Jobs: We must invest in our entrepreneurs

When a region has an economy undergirded by small businesses and entrepreneurs, it should do everything possible to sustain the foundation. This is even more important during a recession that is forcing thousands out of the corporate world who have the knowledge and talent to become entrepreneurs.

Unemployed Georgians are facing some difficult choices when you consider the double-digit jobless numbers, companies reluctant to hire and the length of time it is taking some folks to find a job. Some, as reporter Michael Kanell reported last week, are starting to leave the state in search of employment. While no one should suggest that metro Atlanta is seeing the beginning of a massive exodus of workers, we should be concerned about the possible loss of talent. We can’t afford to lose people who, with the right incentive, might stay here and form a job-generating business.

Atlanta is a place where people make the dream of small business ownership a reality. The region has a history of startups that matured into financially successful firms.

Small companies (fewer than 500 employees) account for more than 97 percent of all businesses in Georgia. The majority have 50 or fewer employees. The Kauffman Foundation ranks the state No. 1 in the country for entrepreneurship.

In the best times, entrepreneurs face hurdles trying to turn an idea into reality. It is worse now.

William Dudley, president of the Federal Reserve Bank in New York, recently said small business owners face three problems today: their business fundamentals have deteriorated because of the length and severity of the recession; funding sources, such as credit cards and home equity loans, have dried up; and there are few alternative funding sources. To its credit, Georgia promotes entrepreneurship, particularly in innovation and technology. The state just enacted a revised R&D tax credit that allows startups to take a credit against tax withholdings, even if the company is not profitable. This makes these firms more capital efficient and in turn, it’s hoped, more attractive to investors.

The state spends about $6.85 million, out of a budget of $31.7 million, of its economic development dollars on small business programs. Marketing dollars for these programs are included in the overall budget. Many in the business world might argue that the less government involvement, the better. In a perfect, free-market economy, that might be the right message. But as Emory University professor Klaas Baks said recently, we are operating in a market where competing states are not shy about fostering business development.

“In an ideal world, there is no need for government,” said Baks, executive director of the Emory Center for Alternative Investments. “In the real world, there are obstacles (to business development).” You have to ask, “How can we improve our competitiveness, relevant to other states,” he said.

Money follows ideas, Baks said. We have said in the past that the Atlanta region needs to attract more venture capital dollars that fuel startups.

One argument put forth by VC supporters is that the state needs to join the 49 others in allowing state pension funds to further diversify and invest in riskier venture capital and other alternative investments. This money may be just a drop in the VC bucket, but having state pension fund dollars at risk might make it easier to sell others on taking a chance on investing in local startups.

Last year, Georgia got about 1.5 percent of the VC money available across the country, according to the Ohio-based State Science & Technology Institute. Public and private efforts are under way to change that, including the Georgia Research Alliance Venture Fund and Venture Atlanta, which brought more than 550 firms and venture capitalists together last week.

Georgians of means seem to prefer their dollars go into safer investments, such as small banks or real estate. The current economy has shown that no investment is risk free. What matters is diversification. Investors willing to take the greatest calculated risks usually earn the greatest rewards.

It is unlikely that metro Atlanta will ever replicate Silicon Valley or the Boston area when it comes to attracting world class VC money. With its available knowledge base and entrepreneurial history, the region should be a bigger player. It will take a concerted effort, including an increased tolerance for risk by the state, local corporations, universities and the well-heeled, to put the region, and by extension, the state, in a more competitive position. The payoff will be more jobs and economic growth.

James A. Mallory, 
for the Editorial Board

In coming weeks and months, we will look at major issues Atlanta must address in order to move forward as the economy recovers. Look for the designation “Atlanta Forward,” which will identify these discussions. Send comments 
 to atlantaforward@ajc.com.