[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]


                 INNOVATION AS A CATALYST FOR NEW JOBS: 
                       SBA's INNOVATION INITIATIVES

=======================================================================

                                HEARING

                               BEFORE THE

        SUBCOMMITTEE ON ECONOMIC GROWTH, TAX, AND CAPITAL ACCESS

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                             JULY 14, 2021

                               __________

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]                               

            Small Business Committee Document Number 117-025
             Available via the GPO Website: www.govinfo.gov
             
                               __________

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
45-124                     WASHINGTON : 2021                     
          
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                   HOUSE COMMITTEE ON SMALL BUSINESS

                 NYDIA VELAZQUEZ, New York, Chairwoman
                          JARED GOLDEN, Maine
                          JASON CROW, Colorado
                         SHARICE DAVIDS, Kansas
                         KWEISI MFUME, Maryland
                        DEAN PHILLIPS, Minnesota
                         MARIE NEWMAN, Illinois
                       CAROLYN BOURDEAUX, Georgia
                         TROY CARTER, Louisiana
                          JUDY CHU, California
                       DWIGHT EVANS, Pennsylvania
                       ANTONIO DELGADO, New York
                     CHRISSY HOULAHAN, Pennsylvania
                          ANDY KIM, New Jersey
                         ANGIE CRAIG, Minnesota
              BLAINE LUETKEMEYER, Missouri, Ranking Member
                         ROGER WILLIAMS, Texas
                        JIM HAGEDORN, Minnesota
                        PETE STAUBER, Minnesota
                        DAN MEUSER, Pennsylvania
                        CLAUDIA TENNEY, New York
                       ANDREW GARBARINO, New York
                         YOUNG KIM, California
                         BETH VAN DUYNE, Texas
                         BYRON DONALDS, Florida
                         MARIA SALAZAR, Florida
                      SCOTT FITZGERALD, Wisconsin

                 Melissa Jung, Majority Staff Director
            Ellen Harrington, Majority Deputy Staff Director
                     David Planning, Staff Director
                           
                           
                           C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Sharice Davids..............................................     1
Hon. Dan Meuser..................................................     3

                               WITNESSES

Mr. E. LaVerne Epp, Executive Chair, KU Innovation Park, 
  Lawrence, KS...................................................     6
Mr. Benjamin Robert Johnson, Chairman, Innovation Advocacy 
  Council, Westerville, OH.......................................     7
Dr. Gabriel R. Burks, Vice President and Head of Research and 
  Development, FrostDefense Envirotech Inc., Champaign, IL.......     9
Mr. Jeffrey Maguire, Managing Partner and Co-Founder, Clearly 
  Clean Products, LLC, South Windsor, CT.........................    11

                                APPENDIX

Prepared Statements:
    Mr. E. LaVerne Epp, Executive Chair, KU Innovation Park, 
      Lawrence, KS...............................................    25
    Mr. Benjamin Robert Johnson, Chairman, Innovation Advocacy 
      Council, Westerville, OH...................................    29
    Dr. Gabriel R. Burks, Vice President and Head of Research and 
      Development, FrostDefense Envirotech Inc., Champaign, IL...    43
    Mr. Jeffrey Maguire, Managing Partner and Co-Founder, Clearly 
      Clean Products, LLC, South Windsor, CT.....................    46
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    The cost of `tax and spend' by Rep. Dan Meuser...............    50
    University City Science Center...............................    54

