When I was in grad school, the concept of a B-Corp, a.k.a. Benefit Corporation, was brand new. At the time, you couldn’t officially register as a B-Corp, people just self certified as a B-Corp but were technically an S-Corp. Now some states, if not all, have an option to select B-Corp.

The reason the B-Corp designation is important is because of executives’ fiduciary responsibility. This means that if an executive had the choice between two strategies that get the company from point A to point B, the decision on the strategy would need to put the shareholders of the company first. For example, if a company had an opportunity to cut their costs production in half by offshoring they would be obligated to do so. In fact, executives could not just lose their jobs but might be exposed to civil or criminal legal action. By designating a company as a B-Corp, a company can value other things equally or greater than profitability. These other priorities are often beneficial to the community, the environment, or society generally. In my opinion, this flexibility is important and has led to a better business environment.

Because of the success of B-Corps I believe we should examine other corporate structures that can help businesses have more flexibility and opportunities. One option I’ve come up with is an R-Corp or Research Corporation. As the name suggests, the entity would be focused on research. This is beneficial because the current system isn’t designed for companies that may take several years of R&D before they are prepared to go to market.    

For example, a California corporation that has no revenue and no payroll would still have a minimum tax of more than $500 per year. This isn’t much, but why should a company pay taxes on zero cashflows? In my opinion, that $500 should be used to move the venture forward. 

This is important because R&D focused companies often have massive impacts; just think about pharmaceuticals and semiconductors. Both take years to develop but can literally save lives. Much of the new innovations in both industries are done by startups that are then acquired by larger firms. 

In order to give the best possible environment for these fledgling disruptive ventures I propose the following for STEM (Science, Technology, Engineering and Mathematics) ventures that are pre-revenue and with less than 15 employees.

• • • Most companies register in Delaware anyway
    • This removes half of the bureaucratic headaches startups face
    • Once in revenue or the employee cap is met the entity will transition to a C-, S- or B-Corp.

• • • Corporate investors or partners are capped at 25% ownership. This is important because young ventures often have no leverage in negotiations so an equity cap will help ensure founders keep their equity.
    • Universities where research began can claim up to 25% ownership. Because the university funded or provided resources to the venture they are entitled to equity ownership. This is much more fair than a licensing agreement that would take funds away from growth activities.

• • • Fees paid to the USPTO (US Patent and Trademark Office) can be expensive and reducing these fees can be the difference between filing one patent vs filing three patents. (This exact thing happened to me with one of my ventures)
    • Ventures in the healthcare arena have to raise significantly more funds just to deal with the FDA. The FDA can easily reduce their fees and provide better guidance to ventures; this would make starting a healthcare company much easier.

• • • The government should prioritize grants to R-Corps and take equity in the companies. This equity would have some down round protections and privileges, such as a dilution cap or the ability to add followup funds.
    • A board seat would be given if the investment is more than $250,000.
    • A business specialist will be added to teams that do not have an experienced executive, this will be provided by the Business for America program I describe below.
    • Grant offices have the resources to vet thousands of application so this program would not add any new costs.
    • Equity will be held by the US Treasury in a sort of Sovereign Wealth Fund.
    • The average return on capital for a venture capital firm is 3X over a fund’s life. There is no reason the government should be giving away free money when we can triple our money.
    • Large companies should also not be allowed to access grant funding. A company that makes tens or hundreds of millions of dollars in revenue does not need to be taking resources that can be better spent on new ventures.

• • • This program will give students and young people outside of tech hubs like SF, Boston, Boulder and Austin the opportunity to have guidance from a business expert.
    • The participating MBAs in the BFA program will receive partial or total student loan forgiveness and a small wage while in the program.

There are several things that can be done to make starting and growing a business easier and more equitable.

• • • When a startup takes its first funds or brings on a team member for equity it is important to accurately and legally track and managing equity ownership.
    • Currently, complicated forms need to be filled out making it much harder than it ought to be. Creating a simple portal that allows founders to track, modify and vest equity would be beneficial to regulating agency and entrepreneurs.
    • Allow startups to issue shares to their team without the individual receiving the equity from having to pay income taxes on the value of their shares. For example, if a company has raised funds on a $2,000,000 valuation and then brings on a new team member, and as part of the compensation package issues the team member 1% equity, that person will have an extra “income” (in the form of illiquid equity) of $20,000 that they need to pay income tax on. I don’t think it is fair that someone needs to pay taxes on something that may not be worth anything if the venture fails. All equity should be taxed when an exit occurs, not when it is assigned.

• • • With the impending automation of many jobs, it doesn’t make sense to tax companies for hiring employees; especially startups. Payroll taxes and benefits are often 25%-35% of the real cost to hire employees. A more efficient way to tax wages would be through modifying the current income tax structure.

