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April 3, 2015
Attracting Technology Start-Ups: A Tale of 2 State Tax Strategies
by Allysa D. Piché

Full Text Published by Tax Analysts®

This article first appeared in the August 18, 2014 edition of StateTax Notes.

I. Background

The United States has experienced a technology shift in the last decade. The technology bubble in early 2000 left few tech start-ups afloat,1 leading many states to focus on attracting established, Fortune-listed companies when seeking to bring in jobs. However, the rapid development of technology-driven giants such as Google and Facebook, and the continued emergence of more recent tech start-ups, such as Twitter and PlateJoy, have resulted in the revival of states across the nation. Big business is no longer the stable job creator it once was, and states are increasingly looking to technology companies to help them recover from the Great Recession. As the sophistication of the start-up revolution grows, so too must states and communities that seek to attract and support start-up companies.

While the most glorified and obvious location for any tech start-up remains Silicon Valley, there are increasingly viable alternatives for those who find shipping to the West Coast untenable. How do states distinguish themselves from the shining beacon that is Northern California? What do start-up companies consider when choosing where to open shop, or is it simply a matter of where a friend has an available (and hopefully comfortable) couch?

Because of increasing competition for market share and financing, today's start-up founders must consider much more than who and where their customer base is. They need educated tech talent (a group in high demand everywhere); a well-equipped space; a manageable cost of living; a community of similarly minded entrepreneurs; mentoring; and, most critically, access to financing.2 The name of the start-up game is access. Founders need to know every resource and advantage their competition has access to.

Of the various efforts states make to attract the next golden goose, tax incentives have been the most popular. More than half of the states have passed or updated tax legislation designed to attract start-ups and the industries that surround them. These incentives include investor credits,3 research and development credits, sales and use credits, community-backed venture capital funds, incubator credits, income tax credits, and tax-free zones. For state legislatures, appealing to job creators is attractive and politically expedient -- particularly because technology companies are believed to be able to bring home the triple crown: decrease brain drain, create jobs, and energize the local economy. Start-ups are ideal because they often prefer inexperienced college graduates, a group many companies shy away from hiring.4

However, states' statutory responses to that tech-driven upheaval are diverse, resulting in varying degrees of warmth from the start-up community.5 In fact, start-ups often seem unaware of state efforts to attract them6 unless a state or city has actively reached out.7 Regardless of the general public's awareness, states continue to use tax policies as a recruitment tool, and their approaches have split into two distinct efforts: (1) focusing on a narrow tax incentive approach that targets specific industries or specific phases of the start-up process; or (2) focusing on a wholesale start-up tax incentive package with tax breaks for all players.

Do those differing tax approaches adequately address the start-up community's needs? Is either approach effective in recruiting and supporting new entrepreneurial endeavors?

This article compares two recent state tax policy responses to the continued rise and prominence of tech start-ups: New York, a state racing to catch up with the West Coast; and Georgia, a state that prides itself on its pro-business policies. The analysis considers the states' approaches, as well as the factors they weighed in their decision-making. For example, New York has unleashed an extensive legislation package aimed at start-ups that is promoted through commercials, governor speeches, and a centralized website. In contrast, Georgia has offered a piecemeal approach, relying on private and institutional actors to fill in the gaps. In comparing the two states' differing approaches, a framework emerges for understanding the opportunities they present for start-ups, their tax planners, and state and local policymakers. Ultimately, states that continue to follow a disjointed, step-by-step approach will be overshadowed by those that make a more complete, holistic effort.

II. State Tax Responses by Approach

States have taken one of two tax-oriented paths regarding their policies for start-ups: (1) a targeted approach, or (2) a wholesale, guns-blazing approach that bundles tax incentives with a marketing campaign, institutional partnerships, and more. Within the first approach, states have split further. Some have sought to entice specific industries -- for example, biotechnology, information technology, and advanced manufacturing -- while others have targeted specific stages in start-up development, such as financing, location, labor, and large purchases.8

Regardless of the approach used, state legislatures justify their decision with two central objectives in mind -- increasing start-up access to financing, whatever the form, and increasing start-up incubation, namely community-based support and infrastructure. Georgia has followed the targeted approach by focusing on start-up financing via its adoption of an angel investor tax credit, which was followed two years later by the establishment of state-backed venture capital funds. New York, on the other hand, has focused its massive campaign on incubation.