 
  INNOVATION AS A CATALYST FOR NEW JOBS: SBA's INNOVATION INITIATIVES

                              ----------                              


                        WEDNESDAY, JULY 14, 2021

              House of Representatives,    
               Committee on Small Business,
                   Subcommittee on Economic Growth,
                                   Tax, and Capital Access,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 1:10 p.m., in 
Room 2360, Rayburn House Office Building and via Zoom, Hon. 
Sharice Davids [chairwoman of the Subcommittee] presiding.
    Present: Representatives Davids, Newman, Bourdeaux, Chu, 
Evans, Mr. Kim, Meuser, Ms. Young Kim, and Van Duyne.
    Chairwoman DAVIDS. All right. Good afternoon, everybody. I 
am calling this hearing to order.
    Without objection, the Chair is authorized to declare a 
recess at any time.
    This is a remote hearing on innovation as a catalyst for 
new jobs, SBA's Innovation Initiatives Committee on Small 
Business, and this is the Subcommittee on Economic Growth, Tax, 
and Capital Access.
    So we have called the hearing to order.
    Let me begin by saying that the standing House and 
Committee rules and practice will continue to apply during 
remote proceedings. All members are reminded that they are 
expected to adhere to these standing rules including decorum 
when they are participating in any remote event.
    With that said, the technology we are utilizing today 
requires us to make some small modifications to ensure that 
members can fully participate in these proceedings.
    House regulations require members to be visible through a 
video connection throughout the proceeding, so please keep your 
cameras on. If you have to participate in another proceeding, 
please exit and log back in later.
    In the event a member encounters technical issues that 
prevent them from being recognized for their questioning, I 
will move to the next available member of the same party and 
the I will recognize that member at the next appropriate time 
slot provided they have returned to the proceeding.
    Should a member's time be interrupted by technical issues, 
I will recognize that member at the next appropriate slot for 
the remainder of their time once their technical issues have 
been resolved.
    In the event a witness loses connectivity during testimony 
or questioning, I will preserve their time as our staff 
addresses technical issues. And I may need to recess the 
proceedings to provide time for a witness to reconnect.
    And then finally, remember to remain muted until you are 
recognized so that we can minimize any background noise.
    In accordance with the rules, staff have been advised to 
mute participants only in the event there is an inadvertent 
background noise.
    Should a member wish to be recognized, please unmute 
yourself and seek recognition at the appropriate time.
    I will now move to my opening statement.
    For many years, America's innovative spirit has certainly 
propelled our nation to become the world's preeminent economic 
power. Our economic dominance in part was driven by Federal 
investment and research and development by prioritizing 
innovation, the federal government has financed inventions and 
discoveries that have benefitted the economy and improved lives 
across the globe.
    Innovations have also increased productivity, made American 
workers more efficient and lowered the price of goods and 
services. Unfortunately, since the 1970s, America has lost its 
footing as the world's most innovative nation. In fact, in the 
2021 Bloomberg Innovation Index, the U.S. fell outside of the 
top 10 entirely. This slowed pace of innovation has profound 
implications leading working Americans to experience wage 
stagnation or outright age reduction when adjusted for the cost 
of living. High barriers to entry are also stifling our 
entrepreneurial ecosystem. Over the years, geographic and 
demographic gaps have formed excluding many folks from creating 
new products or starting new businesses.
    Where a person is located heavily influences their economic 
opportunities. Economic clustering has limited the ability of 
Americans living outside of a handful of major metropolitan 
areas to develop new products. Women and minority groups are 
also frequently at a disadvantage when it comes to launching 
startups. On average, minority and female entrepreneurs have 
less access to capital and are more likely to rely on personal 
funds to finance their business. Minority entrepreneurs are 
approved for credit for their businesses at lower rates than 
that of their peers and are less likely to receive the full 
amount of their loan request.
    It is clear that too many Americans are being denied the 
opportunity to create new business. Boosting innovation and 
making the innovation ecosystem more inclusive will be critical 
for rebuilding our post-pandemic economy. Achieving these goals 
is going to require a sustained Federal investment and 
improving our innovative capacity.
    The CBO, Congressional Budget Office, reports that Federal 
investment can promote long-term economic growth, yet the 
Federal investment and research and development that we have 
seen has been steadily declining from its peak of 30 percent of 
Federal spending in the 1960s. Today, only 12 percent of all 
Federal spending and 2 percent of gross domestic product goes 
toward innovation. An investment in innovation is an investment 
in our country's future so it is vital that we are spending 
adequately at the Federal level. It is critical that we empower 
existing programs at the SBA to better reach and serve startups 
and entrepreneurs.
    For example, SBA's Office of Investment and Innovation, the 
OII, leads programs that provide high growth small business 
with access to capital and R&D funding to develop their 
products. These SBA programs are training entrepreneurs and 
providing them with mentoring and technical assistance so they 
can launch America's next great companies. Funding from 
programs under OII's umbrella has helped develop successful 
companies like 23 and Me, Qualcomm, Symantec, and Da Vinci 
Surgical Systems. And I hope that today's hearing is going to 
allow us to examine these programs and find ways to improve 
SBA's innovation initiatives to help create more startups that 
will benefit Americans and support our economy.
    As our country recovers from COVID, boosting innovation is 
going to be vital to getting our economy back on track. By 
focusing on expanding innovation to underserved entrepreneurs, 
Congress can certainly unleash economic potential that has long 
gone untapped.
    I am going to take this time now to yield to Ranking Member 
Meuser for his opening statement.
    Mr. MEUSER. Thank you, Madam Chairwoman. Thank you very 
much for holding this hearing today. Thanks to all for 
participating.
    Small businesses, entrepreneurs and startups are resilient 
organizations that continue to innovate and adapt to the 
everchanging marketplaces. Prior to COVID-19 pandemic, small 
business entrepreneurs were opening new factories throughout my 
district and throughout the commonwealth and the country. Along 
main street, hiring more workers, creating new jobs. 
Manufacturing the next great American products and services 
really with rapid speed. This was, prior to COVID, in large 
part due to the pro-growth policy agenda that created an 
empowering environment and empowering innovators and 
entrepreneurs to reduce regulations and independence in running 
a small business. After such a harrowing year for public health 
that resulted in state and local lockdowns, capacity 
restrictions and so many numerous challenges for small 
businesses, I do believe the entrepreneurship of the economy 
can thrive again if we make the right decisions to help create 
the environment to empower that growth.
    A recent survey of more than 2,500 Goldman Sachs 10,000 
Small Business participants found that 78 percent of small 
businesses believe 2021 will be better than 2020. That is good. 
But only 36 percent believe it will be better than the economy 
they knew before COVID-19 hit. That is not so good and 
hopefully, perhaps that is where we come in.
    The pandemic impacted businesses differently based on 
industry, longevity, location and other factors. However, 
meeting small businesses' workforce and capital needs will be a 
key to the continued recovery in all sectors.
    I believe this can be an American decade if we do, in fact, 
help unleash the power of the American innovators and 
entrepreneurs but we cannot do that under the yoke of 
untargeted unemployment compensation supplements, government 
mandates that do not make sense to business, higher taxes, and 
runaway inflation which just adds a cost to everyone.
    To this point, I recently wrote an op ed on the cost of Tax 
and Spend which I have submitted for the record. Unemployment 
incentives continue to plague small businesses with an 
unprecedented worker shortage. The U.S. Chamber of Commerce 
poll of the COVID-19 unemployed found that roughly 49 percent 
of Americans who became unemployed during the pandemic said 
they are not actively or not very actively looking for work. 
And 61 percent of respondents say they are in no hurry to 
return to work. There are various factors for this. We know 
with the randomness of school closures and just the fear of 
COVID and other societal factors, the NFIB June Jobs Report 
found that 46 percent of all small business owners reported job 
openings they could not fill. So that is the bottom line.
    As we continue to see small businesses place help wanted 
signs in their doors, and very often that help wanted sign is 
followed by $20 per hour or $19 an hour or $22 an hour, this is 
a prime reason innovation and productivity is being limited 
further and is on the decline.
    Small businesses across the nation are also feeling----
    Madam Chair, how am I doing on time?
    Chairwoman DAVIDS. For your opening statement, I do not 
think that you have a----
    Mr. MEUSER. I see. All right. Thank you. I do not want to 
go too long.
    But we are dealing with stretched budgets, higher cost of 
goods and supply shortages. Inflation is, of course, being 
something that is of great concern as stated, raising the costs 
of businesses. Business owners as early as this past April to 
May found that 80 percent of their cost of supplies are up 
compared to pre-COVID levels; 22 percent say that there are 
costs of increase by 25 percent or more. This is very 
concerning to the fundamentals of our economy and to the 
vibrancy of small businesses.
    As small businesses are reopening their doors to only be 
met with labor shortage and inflation, there simply cannot be a 
worse time to raise taxes on the American worker. President 
Biden's promise to repeal President Trump's Tax Cuts and Jobs 
Act would immediately raise taxes on small businesses by 
increasing marginal income tax rates and eliminating the 20 
percent small business deduction. By eliminating the TCJA, this 
would also decelerate the bonus depreciation. Limiting the 
ability for businesses to deduct on their capital investments 
in a 10-year window. It will be extended far past that.
    As well, capital gains is a big issue for small business. 
It directly impacts returns an entrepreneur will find in their 
work but also in the value of their companies. So investing in 
new ideas and gaining that access to capital would be mitigated 
and would have a higher level of risk and uncertainty. So 
reducing potential returns through higher capital gains tax 
does disincentivize investment and creates additional barriers 
to access to capital.
    So we must grow our opportunity for our nation's 
entrepreneurs, not government. The SBA's resource partners and 
innovation programs that are congressional authorized remain 
important and serve as a valuable tool to small businesses. 
However, we must continue to examine these programs closely to 
ensure they are effectively and efficiently serving small 
business entrepreneurs, delivering the value that small 
businesses need but also preventing waste, fraud, and abuse.
    I spent my fair share of time in the small business world, 
happened to grow a small business. I do know that is where you 
can learn the most by dealing directly with small business or 
being a small businessperson yourself, we as part of this 
Committee and as members of Congress in helping do all we can 
to create an environment for recovery and for long-term growth 
of small businesses certainly need to listen intently and 
respond favorably and that is why I am very pleased that this 
Committee has been pulled together and we have those testifying 
that we do.
    So with that, Madam Chairwoman, I yield back. Thank you.
    Chairwoman DAVIDS. Thank you, Mr. Meuser. The gentleman 
yields back.
    I would like to take a moment just to explain how the 
hearing is going to proceed. Each witness will have 5 minutes 
to provide a statement and each Committee member will have 5 
minutes for questions. Please ensure that your microphone is on 
when you begin speaking and then return to mute when you 
conclude your remarks or questions.
    With that, I will go through and introduce all of the 
witnesses. Mr. Meuser will introduce a witness as well, and 
then we will get started.
    So our first witness today Mr. E. LaVerne Epp, Executive 
Chair of the KU Innovation Park. As the leader of the KU 
Innovation Park, Mr. Epp has experienced and received several 
rounds of SBA growth accelerator fund competition awards. His 
work has helped many small businesses and entrepreneurs in my 
home state of Kansas here to achieve their dreams. And I am 
really excited to have them join us to share his expertise 
today. Welcome, Mr. Epp.
    Our second witness is Mr. Benjamin Johnson, the Chairman of 
the Innovation Advocacy Council (IAC). The IAC works to educate 
policymakers on issues related to innovation, economic 
development, entrepreneurship, and technology. Welcome, Mr. 
Johnson.
    And then our third witness is Dr. Gabriel Burks, the Vice 
President of FrostDefense. Mr. Burks's company is participating 
in the Enterprise Works Growth Accelerator, a recipient of the 
SBA Growth Accelerator Fund Competition Award. And I am excited 
to learn more about your company and how the growth accelerator 
has helped in its development. Welcome, Mr. Burks.
    And I will now yield to the Ranking Member to introduce our 
final witness.
    Mr. MEUSER. Thank you, Chairwoman.
    Our next witness is Jeffrey Maguire. Jeffrey Maguire is 
Managing Partner and Co-Founder of Clearly Clean Products, LLC, 
which invented, patented, and manufactures 100 percent 
recyclable food trays. Mr. Maguire also was a co-founder of 
Tabby Tools, which manufactures tile installation tools that 
are available nationwide through Lowe's home improvement 
stores. Additionally, he is a certified public accountant and a 
graduate of the University of Connecticut. This morning I did 
have the opportunity to tour Mr. Maguire's company at Clearly 
Clean's Frackville campus, their office in my district, and 
certainly saw firsthand the level of innovation, their 
technologically advanced manufacturing of their high quality 
and environmentally friendly products. Clearly clean is an all 
Made in America manufacturer that creates ecofriendly products 
with features that surpass non-sustainable alternatives which 
is very important, I think. The company holds the world's only 
patents of 100 percent recyclable PET. That is polyethylene 
terephthalate--perhaps I pronounced that right--overwrap food 
trays with a rolled edge. Since acquiring the first of many 
patents on a rolled edge tray in 2016, Clearly Clean has grown 
from three people to more than 200. Most of that growth has 
been in the last 3 years. Clearly Clean has been named the 
fastest growing manufacturer in Northeast Pennsylvania 2 years 
in a row and received the Ameristar Award and the Dupont Award 
for packaging innovation. Mr. Maguire, good to see you again. 
We all really appreciate you being here. Thank you for taking 
the time out from your busy day and from your business to 
answer our questions.
    And with that, Madam Chairwoman, I thank you and I yield 
back.
    Chairwoman DAVIDS. Thank you, Mr. Meuser.
    And thank you all again for being here and for your 
patience as we were getting everything going.
    We are going to go ahead and kick things off now. I will 
begin by recognizing Mr. Epp for 5 minutes.

