Viewpoint: How to Bring More Capital to Texas Startups

May 22, 2015
by Jim Stanislaus
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While Texas leads the country in many economic indicators, we lag behind other states in access to capital for our businesses — particularly in rural and other underserved areas of the state.

The Texas Legislature can play an important role in creating and keeping jobs in Texas rather than having companies funded by outside interests and moving elsewhere.

A recent report by Dr. Simon Mak of the Southern Methodist University Cox School of Business examined Texas deals funded by the Federal New Markets Tax Credit program. The report concluded that the total potential economic activity driven by a Texas New Markets Tax Credit program could create approximately 5,000 jobs and attract additional private capital to Texas at a rate of 4 to 1, driving further job growth. Dr. Mak’s study notes that the return on investment multiplier is even greater in rural Texas.

Access to capital is critical to the long-term business success of entrepreneurs. A dynamic economy should include multiple sources of capital to retain our best small businesses in Texas and ensure continued job growth.

A public private partnership such as the New Markets Tax Credit program can provide capital to areas of the state that otherwise may not have access to it, and help ensure our long-term economic competitiveness. It brings the best of both worlds preserving the independence of private investment decisions in Texas, while smartly deploying available government incentives.

Other states are becoming more aggressive in the incentives they offer for job creation. Florida and at least twelve other states have already enacted State New Markets initiatives. Today, Texas ranks 43rd in Federal New Market Tax Credit investments, in part because we lack a state New Markets Tax Credit initiative to attract outside capital. Investors are deploying capital in states with initiatives to match those at the federal level. As a result, Texas is missing out on growth investments, especially in rural and other underserved areas.

To stay competitive long-term, state lawmakers should pass programs that advance economic development and access to capital for Texas entrepreneurs. An innovative program like a Texas New Markets Tax Credit program does just that and would be an excellent step in this direction. Texas lawmakers have an opportunity to make it happen now.

Jim Stanislaus is a cofounder and managing director at Petros Partners, a Texas based investment and advisory firm focused on growth stage small business investments.

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