from those investors, and then based upon milestones of
developing a finished prototype in animal trials and then
beginning human clinical trials, various tranches were called
in from those investors based upon our success. But truly, and
we have received three installments from South Carolina Launch.
The first enable us to get off and running. The second one
enabled us to actually create our finished prototype and
finished device that is being implanted in humans now, and the
third tranche came last year when frankly we were just out of
cash. And it frequently happens. And again, even though we have
one of the first innovations in this field in 30 years, it is
still in this environment extremely difficult to raise capital,
even among the venture capital community because they want
lower and lower risk and greater and greater assurance of
success. And in medical devices, you are always at the exposure
of what happens in the human body that you do not see in the
lab. And so it is not always linear. It is not always
predictable, but it is something that we live with.
Chairman RICE. Thank you.
Mr. McGeary, I want to ask you questions but I have taken
far too much time already. Not that I do not appreciate what
you do or the fact that you are here, and I appreciate it very
much. I could talk to each one of you for an hour. So just
thank you all very much for what you are doing. Thank you for
what you are doing to help create businesses and jobs in this
country. And with that I am going to yield to the Ranking
Member, Ms. Chu.
Ms. CHU. Thank you so much.
Well, I have questions for Mr. McGeary. Mr. McGeary,
according to a study from the Center on Education in the
Workforce at Georgetown University, science, technology,
engineering and math could have a 230,000 shortfall of advanced
degrees in the U.S. by 2018. What do you think is the best way
to address this shortfall?
Mr. MCGEARY. Thank you, Ranking Member Chu.
I think that it is critically important to address. There
are a number of ways in looking at the entirety of the system.
Obviously, in the long term we need to address the educational
system we have got in this country and really retrofit it for
the jobs we are creating moving forward in the 21st century and
train young people of promise to be part of these science,
technology, engineering, and mathematics disciplines to take
those positions.
The short-term answer to that is comprehensive immigration
reform, and as part of that it really does have focus on
technology. Obviously, your colleagues across the street have
shown us their proposal. The Senate has come out with their
proposal on immigration, which has some good in it for
technology, including improved access to H1B and things like
that.
We have done a recent study that I reference in my opening
statement called Technology Works, which has similar findings
and we will be diving deeper into those throughout the year,
alongside the Georgetown study. And we are seeing the same
thing--that we are going to have a gap between the jobs we are
already creating and the skills needed to fill that and the
talent needed to fill those jobs. So it is critically important
that we start that process now. We have got people here in our
universities as I mentioned, who are ready to take on those
jobs or to create their own companies, their own startups in
communities all around the country that would, in fact, create
even more. We have got to do better at keeping those people
here. It is not about even opening up so much; it is keeping
people that are already here, here, as opposed to sending that
creativity and that entrepreneurship and those skills overseas.
So in the long term, education; in the short term, we have to
keep people here.
Ms. CHU. And talking about the short-term, can you give us
an example of how our broken immigration is hurting startups?
Mr. MCGEARY. Well, I will give you one that is clear and
plain as day from last week. On the first of April, and this is
not an April Fool's joke, we opened the H1B process for high
skilled people to apply to stay here. There were 65,000 visas
available. There were 124,000 applications. So not only are we
keeping half of the people where, we are sending half of them
home on a coin flip. We do not even frankly know if we are
keeping the right 65,000 people here. That is a sin. Those are
124,000 very skilled people that would power immense job growth
not just in technology, but as I mentioned, it would also
engender job growth in the communities that surround it to a
level of 4.3 jobs created for every high tech job. So sending
these people back overseas is awful and something we need to
fix immediately.
On the very same day, in Canada, they opened their startup
visa program. It was a very nicely designed website that shows
you all the different pathways and the people in government
that will help you as an entrepreneur come and start a business
in Vancouver and Toronto or any city across Canada to start
your business there, and they will help you get a visa and they
will help you start. So instead of shipping people away, they
are asking people to come in. They are not alone in that. There
are other countries, like I said, with a welcome sign out. We
have got to be one of those countries again. We have a history
of that in the United States. You know, I am a descendant of
immigrants, as so many people are in this country. We have got
to make it once again so that the highly skilled people that
are powering economic growth on all sectors of the economy can
stay here in the United States and start businesses.
Ms. CHU. I would like to turn now to the patent issue, and
you certainly were very eloquent in talking about the effect of
that on startups. Could you give us an example of how these
patent assertion entities, as some call patent trolls, how they
work on the existing companies that do productive work? And
also, any insights in terms of solutions that Congress could
undertake.