 STATEMENTS OF E. LAVERNE EPP, EXECUTIVE CHAIR, KU INNOVATION 
 PARK; BENJAMIN ROBERT JOHNSON, CHAIRMAN, INNOVATION ADVOCACY 
COUNCIL; DR. GABRIEL R. BURKS, VICE PRESIDENT/HEAD OF RESEARCH 
    AND DEVELOPMENT, FROSTDEFENSE ENVIROTECH, INC.; JEFFREY 
    MAGUIRE, MANAGING PARTNER AND CO-FOUNDER, CLEARLY CLEAN 
                          PRODUCTS LLC

                  STATEMENT OF E. LAVERNE EPP

    Mr. EPP. Thank you. Good afternoon, everybody. And thank 
you for inviting me to offer comment about small business and 
innovation. And a special thank you and a warm Jayhawk greeting 
to Chairwoman Davids. Congresswoman, we appreciate your service 
to our state.
    You have all read and received my written testimony which 
describes the KU Innovation Park and the important role the SBA 
and particularly the growth the Accelerator Fund competition 
plays in supporting our work in innovating new technologies and 
starting companies. I will talk about some of those unique 
attributes that make that fund so important. But first I would 
like to begin with a brief story.
    Several years ago, a private, not-for-profit foster care 
agency in Kansas approached my colleagues at the KU Innovation 
Park. As part of its work in placing foster children, the 
agency developed an algorithm which through the identification 
of a field of dominant characteristics was able to match foster 
children with foster parents in homes. Match.com for foster 
kids. The effectiveness of these matches was validated by 
research conducted by KU's distinguished School of Social 
Welfare. What followed was the development of ECAP, Every Child 
A Priority, a software platform. It was an innovative solution 
that reduced replacement of foster kids, the cost of multiple 
placements, and in the process improves the lives of children. 
A new small business was born.
    Today, Foster Care Technologies has engineered over 25,000 
placements in numerous states and counties across the country. 
The company was created, capitalized, and managed by the KU 
Innovation Park and its small team of professionals. These 
resources were funded in part through the SBA and the Growth 
Accelerator Fund competition.
    Over the last 6 years, the Innovation Park has received 
over $200,000 through the Accelerator Fund competition. We have 
another pending grant today. We have used those funds to 
provide impact assistance to entrepreneurs who discover new 
technologies and then commercialize them. Innovating, producing 
jobs has become a catalyst for creating small businesses. Small 
businesses like ClaraBio Tech, another company that was created 
in the laboratory of former KU professor of chemical and 
petroleum engineering who, through her remarkable career, has 
become a prolific inventor. ClaraBio's technology helps enable 
medical breakthroughs using exosomes by solving the critical 
issues of purification and isolation. The applications of this 
technology are enormous, including early cancer detection. And 
with the help of the Innovation Park and our tea, the company 
recently achieved a major capital raise. The Growth Accelerator 
Fund competition was part of this important underwriting, 
giving the company resources and funding to acquire that 
capital.
    The Accelerator Fund's unique attributes serve small 
businesses like Foster Care Tech and ClaraBio. The fund is 
valuable because of its flexibility and minimal burden on 
entrepreneurs themselves. It is valuable because it is 
relatively free of restriction, allowing multiple uses with 
minimal tracking and reporting. And the Accelerator Fund 
competition is valuable because it supports organizations like 
the KU Innovation Park who work closely with early stage 
companies and develop intimate understanding of their needs and 
potential, usually at critical junctures in the company's life 
cycle. Companies like Foster Care Tech and ClaraBio are alive 
today in part because of the Growth Accelerator Fund 
competition.
    Thank you to each of you for recognizing the value of small 
business and the innovations that lie at the heart of their 
creation. They are worthy of your support and I thank you.
    Chairwoman DAVIDS. Thank you, Mr. Epp.
    Mr. Johnson, we are going to go ahead and go over to you. 
You are now recognized for 5 minutes.

              STATEMENT OF BENJAMIN ROBERT JOHNSON

    Mr. JOHNSON. Thank you very much. Good afternoon, 
Chairwoman Davids, Ranking Member Meuser, distinguished members 
of the Committee. My name is Ben Johnson, Chair of the 
Innovation Advocacy Council, a National Coalition for 
Innovation Based Economic Development. I am honored to join you 
here today.
    My work with small businesses started 17 years ago in 
Southern Indiana. Coaching entrepreneurs and making loans to 
businesses like painting, landscaping, catering services that 
lifted families out of poverty. And for the last 16 years in 
St. Louis, I have seen how growing an industry cluster around a 
community's innovation strengths can help transform a regional 
economy.
    But today I represent a broader network. The IAC is the 
policy arm of SSTI, which represents more than 150 
organizations across 44 states, including state and local 
economic developers, universities, nonprofits, and small 
businesses, all dedicated to creating a better future through 
science, technology, innovation, and entrepreneurship.
    Based on the successes of our members, I would like to 
present three principles that drive impactful economic 
development, especially through tech-based small business 
growth.
    One, job creation is best fostered through locally designed 
strategies that capitalize on unique regional strengths. Two, 
the needs of innovation-based businesses, and therefore the 
tools and talents necessary to support their growth, are 
different than traditional microenterprise or so-called main 
street businesses. And three, programs specifically targeting 
innovation businesses, like SBA's growth accelerators and 
regional innovation clusters, are necessary complements to 
other existing supports for traditional small businesses, 
especially in rural communities and among women and minorities.
    On principle one, my full-time job is with BioSTL, a 
consortium of 50 corporate, philanthropic, academic, and public 
sector leaders dedicated to leveraging St. Louis's research and 
industry strengths in medical and agricultural sciences. We 
capitalize on those strengths to build homegrown startups, 
attract innovation from across the globe, and harness 
entrepreneurship to foster a wholly inclusive ecosystem 
bridging urban and rural economies.
    In other communities, the strategies and sectors differ 
based on the assets and history and geography and population 
and even personality of each region. While the shorthand often 
is to build the next Silicon Valley, successful regions 
recognize there is only one Silicon Valley and the right mix of 
business supports and the right organizations to deliver them 
vary depending on the needs of the unique market.
    Second, innovation-based businesses create high-quality 
jobs and result in a higher standard of living. They modernize 
and diversify regional economies and they solve global 
challenges, like feeding a growing population, curing disease, 
addressing climate impact, and ensuring national security. But 
they are different. They vary in the type of support they need 
to mature a technology from idea to market. In capital raised, 
they often take longer to reach revenue and, so, traditional 
models of bank and even SBA financing often do not apply. And 
they vary in that their industry-specific networks must be 
deeper and more defined than the broad networks generally 
applicable to all types of business.
    Third, I do not envy my peers at the SBA and its resource 
partners. They must be generalists--triaging all types of 
businesses from pharma companies to flower shops, and that is 
where innovation focused programs augment the resources of SBA. 
Programs like the SBIR and SBA's Fast Program and especially 
growth accelerators and regional innovation clusters provide 
communities with the perfect complements to SBA's array of 
other activities. They are designed specifically to address the 
needs of innovation businesses. Recognizing there is no 
national economy; rather, a combination of regional economies 
that differ in their strengths and needs and no one type of 
organization positioned to support all the needs of all types 
of business. Growth accelerators, as you heard, catalyzes a 
wide array of small business supports. Clusters augments SBA's 
broad activities with specific, deep domain expertise. Allowing 
regions to define their own unique clusters enables growth of 
distinct and diverse communities across the country--from 
advanced wood products in rural Appalachia, Southeast Ohio; to 
smart grids in Chicago; and unmanned aerial systems and 
manufacturing in Kansas; to defense in Minnesota. Clusters are 
a unique glue that bring people together, that align business 
supports in a system and that augment the programs of SBA. But 
these programs need additional support and direction from 
Congress. Flexibility in the growth accelerator program to 
allow for a wider range of project types. And, clusters should 
be fully authorized, especially because a recent interpretation 
from SBA narrowed the eligible applicant organizations. 
Congress should provide clarity to establish a broad range of 
eligible applicants and allow freedom for regions to define 
their own types of support.
    Thank you for the opportunity and I look forward to more 
discussion and to questions. Thanks.
    Chairwoman DAVIDS. Thank you, Mr. Johnson.
    The Chair will now recognize Dr. Burks for 5 minutes.