A. The Targeted Approach: Georgia Focuses on Access to Financing

In striving to encourage the founding and success of tech start-ups, states have passed (and been encouraged to pass9) tax incentive legislation that increases start-up investment, whatever the form. The reason is obvious -- business ventures need capital. Further, many of the most renowned technology inventions and companies have an initial investment story. For example, Nikola Tesla's breakthrough with alternating current electricity,10 Google, and Pinterest were all made possible because of initial investment from angel investors.

The industry norm for financing usually involves several rounds of angel or venture capital investments or, if equity is a concern, loans.11 While banks remain an option for some, start-up funding has diversified far beyond the traditional model -- a point some states have noted. In its most recent effort to attract tech start-ups, Georgia has passed two major pieces of legislation within the last three years. One is the angel investor tax credit. The other consists of two state-backed venture capital funds -- the Invest Georgia Fund (IG Fund) and the Seed Capital Fund (SC Fund).

    1. The Angel Investor Tax Credit
Banks and venture capitalists are often reluctant to finance a 22-year-old college student with a groundbreaking idea and no resources to finance building a company around the idea. Angel investors fill in the initial gap. These are wealthy individuals willing to invest their own money in a company at its earlier stages in exchange for an ownership stake, often in the form of preferred stock or convertible debt.12 Angel investments are widely viewed as critical to the earliest and most vulnerable start-up stages and can range from $5,000 to millions of dollars. The investments are typically smaller than later forms of financing and come from private investors or small pools of individuals. As a result, angel funding is more readily available than other funding options. Angel investors can be found in every state.

States are encouraging more angel investment through tax incentives because of its flexibility and ultimate reliance on private individual actions, as opposed to government programs. Thus, while banks and venture capitalists operate under stricter business law requirements and are bound by risk limitations and profit margins, angel investors remain a more flexible financing source and seem to be the easiest to target benefits to.

When considering whether to pass an angel investor tax credit, Connecticut's legislature commissioned two reports from its Office of Legal Research (OLR) about the details of other states' legislation. In the first report, completed in 2007, the OLR determined that "because angels want to participate in developing a business, they tend to look for deals close to home."13 Thus, the soundness of an angel credit was sensible at face value because angel investments are more likely to go to local businesses. The second report, in 2010, indicated a dramatic increase in state angel credits, from nine states in 2007 to at least 21 states in 2010.14 To date, legislation on angel credits has passed in more than half the states.15 The size of the credit ranges from 100 percent (Hawaii16) to 25 percent,17 and there is typically a floor or ceiling on the size of the individual investment credited, as well as a cap on the total credit allowed.

Georgia, a state that has long lauded itself as being pro-business,18 passed a qualified investor tax credit (informally known as the Georgia angel credit) in 2011 to bring in a broader range of financing for its start-up community.19 That Georgia credit is the only specifically tax-related legislation the state has enacted to encourage entrepreneurship because the state's venture capital funds do not offer tax incentives, though they use taxpayer money, and they do not reside within the tax section of the Georgia Code.

Georgia's version of the angel credit is available only to private individuals and some companies; venture capitalists are not eligible.20 Start-ups must meet specific requirements in order for investors to qualify for the credit: They must be under three years old, have no more than 20 employees, and have no more than $500,000 in gross revenue.21 Also, the start-up must fall within specifically enumerated technology industries, such as biotechnology, information technology, and advanced materials.22 In fact, the statute states that investments made to retail or professional services ventures are ineligible.23 However, there are challenges with that statutory definition.

The universe of tech companies is diverse, and many highly successful, angel-investor-funded start-ups exceed Georgia's requirements. There is a growing trend to move a service or retail venture online that was previously unavailable there. For example, Homejoy allows you to make an appointment and pay online for a home cleaning service. While a cleaning service is not a new concept, its availability entirely online -- complete with cost transparency and customer service -- is. Thus, the requirement that the start-up cannot be primarily involved in retail or service misses out on a growing number of businesses that are just as likely to receive angel and venture capital infusions elsewhere, including Homejoy24 and flash sale e-commerce websites such as Gilt25 and One Kings Lane.26 That narrow company definition ignores the expansive universe of tech start-ups and may dampen angel investments in Georgia that otherwise might have occurred.

