Stimulus 2.0: It’s The Startups, Stupid.

Editor’s note: The guest post below was written by Reid Hoffman, CEO and Founder of LinkedIn. Reid has some strong opinions about how startups can help right the economy, and he offers some suggestions below. (You can also catch him tonight on Charlie Rose, or check out our interview we did with him at Davos). Reid is an investor in over 60 web ventures including Digg, Facebook, Flickr, Friendster, FunnyOrDie, Ning,, Six Apart and Technorati.

While at Davos this year, the conversation spurred a lot of thought about how we can navigate through the economic crisis. Yesterday, I shared a few of these thoughts in a Washington Post op-ed to offer a Silicon Valley perspective to lawmakers.

I believe the real fix for the economy is massive entrepreneurship and innovation to create new jobs through new products and services. Here are a few of my proposals:

1. Small business loans. Apply a micro-lending model that has proved successful in developing countries, extending credit lines up to $50,000.

Why? Because models of investment besides just venture capital can stimulate the economy. Let’s not neglect entrepreneurs who create coffee shops, florists, taxi services or other small businesses that help the economy thrive at the local level. Sometimes, a coffee shop becomes Starbucks. These don’t require venture funding; they just need a small business loan to get started and grow. Micro-lending has proved viable around the world — let’s do more of it at home. If a service like (disclosure: I’m a board member) can succeed in 12 countries, it can succeed here too.

2. Abolish the limit on H-1B Visas. Remove the cap on H-1B visas and impose a 10 percent payroll tax beyond the benchmark salary for each visa. Then channel the proceeds from the payroll tax into US re-education programs.

This is a country founded on immigration. We should welcome the best and the brightest as our own. Abolish the H-1B cap, and give me an economic reason for preferring local. I’ll only do foreign if I need to. A 10 percent payroll tax for each H-1B visa can be reinvested in whatever it takes to get American talent up to the same level. This has been proposed previously, but a payroll tax ensures that H-1Bs are used for skilled labor, not cheap labor.

3. Match funds for venture capital and angel investors. Match up to $100 million in stimulus funds for qualifying venture and angel investments if they create jobs in the US. Let these investors keep their normal return plus 50 percent of the returns on the matching funds, while the other half goes back to the government to revitalize further investment.

While others feel differently, I disagree that VCs are grinching because of a lack of good opportunities. VC investment declined 30% in Q4, but I don’t believe this is due to 30% less innovation. In my experience as an investor, there are a fixed proportion of good ideas and bad ideas. It’s not a percentage that goes to zero. Investors are keeping their powder dry in order to see if valuations decrease and to save capital for their top investments, in case they need more down the road. Let’s create incentives to invest now and to invest more widely. Even if there’s a higher failure rate, there’s also an increased likelihood of funding eventual winners. This is the kind of stimulus that creates not only more jobs, but more start-ups with a chance to succeed and contribute to a sustainable economy.

These are just a few suggestions for a dialogue that we, the entrepreneurs, should be weighing in on. Let’s get this stimulus invested in the long term before it’s spent on the short term. We know how to create markets and products and services. We know how to innovate. Let’s invent new solutions for lawmakers to help build a sustainable economy. We don’t have lobbyists, but we have our voices and our track records.