                 STATEMENT OF GABRIEL R. BURKS

    Mr. BURKS. All right. So I am Dr. Gabriel Burks, Vice 
President of FrostDefense and Biotech, Inc. and post-doctoral 
research associate in the Department of Material Science and 
Engineering at the University of Illinois, Urbana-Champaign. I 
am delivering this testimony today on behalf of FrostDefense 
Envirotech Inc. positioning for more programs and Federal 
investments that support innovation and entrepreneurship.
    We are a national science foundation, SBIR phase one funded 
startup company who specialize in the development of polymer 
and analytics-based solutions to mitigate early spring frost 
damage in vineyards and other fruit crops. Late spring frost 
causes more economic losses to agriculture than any other 
climate-related hazards, costing growers more than $10 billion 
annually. And to quote one of our vineyard partners, ``We need 
a frost prevention and risk management technology like we need 
water for our vines and trees.''
    Our solution offers growers a nontoxic, biodegradable and 
environmentally--sustainable compound that delays bud break and 
increases the freeze resistance of tender fruit tissues while 
leaving a negligible carbon footprint.
    So more generally speaking, I have three points for this 
testimony. The first being innovation is expensive and we can 
look no further than TVs and how their cost has changed 
drastically over the past 10 years. But just as televisions 
have, the cost for innovation also drops over time as the 
technology becomes better and more developed.
    Point two. Tech startup success is elusive with failure 
rates as high as 63 percent but it has been shown that with 
proper supports the chances for success are greatly increased 
from these startups.
    And the third point is that pivoting for early stage tech 
startups frequently equates to success but funding and 
resources must be as flexible as the startup environment itself 
to serve the greatest benefit. What most people do not realize 
is that all great ideas require refinement and polishing to 
become viable solutions for society and that the problems that 
society faces today tend to be extremely complex.
    To give an example, our company tackles this problem 
minimizing the impact of frost on delicate fruit crops. One of 
the first questions we might have to ask is what crop? Every 
crop has a unique nutritional requirement, growing topography, 
growth rate, and response to environmental stimuli. Even 
without a singular crop type, in our case grapes, each variety 
also has great variance in those same factors.
    Another question we might ask is what frost? How do we know 
when and where a frost will occur in a given crop? And what 
constitutes a frost for the plants? Some crops can be more or 
less tolerant to these frost events than others.
    And then the third question, what product addresses these 
issues? You know, if it is a material solution like ours, you 
know, what is it made of? How long will it last on the shelf? 
Who will manufacture it and does it meet the regulatory 
requirements?
    And so the final, and probably most important question is, 
who is going to answer all these questions and where are they 
going to have the space and resources to answer them?
    So our team is extremely interdisciplinary in that it 
compromises a plant physiologist, a polymer scientist, 
atmospheric scientist, statisticians, agronomists, a systems 
engineer, a civil engineer, a data specialist among many 
others. And this list does not include our team of accountants, 
business managers, regulatory experts, attorneys, and other 
critical business experts.
    Our major successes as a company have come as a direct 
result of timely funding and support from several sources 
including university incubator, private and Federal.
    The University of Illinois Enterprise Works AWARE Proof of 
Concept Award, which is an SBA-funded initiative, enabled us to 
pivot at a critical time in our development. At the time of the 
award, our company had recently completed a field trial where 
we did not obtain the results that we expected but we did 
discover what we thought would be several key factors for our 
success going forward. AWARE Funding allowed us to quickly test 
our new hypotheses over a 3-month time period and develop a new 
version of our product that would be field tested again shortly 
after and be found to be a success. This success will go on to 
serve as the backbone for our petition for new funding.
    The startup world moves fast and this funding was available 
to us quickly and was sufficient for our necessary technology 
pivot. Without this funding, we may not have been able to 
develop and quickly test our new product ideas. We have a 
viable product today and have been able to stay on schedule 
with our company growth because we were able to change and test 
our product within a timeline synergistic with the grape 
growing season.
    Technology startups have traditionally been leaders in new 
job creation and the competitive salaries. If our company 
successfully moves on to phase two of the NSF SBIR program, our 
business will entail the creation of upwards of 20 new tech 
jobs with nationally competitive salaries. And when we move on 
to commercialize our product, this number will likely double.
    So finally, the COVID-19 pandemic has changed how we all 
have had to conduct business but our funding and infrastructure 
supports have given us a means to adjust to the circumstances 
of potential new partners.
    So with that, this testimony positions for more programs 
and Federal investments that support innovation and 
entrepreneurship for the sake of successful tech startups and 
the prospects of new job creation.
    So thank you all for your time and the opportunity to share 
with you today.
    Chairwoman DAVIDS. Thank you, Dr. Burks.
    Next, I will recognize Mr. Maguire for 5 minutes.