Another problem with Georgia's angel credit is that it was originally justified and passed because early financing was believed to be one of the primary challenges facing Georgia's start-up community.27 The efficacy of Georgia's angel credit in its first two years remains in question. According to the Georgia Chamber of Commerce, only 96 companies registered to receive investments from angel investors between 2011 and 2012, whereas the estimated angel investment in 2009 across all 50 states involved more than 57,000 start-ups.28 Even if there were 10 times as many companies in Georgia between 2011 and 2012 that received angel investments as actually registered with the state's Department of Revenue, Georgia would still fall short in encouraging angel investment.

While Georgia is riding a national fad that encourages angel investment via a tax credit, it has not encouraged an increase in that type of financing, and Georgia taxpayers and start-ups end up on the losing end.

    2. Venture Capitalists
In contrast to angel investors, venture capitalists are typically institutional or more seasoned investors that focus on high-tech companies with a proven track record. They "tend to invest in research and development that could lead to new products or in young, emerging businesses whose early sales promise quick returns."29 They are often organized as limited partnerships with general and limited partners who provide the capital to be invested in companies as determined by the general partners.30 Those venture capitalist companies vary in the size of their investments, but according to industry norms, their investments usually start much larger than typical angel investments. Because of the size of the investments and sophistication of the partners, the geographic location and number of venture capitalists is limited. Venture funding is not as available as angel investments and is concentrated in established tech sectors such as Silicon Valley and Boston.31 Thus, this more restricted form of funding is not as readily available or meaningful to a state's tax policy focus. Georgia has not extended venture capitalists a tax credit.

    3. State-Sponsored Venture Capital: The Invest Georgia
    and Seed Capital Funds
As with any financial investment, risk is mitigated through diversification. While many states have focused on angel investment, others have gone beyond that to pass legislation permitting communities or some cities to pool taxpayer money to fund local start-ups. While there can be any number of restrictions on the industries that can be funded, the size of the investment, the total permitted investment credited per year, and the age of the company funded, states are experimenting in community-based investment options.

For example, the Kansas Legislature recognized that start-ups often do not have access to normal business financing. It established that local communities can create their own community-controlled venture capital fund and created a statewide Center for Entrepreneurship to funnel funding to those regional or local community seed capital funds.32 One type of community-controlled fund permits rural communities to pool taxpayer funds into a regional foundation that can fund any local start-up that operates in specific industries such as biotechnology, information technology, and advanced material manufacturing.33 Also, Kansas created the Technology-Based Venture-Capital Fund (TBVC Fund).34 The fund is not limited to state taxpayer money and can also receive investments in the form of "gifts, donations or grants received from any source other than state government" -- that is, private individuals and companies.35 The TBVC Fund is also designed for investing in Kansas start-ups. Critically, "the fund's participation [must be] instrumental to the success of the enterprise because funding . . . is not available on commercially feasible terms."36 In other words, Kansas's venture capital funds are statutorily dedicated to the neediest start-ups.

In contrast, two years after the Georgia General Assembly passed its angel credit, it revisited its own SC Fund, a state-sponsored venture capital fund originally created by constitutional amendment in 1989.37 The SC Fund was initially written with an eye toward capitalizing "innovative businesses."38 However, it proved largely unsuccessful, forgotten, and underfunded in light of the continued flight of technology companies from the state.39 "Between 2002 and 2012, twenty-five high-tech companies left Georgia in search of better funding environments. . . . One study conducted by the Georgia Institute of Technology found that 40 percent of high-tech start-ups in Atlanta leave within three years, and 60 percent leave within five years."40

Though the SC Fund had been in place for over 20 years, state technology leaders harshly criticized its usefulness, alleging that for every dollar invested in Georgia venture capital, 92 cents came from out of state.41 But it's been argued that the reason tech companies leave the state is not related to funding. "Atlanta technology companies have seen no lack in funding. In terms of institutional venture capital investment, Atlanta is on par with that of the Research Triangle in North Carolina and Austin, Texas."42

