By Dane Stangler
Opportunity Zones are the new frontier of economic development. Authorized by the Tax Cuts and Jobs Act in 2017—and proposed several years earlier by the Economic Innovation Group—Opportunity Zones have caught the fancy of mayors, economic development agencies, private investors, philanthropic foundations, and, inevitably, consultants.
For good reason: Opportunity Zones offer perhaps the best chance for the United States to finally get place-based policy right. History is not encouraging: prior attempts, including Enterprise Zones and Empowerment Zones and others, were underwhelming in their impact (but not their cost). Economists and others had boiled down the experience with place-based policy to a simple dictum: invest in people, not places.
Yet Opportunity Zones might actually be different, thanks in part to their relative simplicity in terms of requirements. The enthusiasm with which they have been taken up all over the country is one indication of the high level of expectation. In a nutshell, Opportunity Zones open up a pathway for private investors to put money into economically-challenged communities, through a variety of tax benefits for the capital invested and gained, conditional on meeting certain requirements. Neighborhoods bereft of investment will (ideally) enjoy an influx of private capital, and investors will earn a nice return. Everybody wins.
There are, of course, skeptics. Some worry that only high-end real estate development will attract investment. Others worry that existing residents of designated Opportunity Zones will not benefit from the potential influx of new wealth and jobs. To allay these concerns, some people have established new entities to help match capital with opportunity, and help funnel investment to high-return projects in high-need areas that might be overlooked. In Alabama, for example, Alex Flachsbart established Opportunity Alabama to do exactly that.
What will really fulfill the economic development promise of Opportunity Zones is an on-ground mechanism to enable investors to support local entrepreneurs. New and young companies are the lifeblood of neighborhoods and cities—they are the principal source of new job creation and become the bedrock businesses for residents. Opportunity Zones could potentially fuel business creation and growth, offering a much-needed boost to economic dynamism in areas where dynamism has largely disappeared. If those new businesses are structured in a certain way—through employee ownership, for example—the social and economic returns would be considerable.
How can this be realized? How can the deal flow be aggregated for investors? And, most importantly, how can those local entrepreneurs be supported beyond just capital?
One organization, Launch Pad, could be the best operating business example to deliver on the promise of the Opportunity Zone legislation and might just be the critical conduit by which Opportunity Zones renew American entrepreneurship and cities.
Started in New Orleans, Launch Pad has opened 3 new cities in 2018, all in Opportunity Zones, with plans for at least 20 by 2020. Launch Pad serves entrepreneurs as a coworking space, convening place, and community center, with a focus on ecosystem collaboration and support of local organizations. It can act as the gravitational point of an entrepreneurial ecosystem.
“Our strategy for growth in what we call 'momentum markets' is a reflection of the importance of entrepreneurship outside the typical startup hubs. Now more than ever great companies can be built anywhere,” said Anne Driscoll, President and co-founder of Launch Pad. "The introduction of this legislation was the ultimate reinforcement of that plan, and a boost to the impact we can have in cities across the U.S."
In New Orleans, Launch Pad has helped support hundreds of companies, which have created 5,000 jobs and raised $160 million in capital. Most impressively, from Launch Pad’s 22,000 square feet, its entrepreneurs have graduated to fill over 600,000 square feet of office space in the city. If you’re a mayor or economic development official looking to create jobs and fill space (and who among them isn’t?), it’s hard to think of a better way.
The entrepreneurial ecosystem in New Orleans is still emerging, despite many years of attention and appearance on “top startup hub” lists. In our recent Surge Cities analysis, New Orleans ranked 41st out of 50 overall, and was low on early-stage venture funding deals, low on high-growth company density, and in the middle of the pack on net business creation. The metro area did rank 7th overall in the rate of entrepreneurship, which indicates a strong pipeline of people trying to make it. This reinforces part of Launch Pad’s strength: in contrast to other types of entrepreneurship support organizations, it doesn’t restrict itself only to tech startups. It serves all comers, helping create a truly cohesive entrepreneurial community.
This, too, is borne out in the data. In Startup Genome’s report on six early-stage U.S. ecosystems, done with the support of the Kauffman Foundation, we found reasons for optimism in New Orleans. On our measure of Local Connectedness, New Orleans scored higher than its peer cities and much higher than other comparable ecosystems globally. Entrepreneurs in New Orleans, we found, have high levels of Collisions (meaning they interact frequently with each other) and Relationships—the entrepreneurial network is dense. Most importantly, New Orleans topped the other cities on Sense of Community, our measure of the culture of giving and receiving help among entrepreneurs. Beneath the surface, Launch Pad has helped foster a strongly supportive community of entrepreneurs.
Launch Pad is not the only support organization for entrepreneurs in New Orleans: trepwise and Idea Village, among others, have been influential as well. But because of its location, its focus on community beyond just coworking, and its commitment to economic development, Launch Pad seems to stand out.
The Opportunity Zone potential is clear, especially since all four Launch Pad locations are in designated Opportunity Zones. In addition to New Orleans, the company has set up shop in Newark, Memphis, and Nashville. In the Surge Cities analysis, Memphis ranked 47th out of 50 overall and was low on all the entrepreneurship-related variables—the impact of Launch Pad, fueled by Opportunity Zone investment, could be transformational in the city. Launch Pad not only is one of the few emerging national Opportunity Zone businesses but also can house and support other businesses through its model.
It’s entirely possible that Opportunity Zones could renew distressed American communities through entrepreneurship. For that to happen, however, capital must be directed to those entrepreneurs. And for that to happen, an organization like Launch Pad needs to be at the center of any economic development strategy.
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