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Tech Startups, Shut Out From Federal Stimulus Loans, Seek Aid From Congress

LULU GARCIA-NAVARRO, HOST:

Like many small companies, tech startups have been laying off employees - more than 40,000 people by one count. Yet tech startups backed by wealthy investors are not eligible for federal stimulus loans. But about a dozen members of Congress are urging the Small Business Administration to rethink its rules. Rachael Myrow of KQED in San Francisco reports.

RACHAEL MYROW, BYLINE: Silicon Valley Congresswoman Anna Eshoo says her experience growing up the daughter of a jeweler in Connecticut taught her to appreciate the value of small companies. First in a letter to the Small Business Administration, then with legislation introduced earlier this month, Eshoo argued startups of all kinds deserve taxpayer support.

ANNA ESHOO: As much as we hear about the very large companies - certainly here in Silicon Valley - I think everyone has an appreciation for how important small businesses are in our country.

MYROW: That said, Silicon Valley startups are not the same as Connecticut jewelers and the like. To start with, pre-pandemic, Silicon Valley startups failed at the rate of 80% a year. That's four times the rate of non-tech startups tracked by the U.S. Bureau of Labor. Rachel Massaro runs the research arm of the nonprofit Joint Venture Silicon Valley.

RACHEL MASSARO: There are going to be winners and losers. The startup environment has always been like that.

MYROW: The few startups that succeed, that go public or get bought out in multibillion-dollar deals can make investors fabulously wealthy. But those investors know most startups fail, and that makes it hard to argue they deserve a taxpayer bailout. Eshoo says her Caring for Startup Employees Act of 2020 includes guardrails to protect federal funds from being used to pay back investors. And she says she wants to put employees' welfare first.

ESHOO: Keep the employees together. There was a big mistake made in the financial meltdown of 2008. The employees scattered to the wind, and some of them never made it back.

MYROW: Because if you're not a well-heeled investor and you're not an in-demand software engineer, this is not a great time to look for a job, even in Silicon Valley.

SHIRLEY DENG: Sales, marketing, recruiting is, like, the first to go, usually, 'cause you're no longer trying to, like, grow your app, right?

MYROW: Shirley Deng was laid off in April when the financial startup Earnin gutted its marketing department. There was no small-business loan to fend off mass layoffs that dumped Deng and others into the job market as collateral damage. Deng did find a new job after a month of looking, though - a lucky break.

DENG: Midsize or larger companies are a little bit more stable. But you know, asterisk - like, I think there are also a lot of large companies also having layoffs right now, so stable is, like, a relative term.

MYROW: Federal stimulus packages thus far haven't explicitly excluded startups. But the rules do exclude companies more or less controlled by investors, and that defines a lot of startups in Silicon Valley. In the end, the future of the Caring for Startup Employees Act of 2020 may come down to whether there's more stomach for small-business loans on Capitol Hill. A tech startup that hasn't applied already or couldn't apply may just have missed the boat.

For NPR News, I'm Rachael Myrow.

(SOUNDBITE OF KORESMA'S "BRIDGES") Transcript provided by NPR, Copyright NPR.

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