With those arguments in mind, the Georgia legislature determined that revisions were needed to revitalize the SC Fund, refocus its mission, and increase venture capital financing across the state. However, the legislature appears to have relied on venture capital financing data from private organizations and conducted no study of its own to determine the need for a state-sponsored venture capital fund. As one writer said in an analysis of state-sponsored venture capital funds, "It is far from clear that private markets are inefficient or inadequately served by private venture capitalists. . . . State planners should not simply assume that there is a 'funding gap' for high technology firms within their states . . . [but] should conduct comprehensive studies to determine whether a public fund is needed."43

Regardless of what data Georgia considered in its decision-making,44 post-revision, there are not one but two state-sponsored venture capital funds now in the state: the SC Fund and the IG Fund. The SC Fund requires investments made from its coffers to be matched by at least $3 for every $1 from the fund45 -- a tall order for any business, but especially for a technology start-up46 -- and it remains limited to biotechnology and similar advanced technology companies.47 That matching requirement also puts the SC Fund's purpose at odds with the Kansas TBVC Fund. Where Kansas sought to provide funding to businesses in need, Georgia requires tech start-ups that already struggle to find financing to somehow find at least 75 percent of their funding from other sources in order to be eligible for financing.

In contrast to the SC Fund with its demanding requirements, the IG Fund will have $100 million in funding from Georgia taxpayers and private investors, which can be funneled to Georgia-based start-ups, regardless of their ability to acquire other sources of funding.48 It is designed to do exactly what its predecessor, the SC Fund, originally promised: self-perpetuate, create jobs, and encourage technology innovation.49 Also, the IG Fund must be split 40/60 between start-ups and expanding businesses (qualified growth-stage businesses).50 In that way, both funds can (and in the IG Fund's case, must) invest in expanding businesses, not just start-ups.

In addition to the aforementioned problems with Georgia's state-sponsored venture capital funds, there are two notable issues as they relate to start-ups. First, leaving the more than 20 years of the SC Fund's underperformance aside, both venture capital funds are required to fund existing companies, not just start-ups. That requirement could leave promising Georgia start-ups without viable, in-state financing options, which is a problem the funds were created to alleviate. Second, the Georgia legislature seems to misunderstand the nature of what venture capital is. It is a common misconception that venture capitalists fund a variety of start-ups. As a rule, they do not.51 If venture capital is a viable funding option for a business, it is because the business is either an expanding, established business with a successful history, or it is selling something that a bigger company will purchase at a high profit.52 That lack of interest in funding a range of start-ups has always been a characteristic of the venture capitalist industry, and as the term "start-up" has broadened, venture capitalists have increasingly indicated that "entrepreneurship and venture capital are heading in opposite directions" because they are only interested in high-profit ventures.53 Despite that industry-accepted distinction, the plain language of the statutes establishing those state-sponsored funds continually refers to "seed," "early," and "early-stage" businesses.54 Extraordinarily, the legislative history provides no answer as to why that distinction was ignored. Given the complexity of venture capital investment, it is a wonder that Georgia would wade into a $100 million venture capital arrangement.55

Overall, as admitted by the Georgia Chamber of Commerce and the Technology Association of Georgia in 2012, Georgia is not improving in new business creation, entrepreneurial activity,56 and number of venture capital deals.57 Policy analysts have even described Atlanta's technology sector as stagnant.58 While Georgia has renewed its angel credit until 2015,59 it remains to be seen whether the credit will be successful in encouraging new angel investment that would not have happened but for the credit, and whether the General Assembly will try new avenues for encouraging start-ups. At best, Georgia's piecemeal, finance-based approach has done little to support new start-ups. In all, while Georgia has identified funding as a major obstacle to tech start-ups starting and staying in the state, its piecemeal approach has not proven effective.

B. The Holistic Approach: New York Focuses on Incubation

While encouraging financing is one approach, states are beginning to realize that start-ups are less likely to succeed in isolation.60 To have any chance of success, access to mentors, a comprehensive workspace, a talent pool, and a supportive community are vital. Start-ups are more likely to start up when there is a supportive culture. How can state and local governments encourage that culture through their tax policy? The Martin Trust Center for MIT Entrepreneurship is a leading incubation model that has been copied all over the country, and it offers a useful example for developing and sustaining a culture of entrepreneurship. As will be shown through New York's recent incubation efforts, just as states can encourage investment through incentives and responsible tax policy, so too can a culture of entrepreneurship be developed.

