In years past, landing manufacturers and their large factories dominated the strategy and activity of economic developers. And, in many conference rooms, this big game hunting still attracts the lion’s share of attention as states compete with economic incentives like property tax rebates.
Recently, entrepreneurial ecosystem leaders have started to be included in these conversations, a welcome invitation. But we’re missing some of the same tools our other economic development colleagues use – policy perks like property tax breaks don’t benefit a startup renting a desk in a co-working space. It’s time for an overhaul of economic development policies and incentives to also benefit startups.
The Global Startup Ecosystem Report, released in late September, highlights some of the innovative ways governments are crafting new policies designed to spur startup growth.
Several countries are passing Startup Acts, providing tax breaks, grants and new policies that benefit early-stage startups. Kenya recently created a National Innovation Agency to increase collaboration between investors, accelerators, and incubators. Ethiopia is streamlining the required processes to start a new business and covering fees for registering intellectual property. Spain’s new policies also reduce regulations and help startups retain talent. Germany has created a $12 billion Future Fund to invest in promising tech-based startups. Australia recently earmarked $2 billion in startup funding in the Life Sciences, CleanTech and Advanced Manufacturing sectors.
Imagine if North Carolina state government and the federal government were to streamline regulations, reduce costs, and provide incentives based on value generated and not just a physical footprint. Many startups are operating companies based on a digital economy, and will never produce physical goods, and never require thousands of square feet of production floor. Instead, could the government design new policies to underwrite a portion of new employee salaries, give rebates or tax breaks on short term leased space, and provide small grants for adding new jobs? Could payroll taxes be reduced until a startup reaches a certain level of revenue? It’s time to get creative with new ideas.
But it’s not just governments that need to reexamine policies. We need landlords to reconsider their lease terms. Young, growing companies need shorter term leases – one and two-year terms, not traditional 10-year commercial leases – and they need flex space as they add new team members. Could willing landlords be given property tax rebates if they house startups? With loads of empty office space due to the shift to virtual work, now is an ideal time for landlords to explore new lease options for a different type of tenants and for local governments to figure out how to make this economically attractive.
We need banks and other lenders, traditionally reserved about loaning money to early-stage companies, to re-examine their policies as well. Access to capital and cash flow are major challenges for startups. Beyond Small Business Administration (SBA) loans, what can today’s financial institutions offer that can help bridge the gap? Could payment processing fees be reduced for smaller companies? Could governments underwrite interest payments for small business loans? There are numerous spaces where banks could innovate.
We need economic development foundations to reexamine their portfolio and add new elements beyond site readiness and building infrastructure, programs that are no longer as relevant in the digital age.
If we’re increasingly serious about growing startups to power our changing economy, we need government, landlords, financial institutions, and others who interact with founders to examine old ways of doing business and draft new policies to fit the new digital economy.