Several bills before the Legislature attempt to address a perception that Minnesota has trouble retaining high-tech startup companies. The concern is that local entrepreneurs are having difficulty attracting venture capital, and that when they do, those companies are frequently forced to move to the coasts to be near their funders.
The bills would provide tax breaks for venture capitalists to invest in early-stage high-tech companies and encourage the state's pension fund to invest in Minnesota startups.
Offering tax incentives suggests that venture capital is highly portable, pursuing the lowest-cost locations. In reality, the success of high-tech startups depends on more than money, and entrepreneurs look at many factors when deciding where to locate their businesses.
The country's most vibrant hubs for venture capital, such as California's Silicon Valley and Boston's Route 128, are not products of a favorable tax climate.
Rather, access to large pools of talent, an active entrepreneurial community, and a supportive ecosystem of institutions and professionals have much greater relevance.
Preferable tax treatment for venture capitalists would simply put Minnesota in the game of competing against other states on the basis of cost, which might work if the state were offering an undifferentiated commodity. The strategy fails, however, when competitors offer real value.
Silicon Valley feeds on a virtuous cycle in which entrepreneurs attract other entrepreneurs, exerting a tremendous gravitational pull that only grows as the valley grows. Breaking free from that pull requires creating a blend of assets that other locations could not easily replicate.
Some have noted that, broadly speaking, Minnesotans have a different temperament than that of people found on the coasts. And that's OK.
"To start and grow an unreasonable company with unreasonable expectations requires unreasonable people," said Charles Wilson, an entrepreneur formerly based in the Twin Cities who's now an executive with Mobile Content Networks, a mobile search services firm in Silicon Valley. "In my experience, the people of the Twin Cities are reasonable, and that is a wonderful thing in its own right. A region can't be everything to everyone."
Backers of the legislation concede that their proposals are only a small part of what should be a larger effort to encourage high-tech startups to stay in Minnesota. They are also perhaps among the least effective.
If the state sticks to the basics of developing solid educational and research institutions and infrastructure, and fostering a reasonable business climate, the venture capital will take care of itself.
