New Orleans has long been thought of as heaven for fans of jazz, food, and a boozy beignet-laden night out. But now some locals are now calling it heaven for startups, too—a place with a first-class incubator, coworking space aplenty, and a somewhat shocking set of financial incentives.
It’s no secret that Crescent City is now a movie hotbed—"Hollywood South" now ranks third behind California and New York. Nor is it unusual that the rapid growth of an industry in one city would spawn startups there built to serve that space. But what’s singularly unique to New Orleans is how the success of the entire ecosystem was really engineered after one vertical, in this case, film.
In 2002, three years before Katrina, Louisiana legislators passed a rather juicy set of tax incentives intended to land more film production in the state. It worked.
"It’s easy for people to knock politicians," said Lenny Alsfeld, CEO of First Bank & Trust’s film investment arm, "but in 2002, we had a group of legislators that were really forward thinking and passed [the tax credits]. The first film in the door was Ray, and we were just figuring out how this would all work. Then Jamie Foxx wins Best Actor, and everyone really understood that the state was onto something."
With films pouring into the city, a few digital startups dug their claws into the space, including TurboSquid, which now operates the largest online catalog of 3-D models (i.e. digital renderings of people, objects, etc.) in the world. The game industry was a big user of TurboSquid’s content and so—increasingly, given the growth—was the film space. "I was walking down Poydras Street talking to my brother and I said, ‘film and gaming are so similar—lots of the same art, the same production and graphics companies, even the same actors—those tax credits should really apply to [digital] companies, too,'" says Matt Wisdom, cofounder and CEO of TurboSquid.
Wisdom started talking to people who could help advance his thought. "The reality of New Orleans and Louisiana is that you can reach people, you can reach the governor—we had some strong advocates and it just took off," he said.
In late August of 2005, Wisdom would get the news that it passed: the tax credit structure that had almost single-handedly driven New Orleans to the top of the film industry, would be extended to the digital companies in Louisiana. Word came on a Monday. But the elation was short-lived. By week’s end the city was under water. A certain tropical storm, the 11th of that’s year’s Atlantic hurricane season, would usher in one of the city’s darkest hours and re-route the its path for good.
The years that followed Katrina were also critical to shaping its future as a startup hub. First, people were suddenly a whole lot more open. "Everyone had gone through this experience of having to ask someone for help," said Wisdom, "and to this day, people remember that. Whereas before Katrina, the community had a somewhat lofty view of itself and was maybe less open."
Second, after the city dried out and stabilized, people showed up—compelled to be a part of the rebuilding. New Orleans led the nation in "brain gain" from 2007 to 2009, per a Forbes study, increasing the number of college educated, 25-and-over residents more than any other city in the U.S. (It’s also currently the fastest growing city in the country, though it’s still well below it’s pre-Katrina population.)
And third, the digital tax incentives, originally broadened just to include the game and digital animation industry, were refined further to include all digital media startups. Qualifying startups can deduct an eye-popping 35% of their payroll costs and up to 25% of their non-payroll expenditures, at least those incurred with other Louisiana-based companies. Moreover, you can sell the credits (like factoring a receivable) to the state or secondary market and get up to 85 cents on the dollar up front—no waiting until the tax period closes.
Combined, it’s all yielding a wealth of new startups, including lots from elsewhere. Barre Tanguis, cofounder of LaunchPad, an 80-member coworking and incubator space said, "We’re sort of like the community center for startups. We’re often their first stop when they get to town, and we get new people from out of state every month." Many are attracted by the digital tax credits which, Tanguis noted, allow companies to extend their runway, and lower the amount of capital they need to raise.
Andrew Larimer, founder of video content startup FatHappy Media, says, "it’s a really unique time and place in history to be here. To be a part of the rebuilding process. It’s just…fun." His business is one that continues to more directly leverage the film industry. "We create rich video content for companies. We don’t do heavy lifting production like the film industry—the web rewards quickly executed, get-the-point-across content. But we definitely benefit from all the film talent that’s in town. We can access Hollywood-caliber talent and knowledge, but at local prices."
Anselm von Seherr-Thoss is one of those Hollywood caliber people. His startup, Incendii, does visual effects and 3-D effects for the film business. He followed his girlfriend, a New Orleans native, to town and found it refreshing after working unending hours in L.A. on big films. "The industry likes it here. The first film I worked on here was 21 Jump Street, and the catering truck literally parked in front of my house. They were shooting just a couple blocks over." Celebrities like it too, because it’s low-key. "No one bothers them. You see Brad Pitt on a scooter and no one cares. Sandra Bullock, Nick Cage, Lawrence Fishburne—they’re all here. I used to see John Goodman order a shake after his jog, every day."
Von Seherr-Thoss, though, is quick to point out the other side of the incentives. "The film credits have worked, for sure, but a lot of the jobs those created are very short term and then the company goes back to L.A." He notes that the expansion of the incentives, and the maturation of the local industry have led to a different trend, "People are staying, to build businesses. People with tons of experience."
He does worry about the permanence of it, however, "I stay diversified. The thing with the credits is that they could go away [with new legislation]. I don’t want to depend on something like that."
While the longevity of the tax credits is probably debatable, the excitement generated by the growth in digital startups, whether they’re in the film space or not, is hard to question.
First Bank & Trust’s Alsford says, "The reason the city loves digital, is that it’s not on wheels. These people are staying year round, buying or renting real estate, eating out, investing in the community." The bank has even begun to offer tax credit financing products to digital companies, which it created for the film industry, which was likely a factor in getting larger digital companies like GlobalStar and GameLoft—both French companies—to open offices in New Orleans.
It’s hard to believe this is happening in a city that was literally underwater seven years ago. Or that decisions made a decade ago to build the local film industry would have such an impact on, and serve as the blueprint for, a burgeoning startup scene. But it’s happening. And it’s fostering companies early stagers like FatHappy and success stories like Turbo Squid, which is now 85 employees. As TurboSquid’s Wisdom, the guy who inadvertently took a central role in shaping it, says, "it really has become heaven for startups."
[Image: Universal Pictures]