Which Startups Qualify For Emergency Federal Assistance? It May Depend on Their Investors
Baffled by the restrictions and sensing a race against the clock until they run out of cash or the program does, small businesses are scrambling to apply for government-backed loans to keep their companies afloat.
The requirements are especially confusing for venture-backed companies, many of which could be excluded from help under the original working of the $2 trillion stimulus package signed into law last week in response to the Covid-19 pandemic.
"The stress of this is just tremendous because the money will be gone in a flash," said the owner of a company in downtown L.A. who preferred to remain anonymous because he did not want to alarm his employees. "No one knows what the rules are and this could mean the difference in my firm having to lay people off and not."
Friday is the first day businesses with fewer than 500 employees can apply for loans of up to $10 million under the Small Business Administration's Paycheck Protection Program.
Anxious startup founders received the news they were hoping to hear Thursday when House Minority Leader Kevin McCarthy (R-Calif.) told Axios it was his expectation that the Treasury Department would issue new guidance in the next "day or two" that makes startups eligible for relief.
"I just got off the phone with Treasury Secretary Mnuchin and this is going to be solved," McCarthy said.
But lawyers following the daily twists and turns of interpreting the hastily written legislation say it is too early for startups to breathe a sigh of relief.
"This remains an extremely fluid situation with new information being released daily," said Michael Avent, a partner at Perkins Coie LLP. "It is my hope that we will have clarity on these issues before the SBA begins accepting applications, but that is far from certain at the moment."
Startup founders are eager for a resolution, worrying if they act too soon the rules won't be solidified and if they wait the program, or their business, might run out of money.
"I'm hopeful we will qualify but I'm not counting on it," said Sofya Polyakov, CEO & Co-Founder of the Noun Project. "I'm in daily communication with our legal team but there's still not enough clarity on whether we would qualify."
The uncertainty stems from an "affiliation rule" that would require startups to count all the employees of other startups that their VC investor has backed, likely putting many startups over the 500-employee threshold, even if the companies are completely separate.
"The hard part is you have to look at affiliates and what it means to be an affiliate," said Avent.
In general, he said companies with a long roster of angel investors will have an easier time qualifying, which are usually early-stage startups. But Avent cautioned, "there are certainly companies that are very young and received venture funding at a very early stage," which could be problematic.
"The less likely that you have one investor that exercises control the better your chances of escaping affiliation," he added.
Another issue, especially for startups in expensive cities like Los Angeles, is that salaries are only covered up to $100,000, which leaves out most tech workers.
Christine Outram, CEO of Everydae, a seed stage digital tutor for high school students, estimates that the payroll protection would only cover two of her six employees.
"I don't want to lay anyone off, " said Outram. "I want to pay people."
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An L.A. security startup that has already signed on clients in tech, gaming, cannabis and entertainment is coming out of stealth mode just as the deadly assault on the U.S. Capitol and this week's presidential inauguration has brought safety to the forefront.
HiveWatch provides companies with a central platform that uses multiple sensors across buildings to help better respond to physical security threats.
Ryan Schonfeld has spent his career building security programs for startups.
It's almost 90 degrees outside in Los Angeles as lines of cars pull up to Dodger Stadium, home to a mass vaccination site that opened Friday.
"Please make sure that they're not under the sun in the cart," Edith Mirzaian is telling a volunteer as she directs the person to put ice packs on coolers that hold up to 20 COVID vaccines. Mirzaian is a USC associate professor of clinical pharmacy and an operational lead at one of California's largest vaccination sites.
Dodger Stadium alone — once the nation's largest COVID-19 testing site — is slated to vaccine up to 12,000 people each day, county and city health officials said this week. Officials plan to finish vaccinating some 500,000 health care and assisted care employees by the end of this month before opening appointments up to people 65 and older.
Mirzaian is desperately trying to make sure that the vaccines don't spoil.
"We have to be the guardians of the vaccine," she said.
Earlier this month, hundreds of vaccinations were lost after a refrigerator went out in Northern California, forcing the hospital to rush to give out hundreds of doses. Mirzaian's task tells a larger story of the difficult and often daunting logistical process required to roll out a vaccine that requires cold temperatures.
"You know they can't be warm so just keep an eye out," she gently reminds the volunteer.
The volunteers and staff from USC, the Los Angeles Fire Department and CORE Response prepared enough doses to vaccinate around 2,000 residents on Friday and they plan to increase capacity each day after.
Local health officials are holding the vaccination syringes in coolers after they leave the air-conditioned trailers. The coolers are then covered in ice packs and wheeled on carts to clinicians administering shots to health care workers and nursing home staff eligible under the state's vaccination plan.
"Vaccines are the surest route to defeating this virus and charting a course to recovery, so the City, County, and our entire team are putting our best resources on the field to get Angelenos vaccinated as quickly, safely, and efficiently as possible," said mayor Eric Garcetti in a statement announcing the plan.
Health officials around the world are racing against time as the virus mutates and poses greater dangers.
"We have a little bit of borrowed time here right now because these variants are not here in great numbers from what we can tell," said Susan Butler-Wu, an associate professor in clinical pathology at USC's Keck School of Medicine of USC.
Curbing the spread of the virus is a vital way to prevent mutant strains from developing, she said.
Mirzaian, who arrived at the site before it opened at 8 a.m., said that there were logistical challenges as volunteers scrambled to assemble what will likely be the hub of the region's vaccination efforts.
"It's challenging to make sure that everyone knows what the process is and what we're doing and what to tell the patients who receive the vaccines."
After a few hours, the procedure moved quicker.
Residents have to show identification and proof of employment before they're taken through a list of pre-screening questions and given the vaccine through their car window. They're required to then wait for 15 minutes while clinicians monitor them for side effects.
Mirzaian said the process took each car about an hour. While eligible residents can walk-in for vaccinations, she recommends they make appointments so that enough doses are made available each day.
"As long as people have their appointments, they will get in," she said. "We are ready. We are like an army ready to give vaccines."
An earlier version of this story misidentified CORE Response.
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