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June 4, 2010

A U.S. City and State Make Life Easier For Startups

With states and cities across the U.S. struggling to balance their budgets, the demands to find new revenue streams are high. As a result, both New York City and Illinois are incentivizing the creation of new startups. The end winner: the small startup.

As startups struggle to make ground within the rocky economy, the competition to have a small business set up shop in one’s city or state is getting tougher. New York City and the State of Illinois have both recently made significant efforts to boost the number of small businesses within their respective areas. New York’s efforts to increase the number of startups in the city come in the form of a venture capital fund. Meanwhile, Illinois’ effort to increase its share of technology startups comes via a tax credit for investors.

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The New York effort to draw startups to the city centers on the new NYC Entrepreneurial Fund and its $22 million in capital. With $3 million from the New York City Economic Development Corporation and $19 million from the New York City-based venture capital firm FirstMark Capital, the fund aims to provide capital investments of between $50,000 and $1 million to entrepreneurs and startups that setup shop within the city. In return for the investment, the city and venture capital firm will each claim an equity stake in the startup. Just this week, NYC major Michael Bloomberg made the surprise announcement that My City Way, a startup providing location-aware applications for mobile devices, will receive the fund’s first investment, totaling $300,000.

In Illinois, a new state law on the verge of passage involves a tax credit for both angel and other institutional investors. The tax credit, which will cap the investor’s state taxes at 25%, is geared towards those who will invest in small startup companies that focus on technology. Although the state does well among a variety of industries, Illinois lags behind many others when it comes to their number of startup technology firms. This latest move is an attempt to create a better environment for small startups in Illinois. While larger banks remain reluctant to provide loans to small, untested companies, entrepreneurs and small businesses will soon have an easier time finding investments from investors who will be eligible for the new tax incentive. In return for the new incentive, many hope the new law will create both new sources of revenue and jobs for Illinois.

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