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Tech sector often left behind on state incentives

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When Volvo Cars agreed to invest $600 million to build an automotive campus and create 4,000 jobs in Berkeley County, the state rolled out the red carpet, promising millions of dollars' worth of infrastructure, office space and other perks.

Such state-funded incentives are typical for manufacturers, and they appear to work. Boeing 787 Dreamliners are built in North Charleston, and by the end of the decade, Volvo’s new S60 sedans and Mercedes-Benz’ Sprinter vans will both be built from start to finish in the Lowcountry.

Those companies create jobs, expand the supplier base and buoy the economy.

But when tech companies open offices and create jobs in South Carolina, or when a startup founder relocates from San Francisco to Charleston, for example, a massive incentives package is not typically at the ready.

“Our system is sort of loaded for manufacturing, but we’ve found different ways to attract tech. No other state has figured out how to do this either, so we’re all in the same fix,” S.C. Commerce Secretary Bobby Hitt said regarding tech incentives. “Nobody’s got a magic bullet.”

U.S. Rep. Mark Sanford, R-S.C., said the state has long been a manufacturing hub. As the textile industry fell away, more advanced manufacturers moved in, and economic development efforts fell in line.

Now, as the tech sector continues gaining traction across the Lowcountry, the state’s recruitment efforts and incentives packages for that industry have not kept pace with those offered to manufacturers.

“Politics, by nature, is conservative and slow to change,” Sanford said. “The incentive structure in South Carolina is antiquated and ill-equipped to really properly incentivize the movement of tech jobs from the (San Francisco) Bay Area or other high-tech sectors around the country to the Lowcountry.”

Numerous Charleston entrepreneurs and tech sector leaders have said a growing volume of tech companies would help elevate Charleston’s reputation nationally as a place to grow a startup. Clustering also tends to attract more investors, senior-level workers and entrepreneurs to the region.

Hitt said manufacturers typically receive additional incentives for the expensive infrastructure they need to become operational, such as new highway interchanges, massive site prep and new capital equipment and facilities. Manufacturers also typically pay more in property taxes, he said.

Tech companies, on the other hand, usually require a lease for office space, and then they mostly invest in their employees, he said.

Job development credits are available for tech companies that create a certain number of jobs and pay a specified income, but each agreement is different, Hitt said. For example, Blackbaud will receive job credits as part of its $154 million investment in building a new tech campus on Daniel Island and hiring 300 employees.

Hitt said South Carolina is known as a strong manufacturing state. Commerce wants to maintain that status, but there has been a shifting focus in recent years toward diversifying the economy with more software development or services-related companies.

“The next frontier in terms of job growth and job creation in our state is through technology firms,” Sanford said. “It’s going to be incumbent upon state policymakers to update incentive structures so that it reflects the changes that are in fact occurring in the economy today.”

However, Michael Graney, the Charleston Regional Development Alliance’s vice president of global business development, pointed out that the importance of incentives is often overstated.

“Talent trumps incentives any day of the week. We have to convince companies they can hire and recruit talent here,” Graney said. “If you give them $100 million in incentives, it doesn’t matter if they can’t hire who they
need.”

Focusing on tech

In 2013, the S.C. Commerce Department launched an Office of Innovation, in part to identify strategies to support and fund existing technology-based businesses in the state.

The Office of Innovation launched a grant program and disbursed about $5 million altogether — typically in $250,000 awards — to S.C. organizations working to support startups in 2014 and 2015. The grant program has since lost funding.

Amy Love, the head of the Innovation Office, said Commerce’s current approach to growing the technology sector is to focus on building ecosystems, such as connecting entrepreneurs across the state or helping companies find office space or investment options.

This past spring, the two-person Office of Innovation launched the S.C. Innovation Hub, a website designed to connect S.C. tech leaders and entrepreneurs and provide them with a platform to share resources, industry challenges and upcoming events.

Love said Commerce is also working to showcase South Carolina as a place where technology businesses can thrive. Commerce spokeswoman Adrienne Fairwell said the agency is creating a list of cities for future tech recruiting trips.

“The bottom line is we’re recruiting not only for manufacturing, but we are also trying to diversify the economy so that our children and our children’s children have options in South Carolina,” Fairwell said.

‘Let’s bring in new tech companies’

Matthew Gough relocated his company, Echovate, a software firm that matches candidates with jobs, from New York City to Charleston a few years ago. He saw Charleston as a good place to raise a family, and the burgeoning tech scene excited him.

Gough said efforts to promote Charleston in other cities are working well, and the $200 million renovation of Charleston International Airport and additional nonstop flights are a boost to recruitment pitches. The region now needs to focus on scaling the number of tech firms based here, he said.

“Let’s bring in new tech companies that are creating jobs and then exiting and creating wealth. ... The people who make money doing that then start new companies or invest in other companies, and that builds ecosystems,” Gough said. “My temperature on Charleston is that we’re doing a really good job. It just takes time to get there. Look at Boulder (Colo.) or Austin (Texas). Those tier-two tech scenes weren’t built overnight.”

Waitlist Me CEO Brian Hutchins said he decided to relocate his startup from San Francisco to Charleston to be closer to family and to jump in on the tech scene.

His company, which is now run from the Charleston Digital Corridor, has an app that sends text messages to notify patrons their table is ready at a restaurant, for example, replacing the process of yelling out names or using buzzers.

“You can build a company anywhere now. Why not just pick the place you want to live?” Hutchins said. “You can see that things are growing here, which continues to attract more people. Tech people and tech companies are now visible here.”

Hutchins said building up tech infrastructure — such as good broadband, a strong workforce, and collaborative events and workspaces for entrepreneurs — is paramount to recruiting tech companies.

Initiatives and programs such as the Charleston Digital Corridor, The Harbor Entrepreneur Center, the Dig South conference and Charleston Open Source help create an environment that attracts tech firms, Hutchins said.

State-funded incentives would also likely speed up the process, he said, offering the sample idea of a program that might offer $50,000 investments to 10 companies annually through a program like The Harbor, similar to the Arch Grants in St. Louis.

“It’s always good to have an ecosystem grow,” Hutchins said. “It doesn’t have to be like the Bay Area, but having more companies is conducive to all the companies being better.”

Selling Charleston

Graney of the CRDA said the Charleston tech sector is almost entirely homegrown, but he said more targeted efforts are underway to recruit tech companies to the region.

Graney and John Osborne, co-founder of The Harbor, went on a recruiting trip to Boston in the spring to entice tech firms to open offices in the Lowcountry. The duo visited nine companies during the trip.

The average salaries and cost of living in the Charleston region — which are typically lower than in other tech hubs across the country — were a major selling point to companies. Although the potential issue of not finding enough qualified workers was a concern, proximity to beaches and a thriving downtown were well-known perks, Graney said.

The CRDA is now planning several more recruiting trips over the next few years to tech hubs along the East Coast. The next destination on the list is Washington, D.C.

The CRDA is targeting technology companies that can play off existing Lowcountry industries, such as software firms geared toward IT, manufacturing, cybersecurity, defense, health care or life sciences.

While the alliance does not decide incentives, Graney said the CRDA supports changes that would make recruitment of tech companies as competitive as it is for the manufacturing sector.

“We are hopeful that is something that will happen,” Graney said. “As our economy gets more diverse, legislation needs to do that as well.”

Reach Liz Segrist at 843-849-3119.

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