Thomas Oliver: Start-ups are key to new jobs

Amidst all the proposals for jump-starting the jobs market through small business, more attention needs to be focused on start-ups.

That is where new jobs come from.

From 1980 through 2005, all net job growth occurred at firms less than five years old. That’s according to the Kauffman Foundation’s study of census data.

And in a counter intuitive finding, Kauffman’s researchers found that “more than half of the companies on the 2009 Fortune 500 list were launched during a recession or bear market, along with nearly half of the firms on Inc. magazine's 2008 list of America’s fastest-growing companies.”

John Yates is one of Atlanta’s leading experts on start-ups as chair of the technology group at the law firm of Morris, Manning & Martin.

Echoing the Kauffman finding, Yates says college graduates who can’t find corporate jobs and executives leaving corporate America are driving the start-up activity he is seeing.

Their efforts are being financed mainly by their bootstraps as there is a dearth of funding for inexperienced, early-stage entrepreneurs.

What money there is goes to firms with experienced management teams and a proven customer base, Yates says.

That is the result of investors being much more risk adverse following the last two years of financial mayhem.

A couple of proposals may lighten the risk a bit.

The Obama administration has proposed eliminating the capital gains tax on investments in small business. And the Georgia Legislature is considering an Angel Investor Tax Credit that would give investors in small start-ups a 35 percent credit on their investment.

Knox Massey, board member of Atlanta Technology Angels, says House bill 1001 would encourage investors in start-ups, which would create jobs.

To qualify, firms could be no older than three years, with no more than 20 employees at the time of registering as a business. Annual revenues can’t exceed $500,000. The types of businesses would include those in manufacturing, processing, warehousing, wholesaling, software development, information technology and professional services. But there is an understandable exclusion of real estate and financial service firms.

While some worry that Atlanta isn’t a mecca for venture capital, Yates says investors are aware of our strengths. We are known, he says, for our healthcare information technology companies, Internet security start-ups and for our transaction and payment firms.

Over the horizon, Yates detects a glimmer of hope in the IPO (initial public offering) market. That market that has been moribund since the dot-com bust.

Venture capital funds are part of a food chain, Yates explained, with the IPO being the banquet festival where investors are rewarded handsomely.

If the IPO market re-emerges with vigor, that would be a significant incentive for investors to catch the entrepreneurial spirit.