• • • We’ve all heard the complaints that corporations pay little to no taxes, this is mainly because Capital Expenditures and Operating Expenditures are deduced from revenue and anything left is considered profit. Operating Expenditures are costs incurred while running a business, like labor, rent, insurance and marketing. Capital Expenditures are technically investments the company makes for itself. Amazon pumped billions of dollars into IT infrastructure essentially eliminating any profit it would have made making their profits zero or even negative. Now they have AWS, one of their most profitable arms of their business. So as long as a company spends all their excess revenues as Capital Expenditures they will have no tax liability because they would have no real profit. Not to mention, many companies use Capital Expenditures to automate, reducing their workforce.
    • For decades people in banking and finance have realized that Profit is often an ineffective way to measure economic performance, that is why most finance professionals use EBITDA (Earnings Before Interest Depreciation and Amortization) rather than profits to measure a company’s performance. Overly simplified, EBITDA is essentially revenues minus operating expenditures.
    • By taxing EBITDA rather than profits, the government can ensure massive companies pay their fair share of taxes while reducing the nominal tax rate. It would also be more simplistic making it easier for small companies to do their own taxes.
    • The Corporate Tax rate and Capital Gains Tax rate should be the same. They are basically the same thing and I see no reason to make corporate, capital and income tax rates different. Why should the rich, who mainly benefit from a low Capital Gains rate be the ones who are taxed the least?

I’m going to discuss my ideas for a basic income for entrepreneurs. I call it Education and Entrepreneurship Basic Income or EEBI.

An EEBI would give entrepreneurs the freedom to not have to fundraise as much, and help businesses when they need the most help. The government would act as friends and family and support your team’s wages. I believe that the government can even hold equity in these ventures, and any successful ventures can pay for future ventures.

An EEBI would not just allow individuals to quit their job and start businesses. Suppose you are a recent programming boot camp graduate and you want to start a business. Your product is a very cool mobile game app. Great, so because you’re a programer you can start working on the app. You soon realize you need help so you ask a friend you went to the bootcamp with to be on your team. Because they like the game and you offer equity they agree to help you, and you don’t need to pay them because they are able to tap into EEBI. You’re able to do the same thing for a few more people who help you with UI/UX, business and marketing all with EEBI. You then launch your app on the app store and become the next flappy bird game. This path is much easier than having to raise funds to hire people.

Labor is typically one-third to two-thirds of your capital raise, depending on the type of company. Using the example above of an app development company, about 58% of the resources needed are going to labor. With this comes payroll taxes and income taxes, making the take home much less than $1,000 per month, more like $750. With an EEBI system the individual will make more, and the company won’t need to pay payroll taxes. Finally, raising $70,000 is much easier than raising $166,000 and requires giving up much less equity.

Obviously there are concerns about abuse, what qualifies as a start-up, how long can someone keep going at a venture before a return is expected. My hope is that these potential issues can be alleviated by having a governing agency to ensure funds are going to people who are devoting their time to education or entrepreneurship.  

I believe this is an important subject that hasn’t been properly explored, so I’m writing a book that will explain how a basic income program for entrepreneurs can be a paradigm shift, propelling our economy and erasing our national debt.

This is something I think is a game changer to the health of our population and economy. I’m going to lay out my arguments for a universal basic income specifically for entrepreneurs and people who are learning new skills (like programming). I know many people believe in truly universal basic income and I tend to agree but I’m going to stick to what I know.

My definition for universal basic income (UBI) is that everyone who makes below a certain level of income is entitled to a modest monthly stipend of about $1,000 to $1,500. The premise is that people would make better decisions for themselves if they have an economic safety net.  

This isn’t free money. In my ideal program this payment is limited to those who are means tested and are entrepreneurs or people who are in college, studying a trade. My premise is that, as long as the individual is adding to the economy by either starting a business or becoming more skilled, there is net benefit to the national economy. I’m essentially proposing an Education and Entrepreneurship Basic Income (EEBI), replacing universal for education and entrepreneurship.

For entrepreneurship EEBI will allow businesses to raise less funds and help businesses when they need the most help. The government would act as friends and family and support your team’s wages. I believe that the government can even hold equity in these ventures, any successful ventures can pay for future ventures.

UBI has been done in Finland and Oakland, California. The Finnish experiment was done by the government but the Oakland experiment is being lead by startup accelerator Y Combinator.

Finland’s experiment gave 2,000 unemployed residents of Finland €560 Euros per month, and is scheduled to end two years after it started. Supporters of UBI say the experiment was doomed to fail because the scale was too small and time frame was too short to show results.

In Oakland, Y Combinator is pushing to give one group of 2,000 Oakland residents $1,000 per month and another group $50 per month for five or six years. The goal is to measure the ROI of this investment. Y Combinator is a fixture in Silicon Valley having some of the biggest tech titans as alumni, such as Reddit, DropBox, Airbnb and Twitch. This experiment is fascinating to me because it is a great example of how private philanthropic venture capital can impact society. It is reminiscent of Carnegie and Rockefeller.

Let’s discuss what we can all agree on, entrepreneurship fuels our economy. The top six most valuable companies, which have a combined value of over $4.25 trillion, are all relatively young tech companies, the oldest being Apple (established 1976). All of the small businesses in your community from handymen to hair dressers, restaurants to auto shops were startups at one time. These small businesses significantly benefit local economies and the nation as a whole. It doesn’t take a rocket scientist to see the value of startups.

Let’s do the same exercise for the Unites States of America. Assume we can convince 25% of the population making less than $30,000 per year and an additional 20 million others who are not currently in the labor market to learn more valuable skills.

For an investment of just under $500 Billion the United Stated can increase the labor force, increase the number of skilled workers, better prepare the nation for the future and grow the economy by over $1.5 Trillion per year!

All data from: datausa.io, census.gov