Venture Capital Pool Opens for Women Entrepreneurs

By: Jake Clabaugh, WIPP Government Relations

If you are an entrepreneur seeking capital, the path to venture funding could be getting a little easier. Earlier this month, the House Financial Services Committee took action on two bills that make venture investments more attainable for entrepreneurs – The Helping Angels Lead Our Startups (HALOS) Act and the Main Street Growth Act.  As women entrepreneurs only receive 7% of venture dollars, improving access to venture capital is a top priority in the women’s business community.

Due to ambiguities in the law, pitch events or demo days that are sponsored by angel investors may or may not be legal. Yet, these events are a great opportunity for entrepreneurs to get themselves – and their products – in front of a room full of potential investors. The HALOS Act makes this easier by clarifying this ambiguity. Currently, the Securities and Exchange Commission (SEC) prohibits “general advertising” and “general solicitation,” but the HALOS act would clarify that these events are permitted for groups of angel investors and not subject to the prohibition on general solicitations. The bill’s sponsor, House Small Business Committee Chair Steve Chabot (R-OH), remarked, “clarifying the law to give entrepreneurs and investors more certainty and opportunity is a step in the right direction.”

To further incentivize investment, The Main Street Growth Act (H.R. 4638) will create securities exchanges specifically for venture capital investments. Existing stock exchanges could create a new tier to specialize in venture capital investments or entirely new exchanges could be established. These securities exchanges will bring together buyers and sellers of venture capital and create a more liquid market, which will incentivize investors to support startups.

While no single policy change or piece of legislation will break down the barriers that prevent women entrepreneurs from accessing capital, these incremental improvements show that Congress is committed to leveling the playing field for women entrepreneurs. WIPP’s access to capital platform, Breaking the Bank, continues to gain traction with legislators and WIPP is dedicated to growing women entrepreneurs’ share of venture capital funding.

Common Sense Leads to Victory

By: Ann Sullivan
WIPP Works in Washington

You’ve heard the expression, “if it ain’t broke, don’t fix it.”  In Washington, that means if the private market has solutions that are working fine, government intervention will probably mess it up. 

That is precisely what happened to Health Reimbursement Arrangements/Accounts (HRAs).  Although anything healthcare-related is annoyingly complex, for simplicity’s sake, let me just explain what HRAs are.  HRAs are an easy way to offer health insurance—employees shop for their health insurance and employers reimburse them whatever portion of the premium they choose to. Employees need to show that they are paying premiums in order to get reimbursement from employers.  It’s that simple. 

This arrangement has worked for small employers for many years because of their limited access to affordable group health insurance plans.  The important part of this arrangement is the tax treatment.  Employers can deduct their payments and the benefit is pre-tax to employees.  This is the same tax treatment companies that offer health insurance through a group plan are entitled to.

Enter the IRS, the Department of Labor and the Department of Health and Human Services (HHS).  These federal agencies determined that the Affordable Care Act (ACA), also known as Obamacare, prohibited these HRAs.  According to the agencies, HRAs do not comply with changes made in the ACA.  It is their contention (and hosts of government lawyers) that these HRAs are now considered a group plan under the law and are no longer eligible for pre-tax treatment and do not comply with the ACA reforms.

In 2013, the IRS decided to begin imposing the $100/day per employee penalty to employers who continue to use this arrangement to offer health insurance to their employees.  Ouch.  With that fine looming over their heads, small employers were faced with two choices: 1) Stop reimbursing employee health insurance costs; or 2) Put in place a group plan, most likely through the small business (SHOP) exchanges. 

There are a few things wrong with this approach, beyond the obvious.  First, SHOP exchanges were just launched and are not nearly as robust or as user friendly as we hope they will become as they mature.  From personal experience, it takes patience—and assistance from a broker—to maneuver SHOP exchanges.  Second, the ultimate objective of the ACA is that everyone has access to insurance.  So, denying this arrangement results in loss of employer reimbursement, leaving employees to shop and pay for their own insurance.  Seems counter to the goals of the law, if you ask me.  Finally, many small employers had no idea of the IRS determination.

Don’t stop reading this article and throw up your hands in disgust at government.  Keep reading because there is actually good news.  Secretary Burwell, who heads up HHS, held a roundtable with 10-15 individuals who work with small business associations, of which WIPP was included.  The Secretary wanted to hear concerns from the small business community with respect to the ACA and was interested in how she could help.  WIPP raised the HRA rulings and the problems associated with the IRS determination. 

The Secretary listened carefully and then acted.  Not long after our meeting, the IRS released Notice 2015-17, delaying the steep penalties for small employers using HRAs.  The reprieve lasts until 2016, which should give Congress time to make the necessary fixes to the law to accommodate HRAs. 

Now it is up to us to seek the permanent legislative fix needed to allow small companies to offer HRAs.  A number of other associations are supportive of this common sense change.  As is the case in many laws, good solutions are not one-size fits all.  What works for large companies, doesn’t necessarily work for small companies. In the case of HRAs, small employers found an easy solution to providing health insurance to their employees.  Government should support, not discourage that method of coverage.

If it ain’t broke, don’t fix it.