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04/21/2024 11:50 PM
Pennsylvania House of Representatives
https://www.legis.state.pa.us/cfdocs/Legis/CSM/showMemoPublic.cfm?chamber=H&SPick=20230&cosponId=42334
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House of Representatives
Session of 2023 - 2024 Regular Session

MEMORANDUM

Posted: March 20, 2024 10:52 AM
From: Representative Mike Armanini and Rep. Aaron Bernstine, Rep. Valerie S. Gaydos, Rep. Marla Brown, Rep. Michael Stender
To: All House members
Subject: Keystone Startups Initiative
 
Most high-profile success stories in the global technology sector start with a simple idea for a new technology or a creative application of an existing technology.  Because these start-ups are based on an idea, rather than a fixed natural resource, they are highly sensitive to the quality of the environment for startups. This makes the competition among states and nations for these idea-based businesses fierce. The Commonwealth has missed too many of these opportunities to Silicon Valley, New York, Boston and other start-up friendly locales.

Fortunately, the Commonwealth has several areas of competitive advantages that we can leverage to develop our home-grown economic success stories. Our universities, particularly our research universities, provide a supply of highly trained talent to start new ventures. Our location provides ease of access to many of the largest markets and ports in the country. And the quality of our workforce is second to none. 

Our policymakers must do a better job capitalizing on these advantages while bolstering areas of weaknesses. That is why we are introducing this legislative package to support our Commonwealth’s start-up businesses.



Document #1

Introduced as HR364

Description: DOCUMENT 1 (Rep. ARMANINI) – Designate March 18 through 24, 2024 as Commonwealth Startup Week

A startup business’s lifecycle begins with an idea and progresses through several funding stages before it matures as a business. The Commonwealth is home to many businesses are at various points in this process, and this resolution will designate March 18 through 24, 2024 as Commonwealth Startup Week to recognition of the importance to the Commonwealth’s economy and job creation efforts.
 

Document #2

Description: DOCUMENT 2 (Rep. BERNSTINE) – Establish the Student Startup Incubator Network to empower student entrepreneurs to build their companies in Pennsylvania.

The ideas underpinning many of the largest technology companies in the world today were developed by students who were still in school. Some of the most prominent companies in the world were based on student projects or were founded in university dormitories.  With the sheer amount of talent held by our college and university students, there is no reason why the next big technology cannot be developed here.  These would-be startup founders just need a little bit of support.

This proposal would establish the Student Startup Incubator Network, which would establish startup incubators serving undergraduate and graduate students at Pennsylvania’s state-related, State-System of Higher Education, community colleges, and independent colleges and universities.  Under the Network would be an advisory board with members from the business community, Ben Franklin Partners and the investment community. The incubators would partner with venture capitalists to get the funding and  knowledge the students need to succeed and would provide the assistance necessary for undergraduate and graduate students to turn their ideas into viable businesses.
 

Document #3

Description: DOCUMENT 3 (Rep. ARMANINI)  – Establishing the Task Force on Startup Venture Opportunities

The world of startup financing is frequently changing priorities, strategies, and tactics, which requires the Commonwealth to move quickly to capitalize on new opportunities in the world of startup development. Unfortunately, this does not lend itself naturally to the structure of the state government here in Pennsylvania.

This legislation will integrate that philosophy into the Commonwealth’s governmental structure, this legislation will establish the Task Force on Startup Venture Opportunities. This new task force will be composed of startup founders and venture funders, who will advise the Commonwealth’s economic development entities on new developments and opportunities for the encouragement of startup ventures.
 

Document #4

Description: DOCUMENT 4 (Rep. GAYDOS) – Provide uncapped and non-expiring operating loss deductions to in-state startups. 

While progress toward a more competitive tax structure has been made in recent years, our tax system remains uniquely unfriendly to new businesses. The cap on net operating loss carryforwards harms new businesses that require large up-front investments that pay off over a 20 or 30-year period. 

This legislation will uncap the net operating loss carryforward for startups in Pennsylvania.  Further, this legislation will allow startups to have non-expiring net operating loss carryforwards, which can help to ensure their long-term survival.  
 

Document #5

Description: DOCUMENT 5 (Rep. M. BROWN) – Establish the Startup Investment Tax Credit to connect startups to early-stage investors.

The initial stages of founding a startup are the riskiest, since they require large capital investments while revenues are negligible. Founders of startups cannot go to the bank for this financing, since their business’s main asset is an idea, rather than physical assets. Making investments in these businesses is typically done by a specialized type of investor with past experience in entrepreneurship and a high tolerance for risk. Many of these investors are startup founders themselves. And, while Pennsylvania has a strong community of such investors, other states have been more successful in developing or attracting them.

The former Innovate in PA Tax Credit will be re-vamped into the Startup Investor Tax Credit. The new program will help develop this community of startup investors by enhancing the qualified investments for the startups developed here in Pennsylvania.  As a condition on participation in this program, the startup will commit to employing Pennsylvanians and maintaining operations in Pennsylvania. This will create a virtuous cycle where successful startup founders will make Pennsylvania their base of operations and their success will seed the next generation of startups.
 

Document #6

Description: DOCUMENT 6 (Rep. M. BROWN) – Leverage the power of the Research and Development Tax Credit to incentivize technology research by startups.

The Research and Development Tax Credit provides critical backing for companies that engage in the kind of capital-intensive research that leads to new products and technologies being developed here in Pennsylvania.  That program provides $60 million in tax credits to businesses that engage in certain research and development costs, with $12 million set aside for small businesses. However, the demand for the program exceeds availability and startups can have a difficult time accessing that opportunity.

This legislation would provide an additional $12 million set aside for start-ups. To ensure that the existing program is not negatively impacted, the overall cap would be increased to $72 million and the current small business set-aside would be preserved. By establishing a separate set-aside for startups, we can target that investment, while ensuring that the small business set-aside is available for established small businesses. 
 

Document #7

Description: DOCUMENT 7 (Rep. STENDER) – Restore the Commonwealth’s funding for venture investment back to a level commensurate with the technology sector’s importance.

Through the leadership of the Ben Franklin Technology Development Authority, the Commonwealth has taken a leading role in providing high-impact venture funding to promising startups.  While still robust, the funding for these investments has been reduced by about 2/3 from the amounts provided prior to the Great Recession. The one-time capital infusion funding in Act 53 of 2013 was impactful, but a decade has passed since that investment was made.

This legislation would direct a portion of the Fantasy Sports Tax to the Ben Franklin Technology Partners, the Venture Investment Program and the Life Science Greenhouses. Coupled with the on-going commitment from the General Fund, this will bring the Commonwealth’s investment to a level commensurate with the importance of the technology sector.
 

Document #8

Description: DOCUMENT 8 (Rep. ARMANINI): Building a robust venture ecosystem in Pennsylvania to develop home-grown startups.

Startup ventures are too risky and have too few assets to be attractive investments for typical sources of business capital like banks. Venture financing comes with high levels of risk—and the possibility of high rewards—that make it only appropriate for a narrow portion of the investment community.  More than half of all venture capital offices are located in San Francisco/San Jose, New York, and Boston. We must take steps to reverse this trend and to cultivate our own venture capital ecosystem.

This legislation will establish the Venture Capital Ecosystem Development Program, which will provide grants and technical assistance to universities, local governments and agencies, and non-profit organizations that are seeking to cultivate ties between venture capital funders and Pennsylvania’s startup community. This program will be used to provide seed funding for outreach efforts like networking events where startups can directly pitch venture funders on their ideas, startup showcases, and consulting to help startups hone their efforts to secure funding.