Are Atlanta’s public policies startup-friendly?

Why even focus on this topic?

There has been a lot of terrific coverage recently from sources like TechCrunch, Hypepotamus, and Atlanta Inno about Atlanta’s emergence as a center of tech and innovation. Stories have highlighted the minting of unicorns like Calendly, Flock Safety, FullStory, Greenlight, and SalesLoft and the raising of new VC funds by Collab Capital, Overline, Panoramic Ventures, Silicon Road Ventures, and Zane Venture Fund, among others. In short, it’s an exciting time to be alive in ATL!

What I haven’t seen is an examination of whether Atlanta — and Georgia more broadly — have established the public policies, incentives, and infrastructure necessary to ensure continued tech sector growth. These things are important; they help set the “rules of the game” by which the players within our local innovation ecosystem — startups, investors, accelerators, incubators, established tech companies, and enterprise customers — must play. Policy amounts to carrots and sticks for innovators, shaping how they view our city.

So that’s where I’m focused today. I’ll provide an assessment of Atlanta and state policies related to the startup ecosystem. Then I’ll consider the extent to which we can improve on these things; in other words, how our local policymakers might do more to attract companies, capital, and creation in ways that provide economic growth and great jobs, but also more inclusive opportunities and broadly-shared wealth. This is an attempt to both exercise my (admittedly underutilized) law degree and illuminate a complex (and often boring) subject.

My exploration, focused as it is on direct government policies, will not dive into the excellent startup resources offered by local public institutions of higher learning, which are themselves outgrowths of government policy. These include centers like Georgia Tech’s Enterprise Innovation Institute (EI2), which features ATDC, the oldest tech incubator in the country; programs such as I-Corps and VentureLab, which support faculty, staff, and students as they commercialize their research; and the Atlanta MBDA Business Center, which helps minority-run businesses. Georgia State’s Entrepreneurship and Innovation Institute (ENI) and UGA’s Entrepreneurship Program and Small Business Development Center provide similar resources to startups and small businesses.

With that said, let’s get into it.

Overall assessment of the local entrepreneurial policy mix: B+

Think of the collection of local policies related to tech and entrepreneurship as falling into five main buckets (see image below).

I’ll quickly touch on each.

Tax incentives

The state and local tax credits on offer in Georgia generally make sense, with some limited exceptions. Tax incentives include:

JOB CREATION CREDITS: The more new jobs startups or tech companies create  — especially well-paying ones in areas that need them  — the more these companies benefit. Through Georgia’s Job and Quality Job Tax Credits, companies can reduce their state corporate income tax liability by between $1,250 - $5K per newly-created job a year depending on 1) where the jobs are located — new jobs in more economically distressed counties = a higher credit per job and a lower minimum number of required jobs — and 2) the level of wages a company pays. Businesses can apply leftover credits to their payroll withholding liability. 

R&D AND BUSINESS INVESTMENT CREDITS: Investing in innovation and building new products and services also get rewarded. Companies are able to get a corporate income tax credit for the share of their R&D and new product development expenses above a certain base amount. Again, if there is any credit left over after applying the credit to income tax liability, businesses can use it to reduce their payroll withholding liability, freeing up cash. 

The state offers other business investment incentives too, although they seem targeted more at larger, more established companies than at startups. For instance, tech companies can write off sales and use taxes on purchases of computer equipment amounting to $15M or more, and manufacturing and telecom companies can get a 1-5% tax credit on investments they’ve made in improvements, buildings, and equipment. 

PROPERTY TAX REDUCTIONS: Counties like Fulton and DeKalb offer to issue bonds for companies that want to use the proceeds to, say, buy land, expand their buildings, or buy equipment. The counties take ownership of the property and lease it to the business, meaning the company reduces what it would otherwise pay as property tax. These incentives are mainly attractive to businesses who want to own, instead of rent, space though — especially real estate developers — meaning they are not applicable to most early-stage enterprises. 

OCCUPATION TAX REDUCTIONS: The city of Atlanta’s offer to waive occupational taxes for early-stage tech companies that have less than $1M in revenue and for similarly-sized small businesses operating in disadvantaged areas is right on target. These waivers encourage fledgling companies to launch in Atlanta and in areas yearning for new business. 

INVESTOR INCENTIVES: The federal Opportunity Zone (OZ) program encourages private investment in low-income communities (so-called “Opportunity Zones,” of which there are 26 in Atlanta) by making these investments eligible for deferred or reduced capital gains taxes. Still, the OZ program has gotten a fair amount of criticism, with critics saying that OZ investments lack transparency, focus on projects in more developed areas instead of communities that need capital most, and limit the control entrepreneurs operating in Zones have over the investments that make it to their areas.

