Lawmakers Should Be Paying More Attention To Startups

25th November, 2016 by

Over the past decade we’ve seen startups become a leading force in the economy across all sectors. In fact, some of today’s biggest companies—Airbnb, Uber, Instagram—didn’t even exist ten years ago. From a consumer and business point of view, startups are now mainstream.

However, one area that has not caught up with startup culture is legislation. Even though startups have a completely different set of needs to, say, SMEs or big corporations, lawmakers have been stubborn about refining existing legislation and creating new laws which suit their unique set of needs. In many ways this has stymied innovation as some startups are prevented from reaching their full potential—or reluctant to expand into new markets—if they don’t know or aren’t sure how legislation will affect them in the future.

This uncertainty is not only a missed opportunity, but it’s also surprising given the significant contribution that startups make to the economy. In the US, it is reported that startups create 3 million American jobs each year and have served as the source for nearly all “net new job creation” since the 1970s. You’d think that lawmakers would be keen to help startups where it matters—in the wallet—but so far they haven’t.

However, encouragingly, we could see signs of that changing in the coming years with various pieces of legislation in countries that serve as startup hubs. One example is in the US, where the tax code is not only unsuited for startup entrepreneurs, but can actually prevent them from taking funding. As TechCrunch recently reported, “The House of Representatives recently passed a bill, the Empowering Employees through Stock Ownership Act, to allow startup employees to defer their tax liabilities on exercised stock options for up to seven years.  This change is welcome news for the entrepreneurial ecosystem and startup employees across the country who are forced to pay taxes immediately on phantom income they haven’t received.” This could change the very real problem of attracting new talent to work at the best companies because without it, as TechCrunch continued, “we run the risk of reducing the value of stock options as an effective incentive to attract and retain talent at America’s startups.”

Another area of legislation that really affects startup growth is immigration and work visas. Often, companies who are looking for a specific kind of expertise or talent pool can’t necessarily find it in their own country. It can be cost and time intensive to bring talent in from elsewhere under existing rules, which can thus prevent bootstrapped startups from doing so. What’s more is that foreign founders themselves may be deemed too risky by investors if they do not have a long-term immigration status sorted. However, there is a new proposal addressing this issue from the US Citizenship and Immigration Services. According to Bloomberg “The inelegantly named entrepreneurial “parole” would allow visa-less startup types to stay in the country for two years, with a possible three-year extension, if they own at least 15 percent of a U.S.-based startup formed in the past three years that’s raised $345,000 in investment capital.” One of the reasons this legislation is potentially on the table, Bloomberg notes, is the the fact that “immigrants have a strong track record launching Silicon Valley successes.”

Both of these examples point to the kind of progressive and reasonable legislation that is needed to keep apace with modern times and the internet economy. The way we do business has changed immensely in the past decade and a half, so to think that laws can stay exactly the same is foolish thinking.  

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