Mr. MCGEARY. I will answer that by telling a quick story.
My co-founder was on a panel. I think it was Stanford Law
School, and this was about a year ago now. It was him, it was a
lawyer from a big law firm with an IP practice, and it was a
gentleman from Intellectual Ventures, which is one of the most
notable patent assertion entities out there. And a student
asked a question. He said, ``I am starting a business and I
think there might be some patent issues with this. How do I
protect myself?'' And this is an early 20s, starting his first
business, wanting to get started. And the gentleman from
Intellectual Ventures says, ``Well, you can come to us and you
can license our patent portfolio.'' Because what they do is go
up and buy patents and they do not create products with them,
but then they license them back to companies that will in some
cases, or they use them as leverage against companies that are
infringing them, knowingly or not, in court battles. And so
that will cost you about $250,000. And then they went to the
attorney sitting next to him and they said, ``Well, actually,
you can come to us and we will protect you from the patent
trolls and we will represent you in court, and that will cost
you about $250,000.'' And then they got to Josh, my co-founder,
and he looked down the table and he said, ``You know you people
are all crazy, right?'' No startup, and certain no venture
capital firm--and in my day job, which I get to do very
infrequently these days, I work for venture capital and I see
this every day--no venture capital firm is going to make an
investment of $250,000 in a company so that they can then send
that money into litigation. And that, by the way, is an opening
offer. That is just to clear off the simplest of infringements
unknowing, what have you. It goes so much deeper than that.
There are a lot of things that we can do, I think, on a
legislative level and on a regulatory level that Congress can
lean on. Most notably is working with the Patent and Trademark
Office to reform some of their policies on software patents and
making sure that fewer bad patents get through. There has been
a lot of that. There is a provision in the America Invents Act,
which allows for financial services patents to be reexamined
and thrown out if they were not shown to be useful. I think
extending that to software would be good as well. But also
looking at things like fee shifting and other areas, things
like we have seen in your colleague, Congressman DeFazio's
SHIELD Act, which is co-sponsored by Congressman Chaffetz, that
has been out for a while, which we have taken a good look at
and we are broadly supportive of. I think there are a number of
avenues for doing this, but it is--I like to say that if you
ask for the top five issue areas concerning startups, the first
four would be immigration, but that fifth one is definitely
patent. It is right there and we are looking at ways to work
with the community on the whole and all of you here in Congress
to make that situation much better.
Ms. CHU. Thank you.
Mr. Roach, I was interested in your comments about a couple
of important programs in Congress--the Mentor-Protege Program,
as well as the SBDCs. You mentioned that your first client-
tenant in the Manufacturing and Business Incubator Facility had
been accepted into the Mentor-Protege Program. And I was very
interested in this because in the last Congress, Congressman
Schilling and I introduced a bill to improve that Mentor-
Protege Program and it did pass. So could you talk about why
this program was so important to your client and how it could
help startups and small businesses to be more innovative?
Mr. ROACH. Well, I will try. I am not a real expert in the
program.
My understanding of the way the program works is that if
the small companies have some sort of technology that is of
interest to the federal government, whether military or
Homeland Security or whoever it is, they are paired up with a
company who is already doing business with the government in
that area. And that company sort of shepherds the small startup
company through some of the government bureaucracy, the red
tape of government procurement, things like that, as well as
offering technical support in some areas to the small startup
companies to help them really get their product developed, get
it to market, and get it into the hands of the people within
the government who want that technology. Sort of fast track it
as best they can. That is kind of my understanding of the
program. I am not an expert in the program.
Ms. CHU. But I appreciate your insights. And Small Business
Development Centers have provided training sessions to tenants
of your incubator, so could you talk about these SBDC, Small
Business Development Centers, and how they have helped in what
you are doing as well as if there were cuts, which there could
be cuts of $10 million due to the sequester, how that would
affect the situation.
Mr. ROACH. As far as our interface with the SBDC, we
actually have one of the offices on our main college campus. It
is one of the groups in the state of South Carolina. We work
closely with that group all the time with our incubator
facility. They actually help us do a good job of prescreening a
lot of potential candidates into our center. I just had someone
visit me this past week who wanted to come into my incubator
and rent space, and when I discussed it with him it was obvious
he had no idea what starting up a business was even about. He
just had a good idea he thought and he wanted to come to me and
rent space. I want him to go through the SBDC process because
they will shepherd him again through the process, help him
create a business plan, be a good sounding board whether his
concept even is sound--all those steps that he really needs to
do before he comes to see me at my incubator facility because I
cannot give him that sort of grassroots guidance that the SBDC
can. So we lean on them heavily to help us sort of prescreen or
filter potential tenants in our facility.
