It’s become more evident that the D.C. government has been taking actions to assure the vitality and health of our startup ecosystem. Recognizing the advancements and growth our tech community has experienced in the past few years has only emphasized the city’s necessity to keep our momentum and development going. With that said, various legislations and tax incentives have been put in place to benefit different tech companies and startups in an effort to stimulate further expansion of our technology community. The most notable piece of legislation is a recent that the city has passed has been the Startup E-Commerce Act, which provides $15 million in property tax credit and $17.5 million in corporate income tax credit to LivingSocial on the requirement that they create 1,500 new hires in the city.
Within four years of their property tax credit, LivingSocial would have earned $6 million in tax benefits (assuming D.C. gives the credit at the projected $1.5 million per year over 10 years) which has given myself and other members of the community an interesting number to mull over. $6 million, what would I do with that money if I were given the mandate to help the startup/tech community in the D.C. region any which way I can?
To respond to this interesting proposition and garner input from the Tech community, a letter was actually drafted to address the situation in which key members and thought leaders of the startup community signed, including Dave Sandrowitz, local angel investor, Jonathan Lunardi, CEO & Co-founder of VeteranCentral, Stephanie Hay, Co-founder of FastCustomer, Andrew Mason, Co-founder of Eventstir, Michael Goldstein, Principal at Endeavor DC, Ram Singh of 10io, Daniel Kleinman, Founder of MegaPixel Software, Navroop Mitter, Co-founder & CEO of Gryphn Corporation, and Lindsey Mask, Founder of LadiesDC.
The letter states:
Dear Council members and Deputy Mayor Hoskins,
The purpose of this letter is to thank you for your recent support of the growing technology sector in Washington DC, and to offer some encouragement and feedback as owners of DC technology companies.
As the contraction of federal agencies and contractors begins to affect the DC economy, we believe the DC tech sector is well situated to replace lost jobs and demand for office space. Your efforts to support and invest in the growth of the DC tech sector are therefore very much appreciated. The legislation currently before the DC Council, which provide property and income tax breaks to LivingSocial and capital gains tax breaks to investors in DC tech companies, demonstrate your leadership in this regard.
As the DC government’s investment strategy in the technology sector matures, we would endorse an even more aggressive strategy that supports a broader array of companies at multiple stages of growth. An aggressive, transparent, policy-based strategy that targets companies at all stages has the best chance of growing a real ecosystem of technology firms that would provide long-term economic stability for the District.
DC attracts young, talented innovators who are driving this growth. This is a strength to build on, but unfortunately the current Net-2000 incentives provide minimal support to startup technology firms.
Below are some proposals for your consideration that may provide more targeted support to a broader range of DC’s tech sector.
Minimize entrepreneurial overhead Finding affordable places to work and network is a central obstacle faced by startups in DC. While large companies can take advantage of property tax breaks, startups pay the same rents as law firms, lobbyists and federal contractors.
The Mayor is able, through his ability to sign master leases, to sublease commercial office space to selected companies at below-market rates. By leveraging this ability to slash office space costs for startup tech firms in the District, conceivably hundreds of startups could receive the type of real estate subsidies that are currently only available to large property owners. If a small percentage of these startups grow, the city would generate a substantial return on this targeted investment.
Replicate NYC’s Innovation Island in DC Universities around the world bid for the opportunity to build a world-class technology campus on NYC’s Roosevelt Island, what Mayor Bloomberg called Innovation Island. The winner, Cornell, will develop this campus on city-owned land, which will be upgraded with $100 million of public transportation improvements.
DC is currently evaluating options for the development of Poplar Point, St Elizabeth’s, and other parcels of city-owned land. A major strategic investment like Innovation Island would bolster the city’s supply of talented engineers and entrepreneurs. DC’s own innovation campus could be used for technology education, startups, incubators and co-working spaces.
Incentivize IT innovation in sectors with local customers and acquirers The IT executives of many sectors, particularly hospitality and law firms, are in Washington DC or its inner suburbs. Just as DC’s new workforce intermediary will target workforce development investments in the hospitality sector, we should target technology business development investments in sectors with clusters in the DC area.
