Startup America: Will Obama's New Initiative Live Up To Its Name?

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OBAMA
AP

WASHINGTON -- "This is our generation's Sputnik moment," declared President Obama in his State of the Union Address last week. As a result, we need to fund "a level of research and development we haven't seen since the height of the space race," with particularly strong investments in biomedicine, information technology, and clean-energy technology.

Reinvigorated, Obama's two-year old innovation agenda took one small step forward on Monday, as administration officials, business executives and entrepreneurs gathered at the White House to unveil the administration's Startup America Partnership, which aims to boost innovation and entrepreneurship in the U.S. by encouraging private investment in startups.

To kick off the initiative, the White House hosted an event featuring a panel that included AOL co-founder Steve Case and Carl Schramm, the President and CEO of the Kauffman Foundation, both of whom will oversee Startup America.

Case, the initiative's chair, is the second prominent business figure recruited by Obama in two weeks. Last week, the president named GE chief executive Jeff Immelt as head of a presidential advisory council on competitiveness.

At Monday's event, Case told the audience that even though the initiative is backed by the White House, it is a private sector endeavor that will largely run independently of the government's efforts to spur small business development.

"The last couple of years there was not as much of a focus on the entrepreneur," Mr. Case told the New York Times. "I applaud that the president and his teams have really pivoted and made it a real commitment for the next couple of years."

Schramm, one of the initiative's founding board members, joked in his speech on Monday that he had hardly any more Kauffman Foundation statistics to cite, as nearly every one of the preceding panelists had used at least one.

In designing the Startup America Partnership, the administration took cues from a slew of widely-publicized Kauffman studies released over the past few years which find that young, high-growth firms or so-called "gazelle" firms comprise less than one percent of all companies, yet generate roughly 10 percent of new jobs in any given year. Similar Kauffman research shows that net job growth in the U.S. over the past three decades is entirely driven by startups.

Yet in the beginning of 2010, American entrepreneurs formed new businesses at the second slowest pace in over 18 years. And a year later, the number of self-employed Americans has fallen for three straight months and is down 336,000 from a year ago, according to the Small Business and Entrepreneurship Council.

To help entrepreneurs turn new ideas into new businesses and new jobs, Obama's new initiative aims to encourage specifically those entrepreneurs with the potential to launch and scale "high-growth firms," defined by the White House as those firms that "average double-digit growth for a sustained period of time."

"This isn't to say that one or two-man plumbing shops aren't important to America's economic well-being," Fortune's Dan Primack points out, "but simply to acknowledge the greater value of a company that may someday be able to hire hundreds or thousands of workers."

"It's about investing in people who can change the world," Gene Sperling, director of the National Economic Council, told the audience on Monday, quoting Steve Case.

Sperlin, Case and eight other panelists announced the initiative's first 27 public and private commitments aimed at doing just that.

On the private side, Intel has committed $200 million to expand startup investment, IBM will invest $150 million in business mentoring programs and Facebook will launch a series of mentoring events across the country. Also participating is the startup accelerator and seed investor TechStars, which will expand its network of business "incubators" to include entrepreneurship boot camps across 20 U.S. cities, aiming to create 25,000 jobs nationwide by 2015.

On the public side, the SBA pledged $2 billion in small business loan assistance over the next five years, while the administration released a handful of policy suggestions, including a proposal to expedite the lengthy patent application process by charging applicants a "fast-track examination" fee.

The White House said the Obama Administration will also ask Congress to permanently eliminate capital gains taxes on qualified small business investments. Congress passed the tax elimination as a temporary provision under the small business bill in September, but the new proposal would make the tax break permanent.

However, to qualify for the tax break small businesses must have a net value under $50 million at the time of the investment, and be incorporated for at least five years. As Dan Primack notes, those qualifications effectively exclude the types of scalable, high-growth startups the initiative is designed to foster.

Primack is also unimpressed with the corporate investments announced under the partnership. He points out that Intel's $200 million investment basically maintains the status quo:

"Yawn. Reminds me of Intel's announcement last February that it and 24 VC firms would invest $3.5 billion in U.S. startups over two years. Isn't that what Intel and VC firms do already? In fact, isn't Intel typically the most active U.S. venture capitalist, via its Intel Capital arm? It would be as if the New York Yankees announced plans to, you know, play baseball games."

Several attendees at Monday's White House event shared similar sentiments that the new initiative was merely a PR stunt, pointing to rumors that, prior to the partnership with Startup America, Intel already had plans to invest $200 million, and TechStars was well overdue for an expansion.

In addition, some of the public programs proposed under the initiative were underway well before anyone had even heard of Startup America.

Brendan Buck, a spokesman for House Speaker John Boehner (R-Ohio) said in a statement that "it seems like the only thing being offered by the White House this morning is another catch phrase." Buck added, "Not until the administration is prepared to break down Washington barriers to job creation -- onerous mandates, costly regulations, and economic uncertainty resulting from massive budget deficits -- will we renewed confidence from American small business owners."

As some dismissed what they perceived as a thinly veiled press stunt, others showed signs of approval for Obama's new initiative.

During the White House's announcement on Monday, the U.S. Chamber of Commerce e-mailed a press release announcing a $1 million expansion of its entrepreneurship education plans. In the release, the Chamber said the money will "bolster the private sector component of the White House's new 'Startup America' initiative."