                  STATEMENT OF JEFFREY MAGUIRE

    Mr. MAGUIRE. Chairwoman Davids, Ranking Member Meuser, and 
members of the Committee, I am honored to have the opportunity 
to testify today on innovation's impact on jobs.
    My name is Jeffrey Maguire and I am a managing partner at 
Clearly Clean Products, LLC, which is based in Schuylkill 
County, Pennsylvania and has nine locations. Our company 
invents and manufacturers 100 percent recyclable food trays, 
most notably the roll over wrap tray. This patented tray is 
made from recyclable PET plastic and its rolled edge does not 
tear the overwrap film on packaging for meat, poultry, produce, 
and seafood. Our goal is to provide a sustainable option to 
foamed polystyrene, more commonly known as Styrofoam.
    When we began, we were told it would be like David versus 
Goliath. We invented an ecofriendly overwrap food tray that the 
industry said was impossible to manufacture up against an 
entrenched industry of big named companies. Fast forward to 
today and we are blessed with growing from three people to more 
than 200 people in less than 5 years and we are forecasting our 
sales to double in 2022 creating even more jobs.
    What is at the heart of our growth? Innovation. And what is 
at the heart of innovation? Patents. These Goliaths I mentioned 
are now imitating our product and we have been forced to take 
legal action to defend our patents. Time and money that could 
have been spent on innovation is instead being spent on 
protecting our patents from others who seek to capitalize on 
them. We won our first case but now our patents are being 
challenged at their very core at the U.S. Patent and Trademark 
Office via an IPR, by a large company with extensive resources. 
We are confident in our numerous patents and will continue to 
fight the good fight but not all small businesses can. What 
would be helpful is a policy that requires a company 
challenging the validity of a patent being an IPR to pay for 
the patent owner's legal fees if that challenge fails. Without 
this safeguard, small businesses are forced to dig deep and 
defend what was theirs all along and innovation suffers.
    Another challenge we face is difficulty hiring employees. 
We would hire 50 people today if we could but we cannot. The 
supplemental unemployment and stimulus checks are keeping 
people home. We are competing with the government and cannot 
afford to. Before the COVID-19 pandemic, we started employees 
at the higher end of the pay scale. Now, our daily debate is 
whether we raise our rates to an unsustainable level to attract 
new employees or we stop growing.
    We recently learned that one large company in our area has 
increased its wages to $25 an hour. Other large companies will 
likely follow suit. Small businesses like ours are caught 
between the government and the deep pockets of big business. In 
the future, when we face a similar situation, we recommend 
policies that including funding for small businesses to provide 
supplemental wages to the employees who continue to work. This 
would help stimulate the economy by providing bonuses to the 
working.
    What do the current policies do to small business? They 
force us to automate which means less jobs. They force us to 
raise prices, which means inflation. And they force us to 
throttle back growth which is no one's interest. And yes, 
innovation suffers.
    We firmly believe that Congress should enact a 
comprehensive solution to address the deteriorating 
infrastructure in the United States. However, that solution 
should not undue the competitive gains made through the Tax Cut 
and Jobs Act. The ability to write off capital expenditures 
such as equipment has been key to our success. But why is real 
estate treated differently? If the depreciable life for 
manufacturing plants and warehouses was reduced from 39 years 
to 10 years, then small businesses could accelerate 
depreciation which would enable quicker reinvestment.
    With many small businesses, Federal taxes are paid at a 
personal level. Increases in personal tax rates decrease the 
dollars available for reinvestment. So when Congress increases 
the personal tax rate, it punishes small businesses and once 
again, innovation suffers.
    In short, innovation flourishes when creativity meets 
investment and investment flourishes when policies enable 
growth. Increased taxes, paying workers to stay home, and legal 
fees associated with protecting already awarded patents are all 
counter to growth and disproportionately impact small 
businesses. We need to ask ourselves, are we a country that 
wants to leave innovation in the hands of the rich and 
powerful, or do we want to encourage fair competition and 
nurture small business? I know the SBA and this Committee 
believe the latter. Our only hope is that future policies 
continue to foster innovation and enable growth so that small 
businesses can not only compete with Goliath, but just like 
David, maybe one day even defeat Goliath.
    Thank you very much for your time.
    Chairwoman DAVIDS. Thank you, Mr. Maguire. Thank you to all 
of our witnesses for your testimony today.
    So I am going to start by recognizing myself for 5 minutes. 
And Mr. Epp, I am going to come to you first. Thanks for being 
here today. I have got a couple of things to bring up. I think 
I will start off by just saying Rock Chalk, Jayhawk. And then 
we will move on to something you obviously know a lot about. 
Venture capital funding is often centralized in coastal hubs 
leaving a lot of entrepreneurs outside those markets struggling 
to raise capital. I am curious about the approach that KU 
Innovation Park has taken to address that challenge. You talked 
about it a little bit in your opening remarks but would love to 
hear a little bit more.
    Mr. EPP. Thank you, Chairwoman.
    We do what many other early stage organizations do. We try 
to cluster investors that are interested. We have small 
investor groups. For instance, the Foster Care Technologies 
example that I provided. We assembled a small group of impact 
investors for that company and it fits very well for them. But 
a shortage of capital is a problem for us and we are constantly 
looking at new opportunities and new ways to raise capital for 
these small companies. One of the things that the State of 
Kansas has that is extremely valuable to us is called the angel 
tax credits which allow an investor to discount significantly 
its investment over a period of time and help the startup 
company at the same time.
    Chairwoman DAVIDS. Mr. Epp, I am sorry. Can we pause for 
just a second? Is anybody else having a hard time hearing? 
Okay.
    Can we put back, yeah. Can we put back like 30 seconds on 
his time and see if we can fix this echo? I do not know if that 
is what--I would call it something like a Darth Vader effect. 
Maybe, Mr. Epp, can you say something real quick?
    Mr. EPP. Yeah, my sound is really quite good. I mean, I can 
hear all of you very well. I do not have a problem, so. And I 
think I have not changed anything with my microphone, so I do 
not know what is happening.
    Let me make just one other comment, Chairwoman Davids and 
then I can be done. When you think ahead about the role that 
SBA might play in helping the early stage companies, some type 
of a venture fund or creating some type of incentive for 
venture funds would be very, very helpful because it can be 
seen for some of these very early age companies, and each of 
the witnesses today, Mr. Johnson, Dr. Burks, and Mr. Maguire 
all referenced that and I think that is extremely valuable.
    Chairwoman DAVIDS. Thank you, Mr. Epp.
    And actually, I am going to come to Mr.--sorry, Dr. Burks 
next. I would love to hear a bit about the experience you all 
had participating in a growth accelerator and how that 
participation impacted your business long-term from what you 
can see so far.
    Mr. BURKS. Right. Right. So being affiliated with the 
University of Illinois incubator has been tremendous in the 
sense that it has given us a home to conduct innovation, a 
place where we can do research, and the staff here is 
phenomenal. They surround you by business professionals and all 
these resources and, you know, their events and development, 
professional development seminars that are in alignment with 
early phase startup growth. So just being in that environment 
really helps accelerate our own growth. And then when we 
interact with other companies--if we want to form a new 
partnership or if we need to reach out to figure out 
manufacturing needs, just having a place that is solid and 
foundational for us is super, super key.
    And then with that, things like the SBA-funded Aware grant. 
This proof of concept award, it came from this incubator space. 
So all these opportunities to continue to push the idea 
forward. So if you do have a setback, it is not like you are 
alone. If you have an idea and you are alone, you are at home 
and then it goes away and you lose this whole company idea. But 
when you are supported by an incubator, you know, if you have a 
setback, you know you have someone there to say, oh, you failed 
here or something went wrong here. Do not worry about it. We 
have these resources or access to these resources and people 
that can kind of keep you going because as a startup, you know, 
there are all kinds of hurdles that come up but you do not know 
are going to come up and so being able to pivot and adjust to 
those different hurdles quickly is extremely important and 
extremely valuable for us.
    Chairwoman DAVIDS. And then Mr. Johnson, I just was curious 
from your perspective. You know, I often talk about the strong 
entrepreneurial ecosystem we have here in the Kansas City metro 
area. You spent a decent amount of time speaking about what a 
robust regional ecosystem can look like. I am just curious in 
this last like 45 seconds if there was anything else you wanted 
to add around that, you know, from your perspective of having 
been a practitioner and now working also on policy stuff?
    Mr. JOHNSON. Yeah. I think what you heard in my testimony 
and more in the written testimony is each region is unique. The 
Innovation cluster in St. Louis is different even than our 
neighbors in Kansas City, which is different than peers across 
the country. So, programs like the regional innovation clusters 
that allow regions to define what their strength is on their 
own, not a size fits all Federal model but where there is 
Federal partnership with local communities, that is where I 
think we democratize, for lack of a better term, the clustering 