In terms of other investor incentives, the Invest Georgia Exemption allows Georgia companies to raise up to $5M from local investors free from federal security registration requirements. The state let its Angel Investor Tax Credit — which allowed investors to receive an annual state income tax deduction of up to $50K for investing in early-stage Georgia companies — lapse, eliminating at least one carrot for encouraging Georgia angels to invest close to home.

Loans and grant programs

Startups are able to access affordable loans through the state and Invest Atlanta, the city’s economic development authority. The federal government’s State Small Business Credit Initiative (SSCBI), which gives states money for small business financing, allocated $118M to Georgia in 2021. The Georgia Department of Community Affairs provides this money to Georgia lenders, who then, in turn, offer loans to small businesses. Invest Atlanta’s low-interest loans include those from the Creative Industries Loan Fund, for creative entrepreneurs in film, music, and digital entertainment; the Atlanta Forward Loan Fund, for startups that are part of capacity-building programs within incubators, coworking spaces, or accelerator programs in the city; and the Phoenix Fund, for Atlantan small businesses. These loan offerings assume that new businesses are generating enough cash to cover their debt payments, however, which is often not the case for small, high-growth enterprises trying to suss out product-market fit and a business model. 

For this reason, to the extent possible, more money should be made available for direct grants to startups — like the cash grants offered by Cobb County’s Entrepreneurship & Innovation Incentive program to startups with annual revenues of less than $1M. New grants should particularly target businesses run by historically disadvantaged groups and founders tackling problems that have society-wide impacts, like those related to climate change, sustainable energy, and health care.

Provision of capital to private investors

The drawbacks for startups associated with taking on debt and the limited availability of grant money make the capital the state allocates to local institutional investors crucial. The Invest Georgia Program, one of the state’s largest commitments to entrepreneurship, has played a powerful role in expanding the venture capital community in Atlanta. Since the Invest Georgia Act was passed in 2013, the state has committed $50M to 12 local VC and PE funds including those administered by Kinetic Ventures, Knoll Ventures, Mosley Ventures, Noro-Moseley Partners, TechOperators, TechSquare Labs, Tech Square Ventures, and TTV Capital. These funds have, in turn, invested this capital in over 70 Georgia-based startups. In addition to spurring economic development, the state’s investments in these funds accrue directly to the government via positive financial returns. This, in turn, builds a virtuous cycle in which the government can use these returns to continue investing in building the startup ecosystem over the long term. 

Incubation and consulting

Government-sponsored incubators and consulting services, like the city of Atlanta’s selective Women’s Entrepreneurship Initiative (WEI) and Invest Atlanta’s offer to advise startups on financing, tax incentives, employee training, and site selection, are great means of providing mentorship, guidance, and resources to founders. Such offerings should be expanded to more local governments and to minority groups like Black and LGBTQ founders.

Acting as an early customer

More localities should also replicate Atlanta’s Demonstration Project program, which encourages tech startups — particularly those focused on IoT and Smart City solutions — to pilot their products with the city government. The program provides startups with lower-risk first customers for early traction and product feedback.

(Note: More about many of the items mentioned above can be found in Startup Atlanta’s excellent Atlanta Startup Ecosystem Guide.)

Room to grow

Together, these pieces suggest that Georgia and Atlanta policymakers have taken steps in the right direction but should ramp it up if they want to ensure Atlanta’s continued growth as an innovation hub. This is reflected in Inc.’s 2020 “Surge City Index,” where Atlanta ranked 18 out of 50 in terms of the best place to start a business. This put Atlanta behind well-recognized tech hubs like San Francisco, San Jose, San Diego, Seattle, Denver, and Boston but also after other Southern cities like Austin, Raleigh, Nashville, Miami, Jacksonville, and Dallas. Similarly, the Small Business & Entrepreneurship Council places Georgia in the middle of the pack when it comes to being entrepreneur-oriented: 22 out of 50 for pro-small business policy and 24 out of 50 for being tax-friendly. 

Recent events suggest we may even be going in the wrong direction. In March, the Georgia House of Representatives passed HB428, which proposes eliminating the sales tax exemption mentioned above for high-tech companies that invest at least $15M in computer equipment. Getting rid of this exemption would mean erasing a policy that has encouraged tech companies to invest in the state for over 20 years. If anything, the existing policy should be expanded to include purchases lower than $15M to encourage investments by smaller, earlier-stage companies. 

Broader actions taken by the state government are even more concerning. Five years ago, the state legislature passed a bill that would have given faith-based organizations in Georgia the ability to deny services and jobs to LGBTQ individuals. Then-Governor Nathan Deal, fortunately, vetoed the bill, characterizing it as running counter to Georgia’s welcoming ethos. More recently, Georgia’s controversial new voting law has been denounced by political and business leaders alike. When the leaders of major corporations headquartered in Atlanta, like Coca-Cola and Delta, criticized the law, conservative legislators responded by railing against these companies and even tried to repeal a tax break on jet fuel for Delta. Such actions undermine Atlanta’s reputation as business-friendly and open to innovators of all backgrounds, and thereby threaten to scare off founders and investors who would otherwise build here.