And they do a great job in our area. They work with a lot
of people who have got an idea and they do not have a clue what
they need to do as a first step to get started. They do not
even know what a business plan is. Just I am going to get out
there. I am going to make a million dollars today no matter
what. I have got a good idea. So if I can say anything about
the SBDC, we need to do everything we can to keep those folks
in business. I do not know what the sequestration cuts might do
to them. I have not got a clue. But we need to do what we can
to keep those people doing what they do because they are a
godsend to people in the startup phrase of contemplating a new
business.
Ms. CHU. Thank you for that insight. I really appreciate
it. And I yield back.
Chairman RICE. I now yield to Mr. Schweikert for five
minutes.
Mr. SCHWEIKERT. Thank you, Mr. Chairman. And I am sorry I
missed some of the testimony. As we all know, this is the wacky
time of year where they have you on two different committees,
but at least we are on the same floor of this building.
In listening to this--and this is sort of a question--and I
was going to start with Ms. Kirk--access to capital. I have a
personal fixation because of my participation with the Jobs Act
last year and how do you get smaller companies an access to
money. With what you are doing in Maryland, issue, nonissue,
where does that rank?
Ms. LENZER KIRK. Huge issue. Yeah, huge issue. There are a
lot of companies--as he was talking about venture capital, they
are going farther and farther away from pre-revenue. They want
a less risky deal. But in the beginning, there are no
guarantees, especially if you have to go through FDA approval
and things. So it is a huge deal. We have companies looking
for--and loans are harder to get, too. You know, thankfully,
the SBA does back loans and that is helpful, but there is a lot
of--because of the economy, there is a lot of entrepreneurs who
maybe do not have great credit. That does not mean they are bad
people. That does not mean that they cannot build a phenomenal
business.
Mr. SCHWEIKERT. From some of the smallest ventures you have
had approach you in Maryland, how small? I mean, where do you
see the entering point of someone with a good idea? I mean, are
they looking for a million dollars?
Ms. LENZER KIRK. Sometimes it is can you buy me a laptop? I
need $1,500 to get a laptop. I need $5,000 to file a patent.
Mr. SCHWEIKERT. Mr. Roach, for you, where do you see some
of your starting point entrepreneurs? What are they hunting
for?
Mr. ROACH. Very similar. In a lot of cases the fellow I
just mentioned who was looking to rent office space, all he
needed really was--in his case I think he had a laptop computer
already so he did not need that but he needed some amount of
money to even pay his rent. He was off the hip for any rent
money.
Mr. SCHWEIKERT. Why does this sound like something I would
end up investing in.
Mr. Johnson, the same question.
Mr. JOHNSON. It is very, very, very challenging. Venture
capital, again, they want revenue-generating companies. And
again, it is very difficult to get that at point when you are
under regulatory scrutiny. And again, I think there is a great
opportunity to improve the connection between NIH and FDA. They
have been siloed too many times in the past.
Mr. SCHWEIKERT. Well, but that is not where, you know, the
first level of entrepreneurial innovation is coming from.
Mr. McGeary, and you are also--you have a relationship with
the venture capital world; right?
Mr. MCGEARY. That is correct. I do retain a desk anywhere
at a venture capital fund in San Francisco. And we make early
stage investments in consumer and retail and enterprise
companies.
Mr. SCHWEIKERT. Because where I was going to come back to
you, I know you said my first four is immigration, talent--
which having a large Intel facility in my state and these
things I hear that all the time. But somewhere in there I was
hoping I could get you to adjust your top five to have access
to capital somewhere in there.
Mr. MCGEARY. Well, the good news, Congressman, is through
your work on the Jobs Act, that is less of a worry for us
because especially for early stage investors--I am sorry, for
early stage startups, there should be better access to capital.
Mr. SCHWEIKERT. Now, there is a very interesting clause in
that sentence, is there not? ``Should be.''
Mr. MCGEARY. Should be. You have done your work and we
thank you for it. And we need the Securities and Exchange
Commission to enact the law.
Mr. SCHWEIKERT. Say that again?
Mr. MCGEARY. You have done your work, Congressman.
Mr. SCHWEIKERT. No, no, no. Not that part.
Ms. LENZER KIRK. We need the SEC to do their----
Mr. SCHWEIKERT. No, no, no. I get enough flatter around
here. I never knew I was so tall and good looking until I got
elected as a member of Congress, but there is a discussion--
hey, you all know exactly what I am talking about.