We should consider expanding our economic development relationships with major DC sectors like hospitality and law to support IT innovation in those sectors. These are the natural replacements of technology providers to the federal government whose contraction will challenge our economy.
We are excited about your leadership in initiating a private-public partnership to build our tech sector, and provide these proposals for an aggressive, broad-based investment in this sector in the spirit of that partnership.
Within the letter, three alternative plans of utilizing city tax incentives and funds to promote a more vibrant startup ecosystem were proposed. Below are more details on each of the proposals of these tech executives.
To be clear, the signatories communication is limited to the letter above, while the details below are my own thoughts on each proposal in the letter.
Plan A – Access to subsidized startup office space, $6 million to support, 100 startups per year for 10 years
Problem it fixes: Finding rent and space to work out of in D.C.
The idea: Lease 50,000 square feet to startups that need space to work – that’s 500 sq ft for 100 startups each. Here at InTheCapital we operate our empire out of a lot less than that for our entire staff (remember, we’re a startup too!)
Douglas Development owns 8 million+ square feet of office space in DC and they currently own the properties LivingSocial leases. Whether LivingSocial leaves D.C. or builds their proposed 200,000 square foot D.C. HQ, Douglas Development stands to have a lot of vacant space in the near future. If the city rented all 50,000 square feet from Douglas Development at low rates this would mean Douglas Development might lose money on 0.625% of it’s total space in DC, a paltry number considering how many open office spaces most leasing companies typically have on average.
Of course, there are a variety of companies in D.C. such as law firms, PR and media firms, and others that like to work and grow with startups and many of them have excess space that they lose money on today. Existing lease holders with empty space could easily lease this space at low rates to the mayor’s office, and recover some lost income, while the city subleases the space to startups. Having lean startups operating in your space that you can mentor and serve is a great way to build long term clients and give back to the local community.
More importantly, this can help create startup density and facilitate collaboration – hallmarks of vibrant startup communities like New York City and Silicon Valley.
Plan B – Incentivize IT innovation in sectors with local customers and acquirers
Problem it fixes: Creating startups that are pertinent to the major industries located in this area, plays to the region’s strengths
The Idea: Start a series of competitions, hackathons, and accelerators centered around the industries that are most prevalent and strongest in D.C. These include hospitality, law, IT, and lobbying/politics, industries that are both abundant and have the greatest need for lean organizations to create innovative solutions to their problems.
Often people make the misguided mistake of emulating regions like New York City or Silicon Valley that have startups and companies with products tailored to their core industries and demographics that are present in those metropolitan areas. By creating programs with companies and mentors that play to this region’s strong suits, we can start building the basis of a more robust and dynamic startup ecosystem. With contractors and federal companies contracting from the space, it only makes sense that we can replace it with startups, innovation, and small businesses.
Plan C -Build an Innovation Island for DC, Taking a Big Chunk of Neighborhood and making it below market rates for Universities, Engineers, and Entrepreneurs
Problem it fixes: Talent creation and retention for technology, as well as creating a density for startups in the area
The Idea: For those unfamiliar with the Innovation Island concept in New York City, Mayor Bloomberg held a competition in which universities around the world essentially bid for the opportunity to build a world-class technology campus on NYC’s Roosevelt Island. Cornell University eventually won the bid, and will develop a new campus on city-owned land, which will be upgraded with $100 million of public transportation improvements.
This is a brilliant concept that can be easily applicable to D.C. considering the massive cluster of higher education facilities that are both located in the city and surround it’s borders. Often tech companies in this region struggle with talent retention and keeping many of the brilliant minds that walk through University doors within the city to work, and by creating an area within the city that’s designated as a place of innovation and technological advancement D.C. stands a chance of keeping it’s many talented CS and STEM students. By subsidizing a specific neighborhood of D.C. as to lower barriers and costs for creating startups, a university (or several even) can create a new hub of collaboration and technological innovation that can easily become a beacon of startup talent for this region.