How to Attract Startups and Tech Companies to a City Without Relying on Tax Breaks
Instead of simply seeking tax breaks in exchange for jobs or providing donations to a powerful politician’s favorite initiative, business leaders interested in having a civic impact should instead roll up their sleeves and collaborate with political leaders to invest in basic infrastructure and leverage diverse talent to help foster vibrant ecosystems. Startup communities and ecosystems are the key. They are more vibrant and widespread than ever, and their contributions to economic growth and job creation are well-documented. Less well-documented are what actions the public sector can undertake to promote the growth of these communities – and what business leaders can do to encourage these actions. The authors propose three areas of focus where civic and business leaders can leverage underutilized community resources and drive economic growth: First, invest in institutions of higher education as engines of innovation and job creation, particularly leveraging their ability to attract international talent. Second, foster diverse communities, utilizing untapped talent to drive higher economic returns as well as greater equity. Third, build basic infrastructure to ensure future growth and to retain a highly-trained local workforce.
Startup ecosystems are the key to growing a vibrant regional economy. Time and time again, these clusters of talent and science drive job creation, new business formation, and attract investment capital. Ultimately, these are the elusive ingredients that lead to greater prosperity and equity in our communities. The Amazon HQ2 opportunity was a wakeup call for many business and civic leaders. Despite all the applications from smaller and mid-size cities, Amazon chose to invest in two metro superstars: New York and Washington, D.C (and the company wound up pulling out of plans for the New York headquarters). That result was an indication that the traditional economic development strategy of deploying taxpayer dollars as subsidies and incentives in exchange for corporate relocations is a waste and needs to be replaced by an intensive focus on public investment in startup ecosystem infrastructure.
Today’s business leaders are increasingly called upon by civic leaders to contribute to a city’s economic development and equity efforts. Instead of simply seeking tax breaks in exchange for jobs or providing donations to a powerful politician’s favorite initiative, business leaders interested in having a civic impact should instead roll up their sleeves and collaborate with political leaders to invest in basic infrastructure and leverage diverse talent to help foster vibrant ecosystems.
Startup communities and ecosystems are the key. They are more vibrant and widespread than ever, and their contributions to economic growth and job creation are well-documented. Less well-documented are what actions the public sector can undertake to promote the growth of these communities – and what business leaders can do to encourage these actions.
We propose three areas of focus where civic and business leaders can leverage underutilized community resources and drive economic growth:
Higher ed and international talent
Education is an obvious but often misunderstood area for public- and private-sector collaboration. Higher education institutions play a critical role in growing the local innovation economy through research commercialization and by serving as a hub for entrepreneurial training and new business formation. This is especially true of those institutions located in urban areas. As entrepreneurial initiatives have become ubiquitous in higher education, two shrewd priorities have emerged: commercializing the intellectual property generated by researchers and encouraging students and graduates to pursue entrepreneurial ventures. These are worthy endeavors, but other areas deserve attention, too.
One opportunity available to schools is to leverage international students and researchers who receive an education in the U.S. These graduates are often shown the door after graduation, turned away by the flawed and struggling immigration system. By retaining these graduates, cities can benefit from their economic contributions — boosting new business formation, attracting capital to the region, and driving job creation.
Immigration policy is typically set at the federal level, however innovative local initiatives are showing how cities and communities can take action on their own. A pioneering program for these international entrepreneurs is the Global Entrepreneur-in-Residence (EIR) program, funded by the Commonwealth of Massachusetts and launched at the University of Massachusetts (where one of us works). Immigrant entrepreneurs are hired part-time by the university – procuring their expertise to contribute to the entrepreneurial community while at the same time obtaining an H1B visa (exempt from the annual quota due to special dispensation for non-profits) to allow them to remain in the community to build their startup. The results over the last four years since its launch are extraordinary: 60 entrepreneurs have participated in the program and those entrepreneurs have raised over $400 million in capital and employ nearly 1000 people, mostly in high paying positions. Two companies who participated in the program — Kensho and PillPack — went on to be acquired for $600 million and $1 billion, respectively. Other communities that have launched the program through similar public-private sector collaboration include Boulder, Colorado, and Detroit, Michigan.
Diverse talent
Investing in diversity and inclusion is a proven way to improve economic returns in an innovation ecosystem. These initiatives work best as a cross-sectoral, regional effort to improve hiring practices and address systemic biases in hiring and retention. The economic case for diversity and inclusion is clear, based on a wide range of research. Although any one company or non-profit can improve its hiring practices, no organization can shift the ecosystem’s appreciation for diversity on its own; the key to success is wide-ranging collaboration across the entire ecosystem.
There are many promising programs in this area, including YearUp, Code2040, and Resilient Coders. One example: Boston-based Hack.Diversity provides coaching and mentoring services for black and Latinx engineers to help them secure entry-level jobs at the region’s fastest-growing innovation companies. Businesses contribute two-thirds of the budget in exchange for the recruiting and training services while local civic and philanthropic dollars provide the balance. The program has successfully created three cohorts of 100 engineers of color with nearly a 100% successful placement rate, leading to the support of The Chan Zuckerberg Initiative as part of an ambitious expansion strategy.
Basic infrastructure
Public-private partnerships are not strictly a 21st century phenomenon. In the 1970s, David Packard convened microchip and tech-industry leadership across the Bay Area to launch the Silicon Valley Leadership Group. It focused on regional infrastructure and education initiatives, supporting public investment into light rail, housing, and other basic infrastructure that contributed towards the economic miracle of Silicon Valley. For other communities looking to create “the next Silicon Valley”, they would be well-served to consider investing in basic infrastructure as the time-tested formula for success. If your transportation system is crumbling, you’re going to have a much harder time creating innovation-economy jobs. But if business leaders can collaborate with civic leaders to redesign how workers efficiently get from point A to point B, opportunities abound.
With innovations in mobility and housing cascading through our cities, public-private partnerships will be an important foundation for creating an environment that allows the next generation of entrepreneurs to work, live, and play. Business leaders have a unique moment to invest in a civic legacy around a successful transition into the innovation economy, where growth is led by startups and scale-ups—one that isn’t just clustered along the coasts but is based on a more equitable distribution of hubs across the country. But this partnership requires business leaders to take a longer-term view, and to demand more than tax cuts and incentives. Reversing the decades long decline in American entrepreneurship requires communities to rally together to build strong startup ecosystems.
Jeffrey Bussgang is a senior lecturer in the Entrepreneurial Management Unit at Harvard Business School and a general partner at Flybridge Capital Partners. He is the author of Entering StartUpLand: An Essential Guide to Finding the Right Job (Harvard Business Review Press, 2017).
Craig Montuori is the cofounder and executive director of the Global EIR Coalition.
William Brah is the founder and director of the UMass Venture Development Center.
How to Attract Startups and Tech Companies to a City Without Relying on Tax Breaks
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