But the discussion--and I do not want to beat up on them
because they have had a lot of interesting situations over at
the SEC, but we all came together as a body, moved a bipartisan
piece of legislation, and something like crowd funding, you
know, it is the egalitarian access to put up an idea, have it
vetted through the Internet, have us write positive and nasty
things about it in blogs, and be able to raise up to a million
dollars, and we cannot get it through the bureaucracy and we
are over a year late on the rule set.
And I guess where I was heading on this is you all build
the silos and these organizations to help people. You are out
there doing venture capital. You are trying to bring talent
together, and yet it is our own bureaucracy that is killing,
starving this next generation. Because who knows what that
great idea is going to be? It is in someone's garage right now.
It is probably not at the national institutes. It is probably
in someone's garage. So please, help us to continue to fuss at
the SEC to get these rule sets out. And with that I yield back,
Mr. Chairman.
Chairman RICE. Thank you, sir. I recognize Mr. Barber.
Mr. BARBER. Well, thank you, Mr. Chairman. Thank you to the
witnesses for coming. I am sorry I missed some of your
testimony but I was here certainly to hear about the good work
you are doing.
Particularly, Ms. Kirk, I am very impressed. When you said
how much does it cost, you said nothing. And of course, people
are investing time and energy in providing that kind of
collaboration and knowledge through others and I really commend
you for what you are doing.
I want to talk a little bit about how we move research--
university research from the university to small businesses.
Yesterday, I met with President Ann Weaver Hart, who is the new
president of the University of Arizona, which is one of the
premier state universities in research, not withstanding what
is going on at ASU, Congressman Schweikert. But one of her
earliest decisions as president was to establish what she calls
``Tech Launch Arizona.'' We know we have incredibly smart
researchers, people who really know that part of our world very
well, great scientists, but I think they would be the first to
admit they do not know a whole lot about how to make something
a commercial product. So this enterprise brings in expertise
from the College of Business to help these professors and
researchers get their product quickly to market. Arizona--
Southern Arizona in particular--has a very strong foundation of
bioscience, high tech industries, and a burgeoning solar
industry, so we have a base on which we can build.
I guess my question to you and to any of the other
witnesses who would like to respond is what can Congress do to
help move, first of all, to find and move research to the
market quickly. Small businesses, we all know this, are the
engine of our economy. These innovations have the opportunity
to provide great paying jobs that will last forever that will
help people in many, many ways. And I would just like your
advice on what it is we can do specifically to in this arena to
help research universities get those products to market so that
we can actually build those businesses.
Mr. Johnson.
Mr. JOHNSON. Traditionally, the University Tech Transfer
Offices are overwhelmed. I think what needs to happen is if
there could be assistance that could go to the research
universities, in order to help them inventory their
technologies that are on the shelf and help match those against
market needs, unfortunately, so much university research is
done sometimes in a vacuum. It is not connected to a need in
the marketplace that pulls that technology through. Any
assistance that could help those universities analyze markets,
see market needs, get them in touch with real entrepreneurial
ventures, like Ms. Kirk's, and help them understand the
process, you do not want a researcher running a business, and
all the data points to that. But you do need them to help
transfer it into people's hands that can do that.
Ms. LENZER KIRK. And I would say, so one of the programs
that I taught is called Activate, and it is helping mid-career
women start tech-based businesses. And it is all based on
commercialization. We started out teaching them. As an
entrepreneur, I had no idea there was this rich resource of
intellectual property sitting in these universities and
government labs, so educating the public about this opportunity
and this thing is imperative that we need to do. We are getting
ready to launch a program working with the NSA, Johns Hopkins,
and APL to accelerate the commercialization of technology by
bringing entrepreneurial thinking people in, teaming them with
the researchers so that they can form a team. The researchers
can keep doing what they love to do and have the entrepreneurs
bring those commercial products to the commercial world.
Mr. BARBER. I would really like to know more about that
initiative when my staff is here, my legislative director. We
would love to be able to learn a lot more about that. This is
an adventure in our community that is in its infancy. We have
had tech launch programs across the university, and this is the
first attempt to really bring all of that expertise together
with all of the struggle that it will be to take people away
from their departments, but I think it is the future for our
economy in many respects and many other states as well. So I
would love to hear more about your initiative.
Thank you. I yield back.
Chairman RICE. Thank you, sir.