that we typically see on the coasts or in metropolises and we 
bring that to the heartland. We bring that to rural 
communities. We better engage women and minority communities 
left behind in the tech economy. And so regional innovation 
clusters is unique and really can help drive innovation-based 
job growth.
    Chairwoman DAVIDS. Thank you. Thank you, Mr. Johnson. My 
time has expired.
    I will now yield to Ranking Member Meuser for 5 minutes.
    Mr. MEUSER. Well, thank you again, Madam Chairwoman. And 
certainly, thanks to all the testifiers. All of your opening 
statements were very interesting and appreciated.
    So Mr. Maguire, I will start with you. Good seeing you 
again, Jeff.
    So with your testimony, you talk about a difference related 
to the Tax Cuts and Jobs Act. And of course, with small 
businesses, it was a 20 percent small business deduction and 
clearly it creates a more competitive atmosphere for small 
businesses.
    So if that Tax Cut were to be repealed, what impact would 
that have on you and your employees?
    Mr. MAGUIRE. Congressman Meuser, all of the tax cuts that 
are proposed that really impact small businesses will impact 
the amount of money that we have to reinvest into our 
expansion. So everything that we have taken advantage of from 
the accelerated depreciation we have reinvested back into the 
business. And if those tax rates increase or some of these 
items change, then the amount of capital that we have available 
to reinvest has decreased because we will be using more of that 
money to pay taxes.
    Mr. MEUSER. The bonus depreciation is of particular concern 
to you and we discussed that earlier today. Could you elaborate 
a little bit on how advantageous that was to your company?
    Mr. MAGUIRE. Sure. Over the last year we added five 
production lines to our facility in Frackville. And through the 
rules that were available to us, we depreciated all of the cost 
of those assets against our income taxes. And that allowed us 
to invest it was upwards of $7.5 million in those lines to sit 
there and continue to grow our company. And since this 
Committee is talking about innovation, the only way to innovate 
is to have the available resources to innovate and to sit there 
and move forward. So that was the most key component of what 
was in the tax cut law for us because it allowed us to expand 
our company as quickly as we have.
    Mr. MEUSER. You obviously have some real smart people but 
that ability to invest in that technology, that was my next 
question. That had a great impact on your ability to innovate 
and be on the cutting edge with your products.
    Mr. MAGUIRE. Absolutely. I mean, we are in a sustainable 
part of the economy. I mean, we are trying to provide 
recyclable trays to food packaging companies. You will see them 
if any of the representatives go or Congress people go to their 
local grocery store, you will see it in the Chicken aisle or in 
that part of the grocery store. But those tax advantages were 
very helpful in allowing us to grow and then grow as quickly as 
we did. And without them, we would have reduced our growth and 
stopped moving forward because it would have been impossible 
for us to sit here and go out and obtain the capital that we 
needed to deal with the sales because every bank is going to 
sit there and look at you as how much are you selling, how much 
can you afford, and they were very helpful. We greatly 
appreciate them.
    Mr. MEUSER. Well, that is great. Well, it is imperative 
that we do not let those get repealed.
    And I was also interested in what you had to say about 
patents and the legal fees being the responsibility of those 
who were trying to infringe upon your patents. So hopefully 
that is something we can work on as well.
    I appreciate it very much. Do you want to say anything more 
about the patents?
    Mr. MAGUIRE. No. Well, I would tell you this. Patents for 
small business are really important for growth. I mean, both of 
the startups that I have bene working with, we had patents that 
we leveraged to sit there and grow our business. And if someone 
challenges your patent, if a plaintiff challenges your patent, 
I do not mind if they win and I am fighting, you know, and I 
lose, I will pay my fees if I lose. But if they challenge me 
and we win and their claim was not acknowledged.
    Mr. MEUSER. Basically a tort situation. All right, thank 
you.
    A quick question I would like to just ask Dr. Burks if I 
could. Doctor, can you just tell us what you think the biggest 
need for startup companies or growing companies? You had a lot 
to say there. Maybe you can just offer a quick comment on that.
    Mr. BURKS. I would say the biggest need, I think one of the 
biggest challenges we faced early on is, so because we saw a 
very big scientific or take problems, sometimes putting the 
initial teams together. You know, people, you know, you can get 
people to work sometimes volunteer. You may give away some 
equity to get them to volunteer to work with you but just 
getting those people in the beginning to even solve that 
problem or to get to a viable product, sometimes that can be 
kind of cumbersome. So assistance early on is important. And I 
would also add that the having the ability to pivot, like the 
fund allowed us to do, just that flexibility. So these 
different startup markets go quick and sometimes you need the 
money on some timeline that is not on that funding timeline. 
And so having the ability to get something quickly in and out 
and really continue to push forward and stay on schedule could 
be really, really important.
    Mr. MEUSER. Madam Chair, I am past my time. Dr. Burks, it 
sounds like red tape is not your friend, and as more of a 
businessperson, I can appreciate that very. So thank you very 
much, and I yield back
    Chairwoman DAVIDS. Thank you, the gentleman yields back.
    The Chair will now recognize Rep. Newman for 5 minutes.
    Ms. NEWMAN. Thank you, Madam Chair and thank you Ranking 
Chair for putting this discussion together. Always really 
helpful.
    So a couple of things. By the way, Mr. Maguire, I agree 
with you on your patent situation. It is okay to challenge 
things but then do not penalize people on the back end. So I am 
with you on that.
    Secondly, as we all know in the proposed increase for the 
largest of large businesses, it does not include small business 
just as a friendly reminder to everyone. So that is a good news 
report from my office.
    And then thirdly, what I would like to address with perhaps 
Dr. Burks is you made some interesting comments and I think 
this is so relevant. Being a former small business owner, 
getting the right people in the right jobs is critical. Right? 
And then knowing where to go and knowing where to go for the 
right resources, not just financial but expertise. Those are 
really critical things. So this is a blended question for Mr. 
Johnson and Dr. Burks. What if we extended the Community 
Navigator program that is currently in PPP and EIDL and some of 
the other SBA programs into an RFIC designated line item where, 
in fact, these incubator and business groups could get funding 
to give companies like yourself expertise in very specific 
areas. And sometimes it is HR. Sometimes it is accounting. 
Sometimes it is legal. Sometimes it is in innovation. So I will 
go to Dr. Burks first. Is that something that you think would 
be useful coming from that type of organization?
    Mr. BURKS. I think that kind of supplement would be 
tremendous. So in a way, the incubator space does that. Right? 
So we get help in paying to for business management. So we have 
personnel who can take care of so many different things and 
help us out. So from what I am hearing, it sounds like what you 
are saying is an extension of that but we may need a person to 
do some type of material development. A supplement to help us 
pay for these things that are expensive early on definitely 
helps us. And by the time we become sustainable as a business, 
hopefully we are able to cover those costs on our own but in 
the beginning it is a pain to pay those when you are trying to 
accrue funds.
    Ms. NEWMAN. Right. Right. So Mr. Johnson, if we were to 
propose something like that from this Committee, would that be 
helpful to give an addition line item for this group of what 
formerly was navigators but expanded to be other types of 
experts that are available to your members and your affiliates?
    Mr. JOHNSON. Yeah, I think the Community Navigator model is 
promising as a hub and spoken model to connect with SBA 
resources. For us in St. Louis, the regional innovation 
clusters program was sort of that original hub and spoke, 
Community Navigator program within our innovation cluster. 
Through the RIC program, BioSTL and our partners were able to 
support more than 2,000 entrepreneurs in their journey of 
starting their business, helping create 500 jobs and raising 
more than a billion dollars in capital, and we did that through 
a range of activities. Partnering to support Black would-be 
entrepreneurs with the Family Workforce Centers of American in 
urban/suburban St. Louis suburb, Wellston. Connecting small 
businesses at the intersection of biosciences and IT and 
advanced manufacturing with St. Louis Makes and ITEN. Working 
with our innovation community, Cortex, on providing small 
business training and counseling. And then launching a network 
of growers and producers in rural communities to connect urban 
and rural communities--ag innovation in urban St. Louis with 
the growers and producers in rural Missouri who are bringing 
those to market. All of that connected with our partners at the 
SBDCs, the veteran business outreach centers, the women 
business centers, navigating community resources in an area of 
unique strength in St. Louis for us medical and agricultural 
sciences. So I think with the Community Navigator model being 
promising, I think authorizing and bringing additional 
resources to something like the Regional Innovation Clusters 
Program that has been, not just promising but, effective in 
meeting communities is a unique opportunity.
    Ms. NEWMAN. I agree. And maybe I tis just a model that has 
worked very well and we need to scale. So good food for thought 
from my office and I appreciate all of the guests that shared 
their thoughts today. And thank you to Dr. Burks and Mr. 
Johnson for your thoughtful answers.
    And I yield back, Chairwoman.
    Chairwoman DAVIDS. Thank you. The gentlewoman yields back.
    The Chair will now recognize Rep. Young Kim for 5 minutes.
    Ms. YOUNG KIM. Thank you Chairwoman Davids and Ranking 