    1. The Incubator Model: Access to Space and
Critically, start-ups often do not have the space or resources to scale up their idea to a working prototype or into a business. An incubator is a business that provides resources to start-ups to allow them the time and ability to focus on their idea because all other needs have been provided for. The incubation model has been emulated all over the country through partnerships among states, public academic institutions, and the business community.61

MIT and its entrepreneurship center work together to provide the kind of incubator that provides as much space and resources as possible for collaboration and teamwork. Community members have 24/7 access to classrooms, free printing, and campuswide, high-speed Wi-Fi. At the center you can write on the walls, make free international phone calls, hold videoconferences, use various types of software, save files in free cloud space, and develop prototypes on 3-D printers.62 Accessibility to resources pushes ideas forward into viable businesses. Because start-ups need room to develop and mature, state or local governments must put a high priority on incubation when developing a pro-start-up policy.

In 2010, despite having dozens of entrepreneur-focused programs,63 New York concluded that although it was a magnet for business generally, particularly in the finance sector, it was woefully behind other states regarding supporting technology businesses. To combat that and attract tech start-ups to the Empire State, Gov. Andrew Cuomo (D), former New York City Mayor Michael Bloomberg, hundreds of business leaders and CEOs, and the New York State Legislature established ties with institutional and private actors to implement the START-UP NY program -- the SUNY Tax-Free Areas to Revitalize and Transform Upstate New York program. Established by the New York Business Incubator and Innovation Hot Spot Support Act of 2013,64 the program emulates MIT's academic model in that it is designed to promote the creation and incubation of tech start-ups by partnering them with academic institutions. In a clear break from Georgia's investment-targeted approach, New York's full-scale approach is dedicated to the incubation of start-up companies.

Under its program, New York has designated various organizations as innovation hot spots or incubators.65 Hot spots are geographically spread throughout the state and are reserved for public university campuses.66 The universities must provide space and resources in support of technology-focused entrepreneurial endeavors.67 In contrast, incubators are privately owned spaces that must partner with a private in-state academic institution, and must use their space for the same purpose -- incubation of start-ups through space and resource support.68 Both hot spots and incubators choose which start-ups can apply and be accepted to their program.

Once a hot spot, incubator, or qualified entity (that is, a resident start-up) receives its designation, it is eligible for substantial state tax breaks.69 While many states have relied on private actors to create those types of business incubators without providing any tax incentives to do so, New York has provided its incubators tax breaks that are unprecedented. The legislation effectively eliminates many of the costs associated with space, labor, sales tax, and corporate and personal income tax for 10 years. Qualified entities pay no progressive income tax, state corporate tax, local tax, franchise fees, license and maintenance fees, or property tax, and they receive a credit for sales and use taxes paid. Also, all employees of those start-ups receive similar tax benefits -- that is, no state or local personal income tax on their wages for the first five years, and none on wages up to $200,000 for the next five years. As an additional incentive to move out of that highly coveted tax-free incubator, start-ups "that 'hatch' from New York State incubators will be eligible to enter tax-free communities and be eligible for the benefits under the program."70 While Georgia focused solely on encouraging funding, New York has found a way to employ its tax code to encourage public-private partnerships that create business incubators by using incentives.

While it is too soon to declare a victory with New York's tax effort, there are telling signs of progress and interest in the start-up community. New York's STARTUP-NY commercials have played on television screens as far as Georgia and California in a massive recruitment effort.71 Incubators and hot spots in the STARTUP-NY program across the state have indicated a barrage of applications far beyond the limited space available.72 Further, the number of incubators available to start-ups now numbers over 80 from Cornell to Long Island and a comprehensive list of them is readily found on a number of government and government-affiliated websites including that of New York City73 and the state of New York.74 Though not a recognized STARTUP-NY incubator,75 Grand Central Tech (GCT) is an incubator organization that launched in April 2014 located on Madison Avenue.76 Due to its backing by major philanthropists interested in incubating tech start-ups,77 GCT is offering its space to tech start-ups rent-free and equity-free for a full year.78 They are also covering the cost of any interns the start-ups need.79 GCT is undoubtedly a result of the energy and awareness surrounding New York's push to form a tech sector.

