Policies to Encourage Startup Innovation

We have commented a number of times in a number of ways on this blog about how technology startups can no longer afford to ignore politics. When the tech startup world was focused on core infrastructure like chips and routers, and touched a small portion of the population, we thrived in comfortable isolation from the rest of the world. Now, the most interesting innovations are happening at the applications layer and technology has jumped from a small early adopter market to the mainstream. Everything is suddenly impacted by public policy and we no longer have a choice about engaging in the process.

With that in mind, we pulled a few folks from the New York tech community together last week for a dialogue with a key policymaker in Washington, D.C..

A few interesting themes emerged from the audience. There was wide consensus that New York had an unprecedented opportunity to emerge as a global center for tech and media innovation and that technology startups could be the largest part of the New York City economy in 10-15 years. As the opportunity has shifted from the infrastructure to the applications, the critical success factor for startups has shifted from electrical engineering to social engineering. While New York has good engineering schools, they have never been regarded as the best. New York has, on the other hand, always been a Mecca for people who want to influence other people through art, literature, design, or marketing. Those people seem to relish the diversity and richness of life in New York. Everyone acknowledged that this new opportunity was not created by government, but that public policy over the next few years could either accelerate the momentum or stifle it.

Several issues were presented specifically:

1) Net Neutrality – almost everyone in the room worked for startups that depend on direct access to consumers over the internet. With the shift to broadband most of us now depend on only two providers for access to the internet. There was a general concern that access providers are motivated to discriminate among applications, and now with deep packet inspection technology, they have the means. There was specific concern that without the appropriate structural separation, the merger of Comcast and NBCU would limit startup’s access to consumers. Ultimately, such discrimination by an access provider would stifle startup innovation.

2) Immigration – Many of the entrepreneurs in the room were immigrants. All of them wanted access to the best talent regardless of where that talent was born. The group recognized the significance of getting an immigration reform bill passed in the first half of next year, where a key provision of that bill would be that any foreign student who graduated with a Masters or a PHD in Science, Technology, Engineering, or Math (STEM) would automatically be given a green card.

3) Consumer Protection on the Internet – The entrepreneurs in the room were concerned that hasty and uncoordinated intervention by different government agencies could stifle innovation. The conversation was especially pointed around the issue of privacy. In the end, I think everyone agreed that a framework was needed to provide the predictability entrepreneurs need to operate and the flexibility they need to innovate, while still protecting consumers.

4) Patent reform – there was a funny moment when I could not recall the list of policy issues I had prepared and was reaching for my notes when several people in the audience shouted patent reform. This has become a huge issue that disproportionally hurts New York startups because they are more likely to create applications than infrastructure. Almost no one in the audience would object to a patent being granted in biotech, greentech, or materials science, but software and business method patents have become a barrier to innovation not a boon. Many people in the room have had to fight off patent holders wielding very broad software patents. Often the startup had never heard of the patent holder because they operated in entirely different markets (if they operated at all). In the most egregious cases, startup companies who could not afford to fight, have had to settle and as part of the settlement have licensed their technology to the patent holder to enable them to do the thing they claim to have invented.

Together these issues, and a few smaller ones (open government data and lower net worth requirements for angels) make up a “web startup innovation” agenda. This is not the same as an innovation agenda. Many government policies intended to increase innovation are focused on big company, big science, and big budget research projects. It is not even a startup innovation agenda, because other startups, in energy, or biotech, for instance, may have a different view on some of these issues. Web startup innovation is different. It is capital efficient, emergent, organic and decentralized. It is also what is happening in New York. Our challenge is to make sure our politicians understand the value being created by web startups and their unique policy needs.

We need your help in two areas. First, we need to define a “web startup innovation” policy agenda. We seemed, last week, to have consensus on the points above, but we need to hear from more web entrepreneurs about how public policy affects their ability to innovate. What are four or five things that government can do to help and another four or five things government might do to hurt this important sector? We could use your help compiling that list. Second, we need to become more effective policy advocates. The group last week represents the most important growth sector in the New York economy. Collectively, those 40 entrepreneurs are likely responsible for more net new jobs in the city of New York over the last two years than any single company, so we are important, vital and growing. Our challenge is to figure out how to organize and concentrate our advocacy of a “web startup innovation” policy agenda so that we can help our representatives in government help us.