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STATEMENT

Of the Honorable Nydia Velazquez, Ranking Member

Committee on Small Business

“The Startup Movement”

Wednesday, November 20, 2013

Thank you, Chairman Graves.

When we think of a startup business, the early days of Apple or Google usually come to mind.  Their stories are familiar – hard-working entrepreneurs who took extraordinary risks to beat the odds.

Like these companies, most successful startups have three things in common:  a new product or service, extreme risk-taking due the uncertainty of the marketplace, and leadership that can navigate the complexities of today’s economy.

Getting these three factors to align is the hardest part.  On average, only one in three startups makes it to their tenth year.  But when they do, high-growth firms create new markets, increase competition, and attract other enterprises to provide support.

As a result, startups have a disproportionately positive impact on job creation. According to the Census Bureau, they create jobs at nearly twice the rate of the nation's annual net job growth rate.  By starting new endeavors and developing cutting-edge products, entire industries, as well as the overall economy, are renewed and energized.  During today’s hearing, we will have an opportunity to examine the unique role that entrepreneurs and startups have played in the current economic recovery.

One of the biggest obstacles facing startups is the lack of financing.  According to the most recent Wells Fargo/Gallop Small Business Index, 30 percent of small business owners still feel credit is difficult to obtain.  Capital is the lifeblood of small businesses, but particularly for startups and high-growth businesses that do not yet have positive cash flow.

Traditional bank lending, via loans, is ill-suited to the high-risk nature of startups. Fortunately, there are still a multitude of funding sources for new firms to choose from, including the SBA’s SBIC program, Angel investors, Private Equity and Venture Capital, and Crowdfunding.

Another area critical to the success of a business is technical assistance.  SBA’s programs assists entrepreneurs by providing tailored education on everything from marketing, to procurement, to international trade.  For a startup, this expertise can often make the difference between failure and long-term growth.  These initiatives, like the Small Business Development Centers, have proven to be effective in delivering counseling and assistance to millions of entrepreneurs across the country. 

While the SBDC network is the SBA’s largest entrepreneurial assistance program, it nevertheless faces challenges.  With lower budgets and increased levels of demand, it is between a rock and a hard place.  The burden of federal budgets should not be placed on the backs of job creators who rely on these resources to succeed.

Bringing new products to unproven markets is inherently risky.  As a result, startups face a number of unique challenges obtaining financing, managing operational processes, and addressing human capital issues. Today we will hear from experts on the cutting edge of the startup movement who can provide insight on the best ways to support the innovative spirit of America.

In advance of the testimony, I want to thank all the witnesses who traveled here today for both their participation and insight into this important topic. 

Thank you and I yield back.

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