New York's approach to supporting start-ups has been to offer what amounts to tax-free zones at various locations throughout the state. Unlike Georgia, New York has not focused on funding or tax credits for investors, and it is arguable that this is the more sensible tack. There must be a critical mass of start-ups before investors will take notice. Thus, a focus on incubation is necessary for any pro-start-up tax policy to succeed. Investors will come when there are start-ups to invest in.

III. Conclusion

States have taken one of two approaches to attracting tech start-ups: a piecemeal, targeted approach focused on financing or start-up industries, or a holistic approach focused on incubation. The former ends up focusing on the industries that aid start-ups, whereas the latter focuses on the start-ups themselves. New York's campaign is an example of the latter. It has focused on business incubation by designating incubators as tax-free zones. However, while anecdotally the program seems to be effective, it is too young to know for sure. In contrast, Georgia's approach -- one piece of investment-focused tax legislation at a time -- has been in effect for more than two years, and it has yet to see measurable increases in the state's technology start-up community. That could be because neither the angel credit nor the state-sponsored venture capital funds specifically targeted the start-ups themselves, targeting instead their financers. In contrast, New York's tax-free zones provided tax breaks for all major players: the incubators, the companies, and the employees.

Overall, given the context of Georgia's start-up community, the state appears to have put the cart before the horse by focusing on investors instead of the start-ups themselves. If states seek to attract start-up investment, there must first be a cohesive, supportive, and readily accessible start-up community to invest in. Georgia's data suggest there is not, which could explain why its angel credit has not been an overwhelming success. For states looking to attract tech start-ups through their tax policy, an analysis of Georgia's and New York's efforts shows that the focus should start with the start-ups, not their investors.


1 See Jerry Useem, "Dot-Coms: What Have We Learned?" Fortune, Oct. 30, 2000.

2 See Dan Breznitz and Mollie Taylor, "The Communal Roots of Entrepreneurial-Technological Growth? Social Fragmentation & the Economic Stagnation of Atlanta's Technology Cluster" (Georgia Institute of Technology, working paper, 2009).

3 As of the beginning of 2014, more than half the states had passed an angel investor tax credit or similar investor credit to spur financial backing for start-up companies from private individuals instead of from banks.

4 See generally Yiren Lu, "Silicon Valley's Youth Problem," The New York Times, Mar. 12, 2014 (highlighting the effect of youth on start-up culture in Silicon Valley); Jamie Smith Hopkins, "Connecting Start-up Firms, Bright Graduates," The Baltimore Sun, Feb. 17, 2014 (highlighting start-ups' need for recent college graduates).

5 The formation of and excitement behind incubator-type companies in New York, such as Grand Central Tech, upon the rollout of START-UP NY are in stark contrast to the general lack of awareness of Oklahoma's taxpayer-funded business incubator program (as evidenced by the lack of any major news story results from a Google search of "Oklahoma start-up incubator"). See, e.g., Haley Vicarro, "Hundreds of Businesses Looking to NY Under Tax-Free Program," Albany Business Review, Nov. 11, 2013 ("More than 800 companies have applied online for the tax-free program since its official launch nearly two weeks ago").

6 Telephone interview with Jeremy Richardson, co-founder and director of product at Womply (Apr. 14, 2014) ("Taxes [are] the last thing you're thinking about when starting a technology company").

7 See Ryan Holmes, "When Does It Make Sense to Leave Your Start-up Roots?" Financial Post, Apr. 14, 2014.

8 See, e.g., Kentucky Cabinet for Economic Development, Kentucky Business Incentives (May 2011).

9 See Martin Swant, "Angel Investor Groups in Alabama Creating Statewide Organization,", Mar. 7, 2012 ("Angel groups are working to craft legislation that would provide as much as $5 million in tax credits from the state for individuals investing in tech start-up companies based in Alabama").

10 George Westinghouse individually supported Tesla in developing his history-making alternating current electricity at a time when J.P. Morgan and the Vanderbilt family heavily backed Thomas Edison's direct current electrical system. See Rishi Anand, "The World's Greatest Investment: Electricity," Venture Giant.

11 See Colleen Debaise, "What's an Angel Investor?" The Wall Street Journal, Apr. 18, 2010.

12 See id.

13 John Rappa, "OLR Research Report: State Tax Incentives for Angel Investments," Connecticut OLR, Jan. 3, 2007.

14 Compare id. with Rappa, "OLR Research Report: State Angel Investor Tax Credit Programs," Connecticut OLR, Sept. 29, 2010.