Again, everybody, thank you so very, very much for being
here today. You all came a long way. You all are doing your
part to move our country forward, and I cannot express in words
my gratitude for what you are doing. America is at a crossroads
and cultivating our innovative strength to foster job creation
and economic growth is necessary if we are going to compete on
a worldwide stage. As our witnesses today demonstrate,
America's innovative spirit is alive and well. I am encouraged
by local communities and private entities who are finding
creative ways to embrace the spirit and aid entrepreneurs in
turning their ideas into viable business products.
I ask unanimous consent that the Members have five
legislative days to submit statements and supporting materials
for the record. Without objection, so ordered. The hearing is
now adjourned.
[Whereupon, at 11:14 a.m., the Subcommittee was adjourned.]
A P P E N D I X
Committee on Small Business
Subcommittee on Economic Growth, Tax, and Capital Access
Hearing on ``Innovation as a Catalyst to New Jobs''
Testimony of Jack Roach
Director of the Southeastern Institute of Manufacturing and Technology
Vice President of Workforce Development for Florence-Darlington
Technical College
Florence, South Carolina
April 18, 2013
The Southeastern Institute of Manufacturing and Technology
(SiMT) is located in Florence, South Carolina. It is a wholly
owned division of Florence-Darlington Technical College.
Historically, innovation has created the bulk of American jobs,
and we believe it will most certainly be the force that creates
jobs tomorrow. We also believe that creativity and innovation
are critical to the success of business, industry, and the
economy. The SiMT was created to provide support services to
existing businesses and entrepreneurs, to help them be
successful. Both existing companies and entrepreneurs tend to
be in need of some of the same things. These typically include
four things; Technology, Customers, Capital, and Talent. The
SiMT offers services in support of all these areas. Since
opening the doors of our 177,000 square feet Advanced
Manufacturing Center in August of 2007, we have worked on
projects for over 200 clients, with approximately \1/4\ being
entrepreneurs working on innovative new product ideas.
In support of the first need, Technology, the SiMT offers
services in Computer Aided Design, Rapid Prototyping/Additive
Manufacturing, and Reverse Engineering. Additionally, our 3D-
Virtual Reality Center can develop content that allows clients
to do both Product and Process Visualization & Simulation, and
Virtual Prototyping. We have provided these services to clients
that range from Fortune 500 companies, to the entrepreneur-
inventor who comes to us with a sketch on a napkin. The person
that comes to us with a napkin sketch, and many small
manufacturers, needs a resource like SiMT to get their new
product innovations to market. We become a part of their
product development team.
To help our clients with the second need, Customers for the
new product ideas they have, we create many sales and marketing
visual presentations for our clients. These could be a product
simulation shown on a laptop computer, or an internet based
product demonstration. We use many tools including Virtual and
Augmented Reality software to create compelling visualizations
of new product concepts. Entrepreneurs, particularly, use these
visual applications to sell their product idea to both
potential customers, and investors. Several of our client
entrepreneurs have been able to generate enough interest in
their product idea to secure funding for their business
startup. In some cases, they were even able to procure purchase
orders for their product from established retail companies.
The third need, Capital, is always tough to come by for the
innovative entrepreneur. The SiMT is not in the Venture Capital
business. We cannot offer seed money to a client to get his
business going. However, what we can do is offer them some ways
to leverage the capital they do have. In September of 2012 we
finished construction of our new 28,000 square feet
Manufacturing and Business Incubator facility. This facility
provides startup companies both office and light manufacturing
space, which is reasonably priced. It has the potential to
house up to 26 different startup companies. It provides the
amenities found in most Business Incubators; internet access,
telephone service, conference and meeting rooms, shared copiers
and printers, and a shared commons area where tenants can meet
and network with each other. Additionally, in partnership with
our local Small Business Development Center, we offer training
sessions for tenants on subject areas related to running a
small business.
Additionally, this new Manufacturing and Business Incubator
facility is adjacent to our existing Advanced Manufacturing
Center, which houses our large machining center. The machining
center has state-of-the-art equipment such as CNC machining
centers, water-jet cutting, and an inspection metrology lab. An
Incubator tenant that may have a limited need for this type of
equipment may procure time on our equipment instead of buying
their own. Access to our capital machinery can help get their
business off the ground, while preserving their precious
operating capital.
We currently have our first client tenant in the
Manufacturing and Business Incubator facility. The company,
MatrixXcom, was recently accepted into the Mentor-Protege
Program by Homeland Security. We have two more companies that
we are currently working with to finish their product
development, before they move into the Incubator facility.
The fourth need, Talent, is almost universally in short
supply today. Companies across the country are saying that they
cannot find enough skilled workers to meet their needs. Our
parent organization, Florence-Darlington Technical College, has
its roots in training skilled workers for local industry. The
SiMT carries on that tradition; we provide customized,
workforce development, training solutions for client companies.