Member Meuser. I want to thank the witnesses for being with us 
today.
    My district is California's 39th District and the suburban 
area in North Orange County, LA and San Bernardino counties. 
And this is the area that I represent and that is home to a 
robust startup and entrepreneur community.
    In 2020, the LA area startup ecosystem had approximately 
$3.5 billion in early stage funding for new startups. But in 
contrast, the average startup ecosystem globally received about 
$431 million in early stage funding for new startups. And in 
Orange County, early stage venture capital investment has grown 
from $107.5 million in 2010 to $404.2 million in 2019. 
Unfortunately, the administration's proposal to increase taxes 
on long-term capital gains will likely disincentivize 
investment on our entrepreneurs. So I am concerned that the 
proposal to increase the marginal tax rate will punish small 
businesses categorized as pass through entities such as sole 
proprietorships. It is worth noting that 95 percent of 
businesses file their taxes as pass-through entities.
    So let me pose this first question to Mr. Johnson. If the 
Biden administration's proposal is enacted, the U.S. could have 
the highest top capital gains tax rates among OECD countries. 
So can you describe what a higher capital tax rate would do to 
early stage funding?
    Mr. JOHNSON. Thank you very much, Congresswoman Kim. Tax 
rates are important, as are programs and investments into 
entrepreneurship ecosystems. The Kauffman Foundation and the 
national Start Us Up Coalition in their American's New Business 
Plan outlines the both/and of policies that create an 
environment to provide opportunity for entrepreneurs, a level 
playing field, reduced red tape tax issues, funding the right 
kinds of capital at the right time, the knowledge of how to 
start a business and the types of supports that we are talking 
about here today with the SBA, and support for the opportunity 
to take a risk. From our entrepreneurs, we do not often hear 
about tax issues being their top issue. It certainly is most 
likely an issue. We heard from Mr. Maguire about the challenges 
he has faced. What we more often hear, what really bubbles to 
the top, is that they need support. They need help in 
developing their business model and de-risking their 
technology, turning that idea into a new product, into new 
jobs, in connecting with sources of capital, being able to 
compete globally for capital and bring it into their community. 
So the policy environment, it needs to be a both/and, how do we 
reduce regulation? How do we reduce red tape? How do we balance 
taxes with investments and supports in ecosystems.
    Ms. YOUNG KIM. Thank you, Mr. Johnson. I want to stay on 
the topic. And let me pose the same question to Mr. Maguire. 
Would you agree that a higher capital tax rate puts our 
entrepreneurs and startups at a competitive disadvantage 
compared to other countries? And can you cite an example?
    Mr. MAGUIRE. Well, absolutely. I mean, I do not care if you 
are a Republican or a Democrat, no one wants higher taxes. We 
all needed to decide what the balance is for everyone out 
there. If you are asking me if the capital gains rate will 
impact investment in companies, absolutely it will. Will it 
stop investment in other companies? No, it will not. I mean, we 
are still going to go out and work hard to sit there and try to 
make our businesses successful. What I think is more important 
is what you said before, 95 percent of taxable entities. Once 
you start messing with taxable gains and the personal income 
tax rate you are going to impact every small business. I do not 
care if it is a barber shop or if it is Clearly Clean products. 
You will start impacting them negative.
    Ms. YOUNG KIM. Sure. I know I have got a little time left. 
So Mr. Maguire, I really appreciate your testimony as you 
talked about the difficulty in hiring employees but I also give 
you a lot of kudos from growing from a very small three 
employees to over 300 employees and that is because of your 
innovation and creativity. But I also wanted to talk to you 
about the recent CPI that rose to 5.4 percent In June compared 
to a year ago. This is the highest inflation numbers in 13 
years. So can you tell us how the increase in prices and 
inflation impacts your small business?
    Mr. MAGUIRE. You are going to see inflation. I do not think 
anyone on this Committee should sit there and not thing we are 
going to see inflation. In our business, specifically, we are 
seeing between 15 to 30 percent increases in our raw material 
costs and in some of our supplies that are required to sit 
there and put our product out there at market. It is coming. 
Third quarter, fourth quarter you are going to see it. I do not 
think there is any getting away from it. Your CPI, where it is 
at right now is not where it is going to be in the fourth 
quarter and the first quarter of 2021.
    Ms. YOUNG KIM. Well, thank you. I see my time is up, so I 
yield back.
    Chairwoman DAVIDS. Thank you. The gentlewoman yields back.
    The Chair will now represent Rep. Chu from California for 5 
minutes.
    Ms. CHU. Thank you so much.
    Mr. Epp, I am so glad to hear of the success that your 
Innovation Park has had as a growth accelerator, and I want to 
ensure that startups and small businesses that are growing in 
these accelerators also have access to private investment. That 
is why 2 weeks ago I reintroduced H.R. 4256, the Investment in 
Main Street Act with my colleague, Representative Garbarino. 
This legislation would enable banks to dramatically increase 
their share of the capital and surplus that can be invested 
into SBA certified SBIC or small business investment companies 
from 5 percent to 15 percent. Last year, SBICs made nearly $5 
billion in leverage and investments for over 1,000 small 
businesses. Unlike many private venture capitalists, SBICs are 
backed by the SBA, and last year made one quarter of their 
investments in underserved businesses showing that these SBICs 
are well-suited at funneling capital to the businesses who need 
it most.
    So can you talk about the importance of private investment 
for the startups you work with and how SBICs can help them grow 
and succeed?
    Oh, can you unmute? Please unmute.
    Mr. EPP. Can you hear me now, please?
    Ms. CHU. Yes.
    Mr. EPP. I switched to another channel because I was having 
trouble before using my phone which is why you saw the mute 
engaged there. Is the sound better now than it was before?
    Ms. CHU. Yes, it sounds much better. Yes.
    Mr. EPP. Okay, thank you. And thank you for your support, 
Representative Chu and for the work that you are doing, 
particularly with the legislation that you have proposed. I 
think that is extremely helpful.
    Small company investors are always looking for match 
funding and they often do not want to be first in. And so any 
kind of support that can be provided in this kind of way can be 
extremely helpful because it kind of opens the gate. It kind of 
opens the floor gates. And once one investor is in with some 
match funding or whatever, it is very easy to attract--well, 
not easy but it is easier to attract other investors. So the 
focus on venture capital and kind of creating a unique package 
with Federal funding around creating those venture clusters and 
those venture packages is very, very effective. And thank you.
    Ms. CHU. Well, thank you for that.
    Mr. Johnson, in April, I reintroduced my legislation, H.R. 
2680, the Providing Real Opportunities for Growth to Rising 
Entrepreneurs for sustained success, the Progress Act. This 
legislation would support the smallest businesses, those 
without any employees by helping them expand and incentivizing 
third-party investment, the legislation would create a 
refundable payroll tax credit for nonemployer firms that hire 
their first full-time employee and an investment credit to 
encourage third-party capital investment into nonemployer 
firms. Nonemployer firms are much more likely to be owned by 
women, and female entrepreneurs on average stat out with 
roughly half the capital as male entrepreneurs.
    So could you talk about how incentivizing third-party 
investment into the smallest of businesses and helping startups 
to hire their first full-time employee can improve outcomes for 
innovative small businesses?
    Mr. JOHNSON. Thank you very much and thank you for your 
support of the Progress Act.
    With the entrepreneurs that we support and serve, we see 
that hurdle of hiring the first employee is often one of the 
largest challenges, accompanied with de-risking technologies 
and trying to bring talent on the team as Dr. Burks referenced, 
that paving the way to hire the first employee is a big gap. 
And so anything that can help bring a hire to an individual 
sole practitioner is important. We know from data that all new 
job growth in the country over the last decade is from new 
businesses, businesses that are less than 5 years old and 
helping them start a hiring process, helping them grow can be 
really critical. For us, as an example, we used our RIC dollars 
and our growth accelerator dollars to support an entrepreneur, 
Jennifer Silva, a cofounder of Senti-AR, helped secure $2.25 
million in SBIR funding that was then able to be leveraged and 
matched with more than $3 million in private venture capital 
that enabled them to grow the team, de-risk the technology, and 
bring to market a new, real-time augmented reality in the 
operating room to help with invasive surgery, in particular 
cardiac arrythmia when you have an irregular heartbeat. And 
that hurdle to be able to leverage those dollars to hire the 
first people to the team, to bring on sales and regulatory 
expertise was really critical.
    Ms. CHU. Thank you. I yield back.
    Chairwoman DAVIDS. Thank you. The gentlewoman yields back.
    The Chair will now recognize Rep Van Duyne from Texas for 5 
minutes.
    Ms. VAN DUYNE. Great. Thank you.
    I have been having a hard time with my volume so I am 
hoping that you guys will be able to hear me. If not, I can 
dial back in.
    But I want to thank you, Chairwoman Davids and Ranking 
Member Meuser for holding this hearing today.
    This past Tuesday, the Labor Department reported its 
highest 12-month consumer price index increase since August 
2008. In addition, in June, the National Federation of 
Independent Businesses found that the number of small business 
owners raising prices was the highest since 1981. A third of 
small businesses are facing supply chain disruptions. Nearly 
