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Encouraging Innovation and Job Creation by Supporting Start-ups, Entrepreneurs, and Innovative Small Businesses

The Angel Capital Association (ACA), the National Venture Capital Association (NVCA), the Biotechnology Innovation Organization (BIO), and the Advanced Medical Technology Association (AdvaMed) represent key players in the start-up economy. Our members invest in and conduct early-stage research in an effort to bring to market new technologies that will save and improve lives, and these new ventures also represent the most jobs created in our economy.

The R&D undertaken by start-ups and small businesses can take decades to result in a new medical device, clean energy breakthrough, advanced computer chip, or novel medicine. Due to this extended development period, significant investment is required to form a company around an entrepreneur’s idea and then fund that company’s life-changing research. Our organizations are dedicated to creating a policy environment that incentivizes early-stage investment and supports the growth of start-ups and small business innovators. In particular, we believe that federal tax policy can play a significant role in driving innovation capital to growth-stage businesses and supporting the years of R&D necessary to bring new technologies to market.

The Tax Cuts and Jobs Act provided for a significant reduction in the corporate tax rate, which will benefit companies across the U.S. economy, including in innovation industries. The bill also retained the R&D credit, an important incentive for research-driven companies seeking solutions to some of the most challenging issues we face, including cures for cancer and other diseases, technological innovation, cybersecurity, and energy. However, we encourage Congress to directly support the growth of entrepreneurial start-ups.

These small businesses – most of which are pre-revenue, and thus see limited impact from lower tax rates or incentives designed for tax-paying companies – form the heart of the innovation economy, supporting high-paying jobs in all 50 states and conducting the early-stage research vital to 21st century technological advancements. Studies have shown that almost all net new job creation has come from the growth of young companies and that technology-based start-ups continue to make an outsized contribution to the economy once they reach maturity. For example, firms in technology-based industries account for 70% of all business R&D investment, 59% of R&D jobs, and 27% of U.S. exports – despite making up just under 4% of all U.S. businesses.

It is therefore imperative that Congress work to craft policies that will bolster the creation and growth of high-tech, R&D-intensive firms. Our plan does not call for new tax incentives. Rather, we support the following proposals to encourage start-up investment and innovation by making targeted improvements to the existing tax code.

 

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