When a startup company needs to train a new workforce, or an
existing company desires to raise the skill level of its
current workforce to compete in a broader market, they can get
that specialized training at the SiMT.
In conclusion, as communities look for ways to create jobs
and drive economic growth, many are finding innovation to be a
key element, and startup companies to be the real job creators.
The Southeastern Institute of Manufacturing and Technology is
an initiative to support the innovators and entrepreneurs in
its home state of South Carolina, as well as the southeastern
region of the United States.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Good morning, Chairman Rice, Ranking Member Chu, and
members of the Subcommittee. I am honored to have been invited
to speak with you about Innovation as a Catalyst for New Jobs,
a topic very near and dear to my heart. Not only am I a
``recovering entrepreneur,'' but in my current roles as Co-
Chair of Startup Maryland and Executive Director of the
Maryland Center for Entrepreneurship in Columbia, Maryland, I
am fortunate to encounter innovation every day. People come to
us with incredible ideas and inventions looking for resources
to build them into a viable, sustainable business.
Raymond Cooper had such an idea but didn't know where to go
for support. He had filed a patent for his invention, an
innovative wind turbine that is smaller and more efficient than
current designs. From there, however, he wasn't sure which step
to tackle next or where to find the resources he needed. Not
until, that is, he stepped on the Startup Maryland bus. On the
advice of his mother who saw coverage of the bus on TV, the 39
year old came to Bethesda Maryland on the second-to-last stop
of our 2\1/2\ week trip across the state so he could pitch his
business idea. Little did he know that an unplanned visit to
the big yellow bus draped in the Maryland State flag would be
the catalyst that would launch his journey from a dreamer to a
doer.
Not an easy journey
Contrary to what many people may believe after seeing
phenomenal success of companies such as Google and Facebook,
this road between an idea and a viable business is highly
complex and full of risk. I know because not only have I been
down that road myself more than once, but I've also assisted
hundreds of entrepreneurs navigate the path from concept to
viable business. Unfortunately, not all of them make it.
What I have found is that while there are many different
paths to building a successful business and a myriad of
unanticipated opportunities to pivot along the way, we as a
community can and should provide assistance throughout this
process. Communities, by way of grassroots efforts and
strategic public/private partnerships, can increase the
probability of success and drive greater outcomes in revenue
growth and job creation by encouraging connections, promoting
and celebrating a culture of entrepreneurship, and facilitating
access to needed capital. This is exactly what we at Startup
Maryland were told when we asked entrepreneurs across the state
what they needed and what we've been focused on since we
launched in March 2012.
Startup Maryland - Pitch Across Maryland
Startup Maryland is a regional initiative of the Startup
America Partnership, and it is a great example of incredible
things being accomplished through grassroots efforts. Organized
BY entrepreneurs, FOR entrepreneurs we are very-much a startup
ourselves: we are all putting in a great deal of time without
getting paid as we have no money and no resources. However,
that's never stopped an entrepreneur and isn't stopping us. Our
focus for 2013, as shared at a White House briefing in
February, is to leverage the unique assets of Maryland to
provide entrepreneurial companies with the connections,
coaching and capital they need to start and grow while
celebrating the entrepreneurial journey. This will provide them
with an UNFAIR ADVANTAGE, ultimately increasing the rate and
scale of successes.
In 2012 we conceived of and executed a bus trip across the
state called Pitch Across Maryland that connected entrepreneurs
with the resources they need to be successful. The tour--which
made 25 stops through all corners of the state--was created as
a way to connect entrepreneurs with each other as well as
state, regional, and local resources while also shining a
spotlight on entrepreneurship through celebration and
awareness.
Pulling off something of this magnitude with a scant two
months of planning required collaboration with key sponsors at
each tour stop. A combination of universities, community
colleges, incubators, and economic development agencies stepped
up and customized the message and approach for the bus's visit
to meet their community's needs and pulled in their local
businesses to support and celebrate. Working through both our
network and those of our state-based partners, we were able to
exceed expectations in number of entrepreneurs reached and
still hear stories of valuable connections that were made as a
result of the tour.