half of those businesses have job openings they cannot sell.
    As a former small business owner and entrepreneur, I can 
tell you that no counseling or training can overcome tone deaf 
settlement policies. Innovators must understandably cross a 
high bar to succeed but the federal government should not raise 
that threshold by threatening higher taxes and paying a 
qualified work force to stay unemployed.
    I want to reiterate that point for those who have never run 
a business before. It is incredibly difficult t run a business 
with thin margins when you cannot hire workers, and much needed 
dollars are sent to Federal coffers instead of reinvestment in 
innovation.
    At the beginning of 2020, the small business economy saw 
record levels of optimism and production. And my Republican 
colleagues and I understand that the best way to support 
innovation and entrepreneurship is getting the government out 
of the way. Unfortunately, this point seems to be lost on the 
current administration. There is no doubt that COVID-19 was a 
disaster for small businesses. In a time of crisis, the federal 
government responded but this pandemic is ending and we need to 
empower Americans to transition back to back. The government 
cannot continue to hold businesses and the workforce back 
through their failed policies. The strength of the American 
economy is in its innovate and the key to innovation is in the 
American people. If we want to spur innovation, the simple 
solution is to get government out of the way and let people 
prosper.
    And with that, I want to thank Mr. Maguire for his 
testimony today. You talked about your company's rapid growth 
in hiring. Do you think that that growth would have been 
possible in today's labor market? And do you think that the 
economic environment today compared to what it was before the 
pandemic is more or less friendly to small business innovation?
    Mr. MAGUIRE. Well, with COVID-19 it has been an extremely 
difficult challenge. So, you know, it was easier to hire before 
the pandemic. And in 2018, there is no doubt about it. We have 
gone through an incredible phase in trying to deal with our 
situation and trying to have the appropriate people on the 
production line to make things work but there is no doubt that 
it has been more difficult, much more challenging right now. 
And the current situation, you know, I do not see it getting 
better for the next 6 months.
    Ms. VAN DUYNE. In your testimony you had said something I 
found really interesting. Innovation flourishes when creativity 
meets investment. When you think about the tax proposals coming 
from this administration, how do you think they would affect 
not only your margins but small business capital at large?
    Mr. MAGUIRE. Oh, it is going to be extremely difficult 
because most small businesses are self-funded. I mean, you may 
sit there and think that small businesses have the ability to 
go out and get resources and all of the other panelists that 
are talking, it is incredible. The opportunities that you 
provide to entrepreneurs is phenomenal. I applaud every one of 
you, and Dr. Burks, I applaud you the most. But I wills It 
there and will come back to you and I will tell you, it is 
extremely hard. and you will not be able to build a business in 
the environment that taxes are increased because we took every 
penny of our savings and put it back into our business. And 
that is really how most small businesses work. I mean, you 
work, you try to make a profit, you use that profit to build 
your business and you continue to do so. And if you change the 
rates and if you change some of what is going on out there, it 
is negatively impact small businesses and there is no two ways 
about it.
    Ms. VAN DUYNE. So without sacrificing ay of the waste, this 
is for Mr. Epp, without sacrificing any of the waste, fraud, 
and abuse protections that need to be required, how can we 
eliminate some of the paperwork burden for small businesses 
participating in SBA's innovations programs?
    Cannot hear you. Mr. Epp? Can anybody else hear him?
    Mr. EPP. Can you hear me now?
    Ms. VAN DUYNE. I can hear you.
    Mr. EPP. Can you hear me?
    Ms. VAN DUYNE. Yeah, I can hear you.
    Mr. EPP. Can you hear me now?
    Ms. VAN DUYNE. Yes.
    Mr. EPP. I am sorry. I am still trying to figure all this 
out.
    You know, as I mentioned, that is one of the really very 
good attributes about the accelerator growth competition is the 
minimal restrictions on it, the minimal paperwork that is 
required. I am sorry to be so picky but more of that.
    Ms. VAN DUYNE. All right. Thank you. I yield back my time.
    Chairwoman DAVIDS. Thank you. The gentlewoman yields back.
    The Chair will now recognize Mr. Evans.
    Mr. EVANS. Thank you. Thank you, Madam Chair. Thank you, 
Ranking Member.
    The question I would like to ask is to Dr. Burks. Access to 
capital is a persistent issue for small businesses and 
entrepreneurs, and particularly for Black businesses and women. 
What types of funding have you utilized?
    Mr. BURKS. Good question. As a startup, you usually use as 
much as you can find but we have been able to utilize funding 
from the University of Illinois. Probably our largest supporter 
is Federal. The National Science Foundation SBIR funding, so we 
are in that pipeline. We are a phase one SBIR funded company at 
this point and we are in advanced review for NSF SBIR phase 
two. Those are the largest funding sources that we have 
received thus far. We have also received the Proof of Concept 
Award through the Illinois incubator which is an SBA funded 
initiative. And for certain aspects of like development we have 
gotten support from private vineyards. So vineyards who believe 
in our product. You know, the problem we are trying to solve is 
extremely huge, so the vineyards that could benefit from our 
product being a success, they have been giving us resources, 
whether it is manpower, whether it is access to data, whether 
it is equipment and to space on their farms to do work. We had 
an international partner who we could not pay for but they put 
the money up to fund us to do a field trial at their site 
internationally. So I would say those are our primary sources. 
But without the government funding, particularly the SBIR, I 
mean, none of this would be probably possible because that has 
funded salaries, that has funded initial material costs, that 
has funded personnel. It just goes on and on what it has 
funded. And it has given us the ability to be housed in this 
incubator in a way because we have to pay rent to the incubator 
for our laboratory space and so that has paid for all of that. 
So the NSF SBIR has been tremendous and huge as part of our 
funding.
    Mr. EVANS. Let me follow up a little bit. How does this 
work? Can you talk a little bit about it?
    Mr. BURKS. How does what work?
    Mr. EVANS. How does the Committee, in terms of the funding 
issue, how does it work? As you said, you are housed in the 
incubator. How does it work?
    Mr. BURKS. So it is a long process but the incubator 
recognized our idea as something that had a lot of potential, 
so that gave us access to the incubator. And in the beginning 
the incubator has funds available to house us there. And then 
from there you continue to grow your pot for other funding and 
then that is where the NSF funding came into play. We also had 
NSF I-Corp, which involved going out to do customer discovery, 
figuring out what the customer needs are. There was funding 
involved in that to kind of also help offset costs of being in 
the incubator. But then in our world for like material tech 
startups, you know, if you get the NSF SBIR it is a huge, like 
that is like you kind of made it in a way. And so from there 
you use that funding to continue to develop your efforts in 
this incubator. And the hope for the incubator is that they can 
give you all the resources that you need so that you can 
eventually fly away on your own and be able to be a self-
sustaining business. So we have to apply. And so the NSF SBIR 
has a vetting process where basically we submit our idea in an 
organized, scientific way and it is vetted by other scientists 
for its technical feasibility and then after that it is kind of 
vetted from a financial standpoint to see if it is financially 
suitable, like our money and things like that add up and we are 
a responsible company in our accounting practices. So, but it 
is nice because it is scientifically vetted first, which means 
there is a higher likelihood that what we are proposing is 
going to be technically successful going forward. And then as 
we all know, all the business owners here know, you know, just 
because you are a good scientist does not make you necessarily 
a good businessperson. So then there is this leap that we also 
have to make to become good businesspeople or to hire good 
business people or to have good business advisors to help us 
grow in that capacity as well.
    Mr. EVANS. I would like to thank you, Dr. Burks.
    I yield back the balance of my time, Madam Chair.
    Mr. BURKS. Thank you.
    Chairwoman DAVIDS. Thank you. The gentleman yields back.
    I want to start off by saying thank you to all of our 
witnesses today. I definitely appreciate you being here. Your 
compelling testimony has certainly helped shed light on the 
importance of SBA's innovation initiatives. And of course, as 
always, input from stakeholders, folks like you, it is critical 
as we make our innovative ecosystem more inclusive and prolific 
here in this country. Obviously, we have more work to do if our 
country is going to reclaim the title of world's most 
innovative. Small businesses are going to play a critical role 
in achieving that and that is why we have to work together on 
this Committee to ensure the SBA programs have the support that 
they need to guide entrepreneurs and ensure that they have the 
support they need to support the entrepreneurs with what they 
need. So, I am looking forward to working with members on this 
Committee to ensure that these programs are operating at their 
full potential and serving small businesses effectively.
    And with that I would ask unanimous consent that members 
have 5 legislative days to submit statements and supporting 
materials for the record.
    Without objection, so ordered.
    And if there is no further business to come before the 
Committee, we are adjourned.
    [Whereupon, at 2:28 p.m., the subcommittee was adjourned.]
                           
                           
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