What should policymakers invest in?

Adopting some of the suggestions I mentioned above, such as expanding government purchasing programs for startup products and services and making resources like grants and public incubator programs more available to minority founders, can help accelerate Atlanta’s rise as a tech and innovation hub. Jon Birdsong from Atlanta Ventures has proposed some compelling ideas in this vein, like having public officials more actively broadcast local startups’ successes, launching Georgia “moonshot” initiatives, and offering a simple ROI calculator for starting or moving a company to Georgia.  

Policymakers should also focus on the following:

Thinking small when it comes to business policies

I mean this in two ways. First, government decision-makers should be more mindful of the impact of their policies on early-stage companies. Second, they should minimize the amount of administrative red tape. State policymakers could help accomplish the first meaning of “thinking small” by lowering the minimum spend required for companies to receive tax incentives. For instance, they might reduce the minimum amount required to qualify for the sales tax exemption for computer equipment purchases or offer an incentive to startups similar to the highly successful 20-30% income tax credit available to producers of film, television, and other entertainment projects who spend at least $500K in Georgia annually. As for the second meaning, public officials should emphasize being digital-first in their interactions with startups, turn around application decisions quickly, and communicate regulatory requirements in easily understandable language, rather than convoluted fine print, on websites and forms. Government agencies should proactively approach startups to get feedback on what is working and what is not and gather recommendations on user-friendly design practices.

Establishing a long-term vision for the local innovation ecosystem

Policymakers should clearly communicate their views on the contours of the future Atlanta and Georgia tech ecosystems. Maybe their vision is that Georgia will be the world leader in developing next-gen digital supply chains powered by warehouse robotics, automated fulfillment, and blockchain-enabled tracking, or will be the country’s most inclusive entrepreneurial community, with a higher share of minority founders and jobs provided in low-income areas than any other state. Regardless of the specifics, such a narrative can help get different stakeholders, both public and private, on the same page when it comes to working towards a common future. Officials should consult with players in the local startup ecosystem to help design the vision. 

Capturing data about the startup community

As suggested by a recent National Governors Association report, Georgia policymakers should take an inventory of entrepreneurial assets, whether these are federal, state, local, charitable, or private resources, that can be used to achieve the common vision and showcase these assets to the innovation community — perhaps by using tools that digitize resources on maps and allow collaborators to visualize available opportunities. The government should also regularly track indicators related to the health of the local startup ecosystem and share the results with stakeholders — maybe via a regular “State of Startups in Georgia” report or an “Atlanta Entrepreneurial Community Dashboard” — to illuminate progress towards goals and whether policies are working. Such tracking could pull in publicly available information like the U.S. Census Bureau’s Annual Survey of Entrepreneurs or data from the Bureau of Labor Statistics, Small Business Administration, or Georgia Department of Economic Development. Local policymakers could, similarly, run annual pulse surveys of Georgia founders to understand how satisfied they are with the local innovation environment and the support they are receiving.

Doubling down on innovation districts

Atlanta and other municipalities should work to seed more innovation districts and expand the ones that already exist. Innovation districts are urban areas that cluster startups and mature companies with educational institutions, co-working spaces, incubators and accelerators, coffee shops, green spaces, and mixed-use housing and retail. As put by Bruce Katz and Julie Wagner in a Brookings Institution essay, innovation districts’ unique “mash up” of creative players and resources enable ideas and knowledge to be transferred more quickly and seamlessly, empowering “productive, inclusive and sustainable economic development.” Atlanta’s most visibly successful innovation districts in Midtown concentrate institutions like Georgia Tech, SCAD, Emory University Hospital Midtown, and the Woodruff Arts Center; co-working spaces run by WeWork, Tech Square ATL Social Club, and Industrious; investors like TechSquare Labs and Tech Square Ventures; and the offices and innovation centers of multiple leading corporations ranging from Accenture and Anthem to Delta and NCR. 

The construction of the Propel Center’s new 50,000 square-foot innovation campus at the Atlanta University Center, backed by investments from Apple and Southern Company; tie-ups between the AUC schools and corporate partners like Google and Blackstone; and the presence of existing entrepreneurial resources like the Russell Innovation Center for Entrepreneurs (RICE) augur the rise of a similar innovation district in the West End. Public officials should clear the way for the continued growth of these districts and the formation of new ones by proposing comprehensive development plans, simplifying zoning approval processes, encouraging leading companies to locate offices in these areas via tax incentives, and investing in enabling infrastructure like public transit and high-speed internet.

Tackling these items will help move Atlanta even further into the vanguard of forward-looking, tech-oriented cities.