This post was written by Ellen Harpel, founder of Smart Incentives and president of Business Development Advisors LLC (BDA), an economic development and market intelligence consulting firm. Post originally appeared on Smart Incentives blog.
Communities are increasingly supporting entrepreneurship as part of their economic development efforts, either as a complement to or replacement of business attraction strategies. State governments have created a variety of programs that communities and entrepreneurs can access as part of their local economic development toolkit.
Economic development groups increasingly use both financial and non-financial incentives (including specialized services) to support businesses in their communities. A new report from the National Conference of State Legislatures (NCSL) describes a variety of state policies to support entrepreneurs, including financial incentives and other types of business services.
Capital and Incentives
- Direct Investment — Quasi-public corporations provide venture capital to companies. Investments often have economic development goals (job creation or investment in targeted areas) as well as expectations of financial return.
- CAPCOs — Certified Capital Companies (CAPCOs) are state-certified investment companies that sell insurance premium tax credits to insurance companies and use the funds to invest in start-ups. Returns are provided back to the insurance companies. NCSL reports that these have fallen out of favor due to the complex nature of the funding mechanism, lack of transparency and overly favorable terms to insurance companies.
- Fund of Funds — State funds are invested in venture capital and private equity funds that will invest in businesses in the state and/or in targeted industries. States provide contingent tax credits to protect investors from losses.
- Tax Incentives — Tax credits are available to angel investors who invest in start-up companies and/or venture capital firms. NCSL reports that many economists believe the credits are not effective since they are not likely to lead to investments that investors were not willing to make anyway based on the quality of the opportunity. NCSL also notes that data on the impact of these credits is “rarely available.”
Services and Other Policies
- Simplifying the start-up process — one-stop centers for business licensing and registration; navigating state regulation
- Integrating entrepreneurship into state economic development efforts
- Promoting technology development, including tech transfer and commercialization programs
- Developing entrepreneur networks to connect networks with each other, investors, customers, and other resources
- Creating or supporting incubators (resources to support start-ups) and accelerators (for established businesses ready to grow)
About the Report
“Promoting Entrepreneurship: Innovations in State Policy,” a Report by the NCSL Foundation Partnership on Jobs and Innovation can be accessed here.
In 2012, the National Conference of State Legislatures (NCSL) formed a new public/private partnership to examine the role of state policymakers in job creation and innovation through the NCSL Foundation. The partnership supports NCSL’s ongoing efforts to improve the quality of information available to state policymakers.
A key goal of the partnership is to improve the dialogue among state legislators, business representatives and other organizations interested in state policy decisions. The partnership convened a National Jobs Summit to bring state policymakers together with the private sector partners in September 2013 and is publishing a series of issue briefs on state policies related to job creation and innovation. Other briefs in this series include: “The State Role in Rebuilding the Manufacturing Sector” and “Workforce Development Initiatives: Collaborating to Prepare for Jobs of the Future.”
About the author: Ellen Harpel is President of Business Development Advisors (BDA) and Founder of Smart Incentives. She has over 17 years of experience in the economic development field, working with leaders at the local, state and national levels to increase business investment and job growth in their communities.