The most impactful outcome for many has been the
connections that developed between the entrepreneurs
themselves. Grateful to have an opportunity to share their
passion for their ideas and businesses, the entrepreneurs we
met along the way used words like inspired, exhilarated,
motivated, and we can't leave out--relieved--to describe how
they felt after their experience on the bus. They were exited
to be connected to each other and to something bigger--the
community of entrepreneurs assembling as Startup Maryland as
well as their peers across the country through the Startup
America Partnership. A specific example of a fruitful
connection resulting from the tour was the partnership between
Startup Maryland and local startup CoFounderLab. CoFounderLab
created a platform that is the e-Harmony of startups, helping
entrepreneurs to build teams. Startup Maryland is now providing
this service to the community.
Maryland Center for Entrepreneurship
Bringing together a community of entrepreneurs was also
exactly what I was hired to do when the Howard County Economic
Development Authority, under the leadership of County Executive
Ken Ulman, formed the Maryland Center for Entrepreneurship, or
MCE. At the MCE, we are leveraging our resources and programs,
such as a technology incubator called the Innovation Catalyst
(iCat), a Speaker Series and an innovative program called the
Race for Innovation with the goal of ensuring members of the
ecosystem--entrepreneurs, innovators, investors, mentors and
service providers--are not only getting connected but are
engaging with each other in meaningful ways long before they
need to pursue formally working together. For example, we've
had mentors end up investing in or taking a position with our
companies, strategic partnerships being formed, and companies
finding new clients via the relationships they've built through
the community.
Creating a Culture of Entrepreneurship
Another key need in fostering innovation and
entrepreneurship is promoting a culture that supports it.
Stoking the entrepreneurial mindset runs through everything we
do at both Startup Maryland and the MCE but our environment
doesn't make it easy. Maryland has over 15 academic
institutions led by world-class innovators and
commercialization leaders Johns Hopkins and University of
Maryland. We have the highest concentration of employed
doctoral scientists and engineers and opportunities for high-
quality jobs at the approximately 20 government agencies and
over 50 federal labs \1\ in our state. Unfortunately, these
assets can provide significant career and earning opportunities
that mark a stark contrast to the realities of lean earning
while starting up a business. Additionally, some places consist
of an environment which encourages a mindset that can counter
and even deter people from considering entrepreneurship as a
career option. Continuing to promote not only entrepreneurial
successes and failures alike will make entrepreneurial role
models and realities more readily available and accessible.
This is especially crucial among under-represented groups and
by offering programs to specific affinity groups such the
ACTiVATE entrepreneurship program for mid-career women and the
veteran's entrepreneurship program, both supported financially
in part by private company sponsorships, the MCE is actively
working to spread the culture of entrepreneurship beyond
traditional boundaries.
---------------------------------------------------------------------------
\1\ Federal Labs Consortium, http://www.federallabs.org/labs/
results/?State=141
---------------------------------------------------------------------------
Funding Innovation
A business has no chance of being successful if it can't
bring in money from either customer-based revenues or outside
capital (dilutive and/or non-dilutive). There are many examples
of state and local funding made available to innovators and
entrepreneurs, but more can be done. For example, many rapidly
developing innovations rely on and could benefit from the
federal Small Business Innovation and Research (SBIR) grants
but the time and complexity to apply for and receive these
monies is often untenable for a startup who needs to move fast
to take advantage of market conditions.
Currently, there is also a large and growing gap between
idea conception and sustainable sales that every company must
go through and many don't survive without funding. Called ``The
Valley of Death'' (one of many for a growing company), it is
imperative that we help companies bridge that gap with more
seed-level and pre-revenue funding including access to
potential customers, large and small. One of the ways Maryland
is helping companies to cross that chasm is through the $84M
InvestMaryland fund that was created by offering insurance
companies tax credit. This fund is being deployed across the
state to be used to fill the funding gap, but is still too new
to quantify the results.
Call to Action - What Can You do?
The work of this Subcommittee is important. Having me and
my colleagues here today, shows you care about entrepreneurship
and innovation and hopefully appreciate its importance in
driving our economy. You are allowing us an opportunity to give
voice to all of those entrepreneurs who need a chance, like
Vasoptic Medical who is putting the ability to detect the onset
of diabetes-induced blindness in the hands of primary care
physicians; Unbound Concepts, who is helping level the literacy
playing field by getting tools into the hands of educators; and
Raymond Cooper, whose innovation could provide a huge leap
forward in the adoption of wind-based energy solutions.
It is crucial that we continue to support these nascent
companies and I respectfully offer the following
recommendations:
1. Provide outlets to spread the word about
entrepreneurial successes and failures, creating more
visibility for role models and reinforcing the value of
an entrepreneurial mindset.
2. Simplify the federal SBIR process to get much-
needed funding into the hands of the start-ups more
quickly. This could be an ideal project for members of
the Presidential Innovation Fellowship.
