Last year marked a watershed for start-ups in New Orleans. More than $2bn worth of exits were announced in the city, bringing a mark of success to decades of efforts undertaken by city leaders to support entrepreneurship.
Michael Hecht, the CEO of the local economic development agency for the Greater New Orleans region, GNO, sat down with fDi to discuss the impact of hurricane Katrina on innovation and entrepreneurship in the city.
Q: What was the backdrop of innovation in New Orleans before Katrina?
A: New Orleans is a city with a deep history of innovation. But, as the city progressed into the 1980s, oil and gas had become easy money to some degree. I think this allowed the city and business culture to rest on its laurels.
By the time we got to Katrina in 2005, the city had lost its economic edge, measured by number of corporate headquarters, population or gross domestic product. For example, the energy industry had largely migrated to Houston, Texas, which had become a more innovative, business-forward environment.
Q: How did hurricane Katrina affect innovation in the city?
A: If you think about necessity being the mother of invention, then hurricane Katrina was kind of the biggest and baddest mama of them all. It rekindled that spirit of innovation in New Orleans out of necessity. There was a re-emergence of the start-up ecosystem in the city.
Many people who came to New Orleans to help with the recovery wanted to make a difference. They wanted to start companies. Some of those were purely for-profit enterprises; some of those were more social enterprises and things like education reform.
They saw a landscape that had a rich history with critical and current problems, but was receiving a lot of money and global attention. These people saw that as fertile ground for innovation. And so, we had the beginnings of a start-up ecosystem. We had organisations like Idea Village that were starting to nurture that. We had policy tactics, such as a digital media incentive for software programming.
Q: How did businesses fare during the post-Katrina recovery?
A: Before I moved to New Orleans, I ran the small business recovery program for Mayor Bloomberg after 9/11 in New York. After that, we set up a $250m small business programme for Louisiana. That had three components to it: grants of up to $20,000 to small businesses that were suffering because of Katrina; low-interest loans of $100,000; and technical assistance on legal, financial and other issues.
I think the most significant learning is that small-business owners in particular are incredibly dedicated to their business and their community. And I think the evidence of that is that the loans that we made, which had an average loan amount of about $18,000, were essentially uncollateralised because businesses lacked collateral at that point. More than 90% of those loans were repaid — I think that was indicative of the character of small business owners.
But in that process, we were able to lay the foundation for what we did later with entrepreneurship. We were able to set up a structure with the US federal government, that as the loans and principal were repaid, that would be kept by the community through setting up revolving loan funds, which to this day continue to make loans out into the community and support small and emerging businesses.
Q: What has happened to the start-up ecosystem in recent years?
A: We developed a genuine ecosystem with dozens of start-ups. Statistically, we were in the top 10 in the US for a number of start-ups per capita. In the past two to three years, there was a natural attrition to that energy.
But all at once in 2021, we had about $2.5bn worth of exits of start-ups. This was at a time when the world was awash with capital. We had our first ‘unicorn’ in a company called Lucid that sold for about $1.1bn to a Swedish company called Cint. We had a local company called Levelset that sold for $500m.
Even more important than the overall figures is that about $1bn of that money came back into the ecosystem in the form of cash returns to the founders, early employees and investors. We were able to show people that entrepreneurship could really be a wealth-creating phenomenon.
We have gone through a 15-year cycle beginning with the aftermath of Katrina that culminated over recent years with these exits. Now we have what I would argue is a legitimate entrepreneurial ecosystem.
Michael Hecht is the CEO of GNO, the economic development organisation for the Greater New Orleans region. This interview has been edited for clarity and brevity.