15 See Angel Capital Association, "State Incentive Programs."

16 Haw. Rev. Stat. section 235-110.9.

17 See, e.g., Wis. Stat. Ann. sections 238.15, 71-.07(5d).

18 See Georgia Department of Economic Development, "Competitive Advantages: Fortune 500" and "Competitive Advantages: Business Rankings."

19 The qualified investor tax credit, or angel credit, provides a 35 percent tax credit to investors of early-stage businesses in Georgia with a credit ceiling of $50,000. Ga. Code Ann. sections 48-7-40.30(d)-(e), (f)(2).

20 Id. at section 48-7-40.30(b)(8)(B).

21 Id. at section (b)(6)(B), (D)-(E).

22 Id. at section (b)(6)(H).

23 Id. at section (b)(6)(I).

24 Anthony Ha, "Homejoy Raises $38M as It Looks to Expand Beyond Home Cleaning," TechCrunch, Dec. 5, 2013.

25 Erick Schonfeld, "GiltGroupe Nabs $138M From Softbank, Goldman, Other Investors," TechCrunch, May 9, 2011.

26 Leena Rao, "One Kings Lane Raises $112M at a $912M Valuation in a Quest to Dominate Home Goods Online," TechCrunch, Jan. 30, 2014.

27 Georgia Chamber of Commerce, "2013 Annual Report: Center for Competitiveness -- Innovation & Technology" ("Far too often, companies that start in Georgia end up leaving the state for lack of capital funding").

28 Georgia Chamber of Commerce, "Angel Investor Tax Credit Renewal" (2013).

29 Rappa, supra note 13.

30 See Joe Hadzima, "All Financing Sources Are Not Equal," MIT Enterprise Forum.

31 See Terrance P. McGuire, "A Blueprint for Growth or a Recipe for Disaster? State-Sponsored Venture Capital Funds for High-Technology Ventures," 7 Harv. J.L. & Tech. 419 (1994).

32 Kan. Stat. Ann. section 74-99c09(f).

33 Id. at section 74-50,154(e)-(f).

34 Id. at section 74-8316(a).

35 Id.

36 Id. at section 74-8416(d)(2)(C).

37 D. Whiting-Pack, "Commerce and Trade," 6 Ga. St. U. L. Rev. 155 (1989) (explaining the rationale for creating the original State Seed-Capital Fund in 1989).

38 Ga. Code Ann. section 10-10-1; see also Whiting-Pack, supra note 37, at 155.

39 Wesley Tharpe, "'Invest Georgia' Has Merit, Cannot Take Priority Over Other Needs," Georgia Budget and Policy Institute (2013).

40 Matthew Littlefield and Holland King, "Seed Capital Fund: Amend Chapter 10 of Title 10 of the Official Code of Georgia Annotated, Relating to the Seed Capital Fund, so as to Create the Invest Georgia Fund," 30 Ga. State L. Rev. 47, 49 (Fall 2013) (citing Tharpe, supra note 39, at 1).

41 Dave Williams, quoting state Rep. Tim Golden (R), "Georgia Senate Approves VC Fund," Atlanta Business Chronicle.

42 Breznitz and Taylor, supra note 2, at 21-22.

43 McGuire, supra note 31, at 431.

44 Legislative history is silent on that matter. In defense of the funds, the bill's sponsor said, "With the exception of Alabama, all our sister states have such funds. . . . Other states, because of those funds, are raiding Georgia companies after we get them established. This bill would hopefully help solve that problem." Williams, supra note 41.

45 Ga. Code Ann. section 10-10-4(a)(1).

46 Bank loans, venture capital, and other traditional avenues for business financing are often unavailable to start-ups because of their high-risk nature. See Littlefield and King, supra note 40, at 48 ("Inherent risk and large capital outlays make traditional funding structures, such as commercial loans, nearly an impossible financial strategy for high-tech start-ups") (citing Steven L. Brooks, "The Venture Capital Investment Act of 2001: Arkansas's Vision for Economic Growth," 56 Ark. L. Rev. 397, 410 (2003)).