3. Encourage and expand seed and early-stage
investments that may be more risky than what a bank
would take on, even with backing from the Small
Business Administration (SBA). Example programs could
consider tax credits for seed-stage investors
(including the entrepreneurs themselves).
4. Facilitate key decision makers in the public and
private sector sharing their needs with innovative
companies. This outreach could also create a forum
whereby innovators share their concepts with CEO's and
Directors as they explore various types of partnerships
that could help drive increased revenue.
5. Create a start-up friendly track to permanent
residency for foreign nationals who obtain advanced
degrees in the United States, particularly those start-
ups that have independent backing from, for example,
the SBIR program, an SBA loan, adequate angel or VC
investment.
Thank you again for the opportunity to share my experiences
and thoughts around innovation as a job creator and I look
forward to answering your questions.
STEVE JOHNSON TESTIMONY BEFORE THE U.S. HOUSE COMMITTEE
ON SMALL BUSINESS, SUBCOMMITTEE ON ECONOMIC GROWTH,
TAX AND CAPITAL ACCESS: APRIL 18, 2013
Chairman Rice, Members of the Committee, ladies and
gentlemen:
My name is Steve Johnson and I am President and CEO of
CreatiVasc Medical in Greenville. Our company began full-time
operations in 2007 and we are focused on developing medical
device innovations for one of the most expensive chronic
diseases: End Stage Renal Disease, or kidney failure, which now
represents over a $47 billion burden on our healthcare system.
These patients must rely on dialysis to live but this costs
over $86,000 per patient per year. It is also a field that has
had little innovation in over 30 years.
CreatiVasc developed and now has in clinical trials at
Johns Hopkins an innovative device called the Hemoaccess Valve
System which has the potential to significantly reduce the
complications and cost of dialysis.
Last year, CreatiVasc was selected by the FDA to be one of
the three inaugural companies in the agency's new Innovation
Pathway program which is designed to accelerate the clinical
testing and approval of promising new technologies without
compromising patient safety.
Our company is in South Carolina, which has been
traditionally viewed as a ``fly-over state'' when it came to
innovation: you flew over us to get somewhere else like
Research Triangle, Palo Alto or Boston. Now, we are proud that
South Carolina is quickly becoming a ``destination site'' for
innovation. Over the last 6 years, over 280 technology-based
companies started up in our state.
What has caused this dramatic change?
One major stimulus has been a program created by South
Carolina Research Authority (or ``SCRA'') called ``SCLaunch''--
and while the state of South Carolina fostered the creation of
this program, not a penny of state funding has supported it.
This SCRA program provides tax incentives to encourage private
donations which are used to support early-stage innovation in
our state. This SCRA early-stage funding is provided only after
extensive and rigorous scrutiny of not only the technology but
its management team, its competition and patents as well as its
path to market.
Early-stage SCRA funds have triggered over $220 million in
follow-on capital from angel and venture capital investors, and
Forbes magazine named it as one of the top five economic
programs in the nation.
The SCRA program recognizes that capital is the fuel that
drives the economic engine. Capital transforms ``technology''
into ``products.'' This then translates into manufacturing
which generates jobs. But something has to prime that pump--and
most times, traditional soucres of capital such as banks and
now even venture capital funds, want to avoid the risk of
early-stage technology start-ups. Programs like SCLaunch fill
that vacuum. Without this program, most of these innovation
startups, including our own company, would not exist.
As a native South Carolinian, I fully recognize that our
state has rarely been at the top of any ranking. We usually
come in 48th or 49th. But that is rapidly changing when it
comes to encouraging, supporting and creating new companies
with breakthrough innovations.
Innovation is the key to economic growth because it is how
we can compete in a global marketplace. It is also how we
create good, high-paying jobs here at home. But for innovation
to succeed, there must be adequate capital to mature these
inventions from the lab to market. I can tell you from personal
experience that the greatest challenge is to find long-term
funding. Even though CreatiVasc was fortunate enough to be
selected by FDA to be one of the top three innovations for one
of the most expensive chronic diseases, it is amazingly
difficult to find capital, especially for medical devices which
take years to develop, test and get to market.
This is the opportunity for the future: to provide
attractive incentives that secure private investment to support
innovative but maturing technologies.
Thank you for this opportunity to speak about something
that I feel very passionate about--and I look forward to your
questions.
April 18, 2013
Contact information:
Steve Johnson, President & CEO
CreatiVasc Medical Incorporated
330 East Coffee Street
Greenville, South Carolina 29601
864-242-4700
www.CreatiVasc.com
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