Policy’s Square Peg in Startup’s Round Hole

There is no shortage of unsung players in the startup world.  Some are there to support and enable the tremendous success of others.  Some are unsung because they are working on their own song and are waiting to step onto the entrepreneurship stage.  Others are enthusiastic supports and yet others are detractors.  Finally some seem to fall in all these buckets due to their size, influence, or lack of focus.  With an eye towards that last multi-headed group, I want to dive into the world of political policy and it’s impact on entrepreneurs.  It is my contention that policy makers need to more closely examine the needs of startups and provide incentives that are relevant for companies at that stage (i.e. not the incentives commonly offered now).

Based on conversations with local and national politicians, the following are incentives most frequently handed out by policy makers to early stage entrepreneurs:

  • Company income tax breaks
  • Faster business filing
  • Connection to economic development contacts

As an entrepreneur myself and after much discussion with others who are starting companies, there was clear alignment on our top three needs:

  • Dedicated startup hub or aggregating space
  • Investor tax credits for investment in fledgling companies
  • Employee tax breaks

The mismatches are clear.  Entrepreneurs have need of incentives that create physical growth of a startup community such as a dedicated hub and a ready flow of money from investors.  In startup hubs, marketers from several different companies can interact daily and challenge one another to improve the same way startups themselves create a competitive environment for growth.  Income tax breaks for young companies without any discernable revenue have little relevance whereas tax incentives to investors for putting money into early stage companies or employee tax breaks (as recently done in New York) provide tangible incentive by either removing barriers to investment or removing barriers to retaining quality employees.  Token incentives are just as misplaced, like faster document filing and access to economic development contacts.  Faster filing does little to create a sustainable advantage so desperately needed by early companies.  Access to economic development resources have undefined benefit and often are available without the need of the additional hurdle of declaring one an early stage startup.

There is a need for policy makers and entrepreneurs to come together to grow a startup community.  This however requires strong alignment and an understanding of the challenge points associated with very early stage companies.  Traditional incentives that benefit established companies have little place and do nothing to further success in these communities.  Policies that directly target ideation through proximity and make it easier to attract investors and employees alike are key to this equation.