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Trump Administration Presents Opportunities For FinTech Expansion


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 IJR Opinion is an opinion platform and any opinions or information put forth by contributors are exclusive to them and do not represent the views of IJR.

Even if he is President, Donald Trump is still a businessman. However, many of his ideas and statements indicate he could negatively affect small businesses in the U.S. through his executive orders and policy initiatives.

Broadly speaking, Trump wants to cut business taxes, which is good for businesses. But the details of how that will occur remain to be seen. Let’s hope that this applies to businesses broadly, and does not favor one industry - namely real estate - over another.

Taxes

Coming from the startup world - particularly early stage startups - capital is tough to come by. Every dollar counts.

Many startups originally incorporate as limited liability companies in order to avoid “double taxation” which occurs if a company decides to incorporate as a “C-Corp” where the company’s profits are taxed at the corporate level and at the individual shareholder level. An executive order or proposed legislation from the President eliminating the corporate level tax on certain, defined, young startup companies would be an effective way to allow “C-Corp” companies to grow, and also remove the confusion startups have regarding what type of entity to choose when beginning a company.

LLC’s are more tax efficient, but they are taxed as a partnership, which is extremely confusing, and if a company succeeds in getting acquired by a larger company, most large companies force the company they are acquiring to switch to a C-Corp, which takes some time and expertise.

Immigration

According to the National Foundation for American Policy, immigrants to the U.S. started more than half of the current crop of U.S. based startups valued at $1 billion or more. Further, the study estimates that immigrants make up over 70% of key management or product development positions at these companies. Simply put, immigrants are a key to the robust financial technology (fintech) market developing in the U.S.

Of course, immigrants of some countries are more likely to be involved in the technology space than others, but the fact remains that startups rely on immigrants to be successful. Looking beyond the startup “unicorns,” my personal experience at an early stage startup displayed to me just how important foreign born workers are to startups.

Although I was the legal counsel for the startup, I also assumed the role of “hiring manager” as we needed to fill a couple of highly technical roles, including software designers and managers.

I posted the job on various job boards and schools across the tri-state area, and my rough estimation is that 90% of the applicants (out of hundreds) were foreign born (mostly from Asia) and were here on student visas - either the F1 Visa, where, under special circumstances, they were allowed to work off campus while still in school; or the H-1B visa program which covers 85,000 workers in the technology industry.

Trump has proposed to overhaul this program, about which critics say benefits cheap labor from overseas, seemingly making it a ripe spot on which Trump can stamp his “America First” agenda. My belief is that my personal experience is not an abnormality; if we make it more difficult for startup companies to find qualified “STEM” employees, that will negatively impact their growth.

SEC and FINRA i.e. “Red Tape”

Companies in the “seed” stages of raising capital (usually the first round of fundraising after bootstrapping and receiving money from friends and family) currently have more ways than ever to raise money.

Title III Regulation Crowdfunding is the latest legislative advent. Begun in May 2016, it allows startups to raise $1 million from non-accredited investors through SEC compliant web portals where they can publicly advertise their fundraising round without having to register as a public company. The year prior, the SEC adopted a similar rule titled “Regulation A+” that allowed companies to raise up to $50 million from unaccredited investors without having to register as a public offering.

Trump has put a moratorium on new legislation until it can be reviewed thoroughly. He has also indicated he wants to scale back the Dodd-Frank Act and intends to remove burdens on businesses. These are all welcome signs to people in the financial industry.

More particularly, Trump’s son-in-law and Senior Advisor, Jared Kushner, has invested in numerous fintech companies like Cadre, an online real estate investment manager. These facts indicate that Trump will propose legislation and initiatives that benefit fintech as a whole.

Though a legislation freeze is generally a principle economic conservatives should support because it should remove burdens for companies to function, some legislation is good if it is reducing existing legislation to make it easier for companies to comply.

In my personal experience, one piece of legislation that should be changed to help startup fintech companies is the application of the Broker-Dealer rules found in the Securities Exchange Act of 1934. When startup companies are attempting to raise money, they often seek to hire someone to help in the fundraising process by using this person or company to reach out to potential investors who may be interested in investing. In exchange, it makes the most business sense to compensate this person or company by giving them a percentage of the capital.