47 Ga. Code Ann. section 10-10-1.

48 Tharpe, supra note 39, at 2.

49 See Ga. Code Ann. section 10-10-1; see also Whiting-Pack, supra note 37, at 158.

50 See Ga. Code Ann. sections 10-10-1(12), -17(b)(1)-(2).

51 See generally Ben Horowitz, "How Angel Investing Is Different Than Venture Capital," Business Insider, Mar. 2, 2010.

52 The latter is the definition of an exit. Venture capitalists look for exit opportunities in which they can quickly turn over an investment in a tech start-up for a high profit.

53 Abraham J.B. Cable, "Incubator Cities: Tomorrow's Economy, Yesterday's Start-Ups," 2 Mich. J. Private Equity & Venture Cap. L. 195, 198 (Spring 2013).

54 Ga. Code Ann. sections 10-10-4(b)(5), 10-10-11(5)-(6), (11).

55 Michael Boskin, "Industrial Policy Returns From the Grave," Project Syndicate (Nov. 24, 2009) ("Governments should not be in the game of using subsidies, taxes, regulation, mandates, loans, and investments to pick particular winners. It simply doesn't work, and, worse still, it crowds out or stifles potentially valuable competing technologies").

56 Georgia Chamber of Commerce, Innovation & Technology: The Facts.

57 Technology Association of Georgia, "2012 TAG State of the Industry: Technology in Georgia Report -- Total Annual VC Funding" ("Georgia's venture capital funding was a mixed performance in 2011. The overall number of venture deals declined from 67 in 2010 to 54 in 2011").

58 Breznitz and Taylor, supra note 2, at 4.

59 H.R. 318, 152nd Gen. Assemb., Reg. Sess. (Ga. 2013), 2013 Ga. Laws 86.

60 See Matthijs Keij, "Four Major Benefits of Start-up Incubators," Fastcompany, Mar. 12, 2014 ("For many entrepreneurs in the tech space, being part of something larger has helped them get their businesses off the ground more quickly and smoothly").

61 See Entrepreneur, "Getting Started With Business Incubators" (Dec. 2005); see also National Business Incubation Association, "Business Incubation FAQ."

62 See Martin Trust Center for MIT Entrepreneurship, "Physical Resources."

63 See generally N.Y. Uncon. L. section 6266-a -6266-u.

64 Andrew M. Cuomo, "Governor Cuomo Launches Start-Up NY Program at International Conference in New York City," Governor's Press Office 1, Oct. 22, 2013.

65 N.Y. Uncon. L. section 6266-v(a)-(b); see also N.Y. Tax Law section 38.

66 See New York State Business Incubator and Innovation Hot Spot Support Act Technical Memorandum TSB-M-14(1)C, (1)I, (2)S, New York State Department of Taxation and Finance, Taxpayer Guidance Division (Mar. 7, 2014).

67 See, e.g., Stephen T. Watson, "Buffalo State's START-UP NY Plan for Tax-Free Zone Approved," The Buffalo News, Apr. 11, 2014. Hot spots had to apply and be approved for designation. Further, hot spots have to reapply for designation periodically. N.Y. Uncon. L. section 6266-v.

68 New York State Department of Taxation and Finance, Taxpayer Guidance Division, supra note 66, at 1-2; see also N.Y. Comp. Codes R. & Regs. tit. 5, section 220.5(h) (2014).

69 See, e.g., StartUpNY TV Spot, NY Is 'Open,' ISPOT.TV (the commercial has aired nationwide over 2,000 times).

70 Cuomo, supra note 64, at 2.

71 See Keiko Morris, "Whipping Up a Start-Up Scene: Real-Estate Company Takes Direct Role in Start-Up Incubator-Like Program," The Wall Street Journal, Apr. 16, 2014.

72 See SUNY Downstate Medical Center, Downstate's Biotech Initiative (updated May 16, 2014).

73 See N.Y.C. Economic Development Corp. "Incubators and Workspaces."

74 See N.Y. Empire State Dev., "Technology Incubators & Co-Location Facilities."

75 Telephone interview with Charles Bonello, managing director and co-founder, Grand Central Tech (May 6, 2014).

76 See generally, (last visited Apr. 20, 2014).

77 GCT is backed by the Milstein Family of New York. See Harrison Weber, "Near Grand Central, A New Tech Community Takes Root," VentureBeat, Apr. 17, 2014.

78 See id.; see also Morris, supra note 71.

79 See Morris, supra note 71.

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