Policy eNEWS - 11.7.11
CONNECT hosts San Diego start-ups Ridge Diagnostics and eemRa to testify before House Committee hearing on innovation
Continuing a series of hearings on innovation and entrepreneurship, the House Oversight and Government Reform Subcommittee on TARP and Financial Services held a hearing entitled "America's Innovation Challenge: What Obstacles Do Entrepreneurs Face?" CONNECT's D.C. Office was able to secure two former Springboard graduate companies to testify on behalf of San Diego's innovation start-up community. Lonna Williams, CEO of Ridge Diagnostics, and Tsvi Goldenberg, CEO of eemRa, both explained to the Subcommittee the breakthrough technologies their companies have created and the challenges they face raising capital. The hearing was chaired by Subcommittee Chairman Patrick McHenry (North Carolina) who is the sponsor of a House bill to allow "crowdfunding"—a new financing model that uses social media to amass mini-investors making investments of $10,000 or less.
Ms. Williams explained that Ridge Diagnostics is an early-stage life sciences company with the mission of developing objective, diagnostic and therapy management blood tests for neuropsychiatric disorders. Williams explained how their blood test for depression could substantially bend the healthcare cost curve down since depression is regularly misdiagnosed. In addition to being a Springboard graduate, Ridge was a CONNECT Most Innovative Product Award finalist in 2010. Williams stressed that it is imperative that start-ups and emerging companies find new avenues to raise capital because it is the emerging companies that can create high-paying jobs quickly. Williams echoed industry concerns with both the FDA and the slow pace of the USPTO, as well as the unsure path to reimbursement, but was optimistic that those challenges could be overcome if emerging companies could find access to capital without sacrificing control of their companies.
Dr. Goldenberg shared with the Subcommittee how eemRa has created an online patient portal by which patients can access and manage their medical records. With the development of Health Information Exchanges as part of the HITECH Act, medical communities will be linked together digitally which will allow consumers more choice in clinic and lab services. Such consumer control will enhance competition, drive costs down, and also increase patient health as their healthcare management becomes more interactive. Goldenberg stressed that because the U.S. IPO market has dwindled, venture capital has a greater challenge producing successful exits for investors. To bring VC investment back to early-stage innovation, the U.S. needs to revive the IPO market which will increase the flow of capital.
Chairman McHenry was joined by Ranking Member Mike Quigley (Illinois) who asked if the panelists were concerned that allowing new financing models like crowdfunding could lead to increased fraud and reduced consumer protection. The panelists agreed that investor protection was important but Ms. Williams noted that with today's vibrant information age, study and research on companies and investment is robust. Goldenberg mentioned that allowing financing models like crowdfunding creates a different kind of IPO market that more people can join which will create competition in the finance industry. Williams went on to note that if Congress chooses not to loosen access to capital restrictions like the ban on general solicitation or the 500 shareholder limit, that emerging companies might be forced to seek financing from larger companies which will likely jeopardize job growth not create new jobs. The panel also answered questions from Vice-Chairman Frank Guinta (New Hampshire), Rep. Yarmuth (Kentucky), Rep. Maloney (New York) and Rep. Meehan (Pennsylvania).
Goldenberg and Williams spent considerable time with Chairman McHenry after the hearing delving deeper into their start-up experiences. They also were able to meet with staff from the House Small Business Committee, the House Science and Technology Committee, and other offices.
Timothy Tardibono, CONNECT's D.C. Office Director, applauded Goldenberg and Williams for their efforts, "Lonna Williams and Tsvi Goldenberg really provided the Subcommittee specific and substantive ideas on what Congress can do to help start-ups access capital. It is rare that a Subcommittee Chairman spends an extended period of time with witnesses after a hearing and they both helped inform him on some of the issues his subcommittee is wrestling with. San Diego's innovation community had another banner day because of Lonna and Tsvi's expertise and their willingness to tell their stories."
To watch the full hearing or read testimony, click here.
CONNECT endorses four capital formation bills passed by the House of Representatives
Showing that bipartisanship is not quite dead on Capitol Hill, the House passed four significant bills to increase access to capital for start-up and emerging companies each with overwhelming bi-partisan support. The bills now go to the Senate where they will need to find floor time amid a busy Senate calendar leading up to holiday recesses.
Because CONNECT had already been actively working to support three of the four bills the House considered, it was natural for CONNECT to send a letter to House Speaker John Boehner and Democrat Leader Nancy Pelosi applauding them for their bipartisan action that would actually do what Washington has been trying to do for some time, stimulate job growth. The letter noted CONNECT's previous endorsement of H.R. 1070—the Small Company Capital Formation Act—as part of its innovation policy whitepaper released in September, "Seven Innovation Policy Ideas to Spark an American Recovery." The bill will raise the Regulation A exemption for mini-IPOs from $5M to $50M. The letter also highlighted the fact that CONNECT had joined with the San Diego Venture Group and the San Diego Tech Coast Angels to endorse ending the ban on general solicitation in raising capital embodied in H.R. 2940—the Access to Capital for Job Creators Act—and raising the 499 shareholder limit which H.R. 1965 did for community banks.
The final bill the House considered was Rep. McHenry's (see previous story) to allow "crowdfunding," H.R. 2930—the Entrepreneur Access to Capital Act. CONNECT observed that crowdfunding is itself an innovation in financing models which could prove viable if regulatory barriers were removed allowing the market and transparency to shape its development.
Timothy Tardibono, CONNECT's D.C. Office Director stated, "The House should be commended for taking this bold and concentrated action to revive capital markets in a way that will create new opportunities for start-up and emerging companies to thrive. Prompt passage of all four of these bills provides new hope that start-ups can lead the country into an economic recovery."
To read the full letter, click here.
To learn more about each bill, click here.