Economic development organizations: good or bad for entrepreneurial activity?

Published June 7, 2019

Bill Baumel
Contributor

Bill Baumel is Managing Director at the Ohio Innovation Fund. After twenty years in Silicon Valley – 4 public companies and 10 major acquisitions – Bill came home to the Midwest creating OIF, whose 14 companies have attracted partners such as Microsoft, Facebook, SAP, and Sanofi, providing SaaS, cyber, AI/ML and med tech solutions to a majority of the Fortune 500.

In developing VC markets such as the Midwest, some may think that funding from the government or economic development organizations are a godsend for local entrepreneurs. Startups are often looking for all the help they can get, and a boost in funds or an attractive set of economic incentives can be perceived as the fuel they need to take the next step in their growth journey.

While this type of funding can be helpful, a startup should ensure that funding from these sources is not a double-edged sword. The biggest positive, of course, is the money, which can help startups with product development, hiring, marketing, sales and more. But there can also be certain restrictions or limitations that are not fully understood initially—these restrictions could hinder growth at an inopportune time later on.

The inevitable question, then, is should startups consider partnering with the government or various economic development groups as they look to get off the ground? Let’s take a closer look.

What Local Economic Development Organizations Have to Offer

Today, particularly in the Midwest, it’s common for state and local governments to offer startups incentives such as tax exemptions or grants in an effort to keep local businesses around and also attract companies from other regions.

So how do these incentives work? When it comes to tax credits or exemptions, local governments are sometimes willing to provide these incentives if a startup can demonstrate how paying lower taxes will benefit the wider community.