Baton Rouge Turns Up the Heat With New Startups

Editor's note: Over the next few months, we'll be taking a virtual tour of U.S. cities to see how the 2008 financial crisis has changed the entrepreneurial landscape, for better or worse. Read about New York, Houston and Washington, D.C.

About 80 miles up the Mississippi River from New Orleans, Baton Rouge is the state capital, a petrochemical and manufacturing hub and home to Louisiana State University's flagship campus. If New Orleans is the state's vivacious, sometimes tipsy daughter, then Baton Rouge is its workhorse.

The city's industrial, medical and public-sector focus served Baton Rouge well during the recession. Unemployment averaged 7.4% in 2010, its highest point during the downturn and a far cry from the average 9.6% unemployment rate the nation suffered that year.

Still, the recession was a wake-up call for many latent entrepreneurs, says Charles F. D'Agostino, executive director of the Louisiana Business & Technology Center (LBTC) at LSU, which is the state's oldest business incubator. "The economic slowdown helped bring more visibility to entrepreneurship."

Established in 1988, the LBTC is now part of the 200-acre LSU Innovation Park and has paved the way for niche incubators focused on everything from biotechnology to food innovation. The newest kid on campus is the 94,000-square-foot Louisiana Digital Media Center, which houses the North American Test Center for video game giant Electronic Arts (EA).

LSU students, alumni and faculty have been a driving force behind the recent flurry of startup activity, D'Agostino says. In 2010, the university rolled out a student incubator and has since launched more than 30 companies. Notable recent grads include online and mobile medical scheduling platform LocalMed and Yellow Jacket, which makes stun gun-equipped cellphone covers.

Ventures like these have brought new life into Baton Rouge and helped reverse a "brain-drain" to other cities, such as Atlanta, Dallas and Houston, D'Agostino says. "We've seen a huge cultural change in the last five years."

Entrepreneurs are also finding kindred spirits at other co-working spaces and incubators, including Entrepreneur Headquarters, Louisiana Technology Park and Springboard Baton Rouge.

Meanwhile, entrepreneur organizations and events are taking root. In 2011, Baton Rouge's first Startup Weekend brought people together to share ideas, form teams, build products and launch startups. Grassroots events, such as Baton Rouge Entrepreneur Week, SeNSE pitch nights and Red Stick International Animation Festival, have also brought attention to Baton Rouge's blossoming creative community and entrepreneurs.

"Until recently, we didn't have much of a startup culture here," says Wendy Overton, the organizer of Startup Weekend and monthly lecture series Creative Louisiana. "Now we're starting to build bridges to other parts of the community."

While there's something to be said for mobilizing entrepreneurs and celebrating creativity, Baton Rouge has a practical perk working in its favor -- tax credits. The state's Digital Interactive Media and Software Development refundable tax credit is one of the most generous in the nation. In addition to a 35 percent tax credit on payroll for in-state labor, it provides a 25 percent credit for qualified production expenses in Louisiana. There's no cap and no minimum.

The credit has not only provided incentive for homegrown companies to stick around, but it has also helped entice out-of-state customers, says Daniel Vlosky, who is director of business development for Vinformatix, a software and mobile app development firm that was founded in 2009. "We've received projects from New York because of the digital media tax credits," he says, adding that development dollars also go a lot further here than they would in high-cost areas. Baton Rouge developers don't have the same cachet as their Silicon Valley or Boston counterparts, Vlosky says, but their reputation is growing as more companies spring up or move in.

Venture capital isn't as readily available as many Baton Rouge entrepreneurs would like -- a universal complaint in most cities. Yet, that hasn't stopped the most promising companies from getting funding. "We have an extensive network of angel investors, many of them are LSU alumni, or from the oil and gas industry," D'Agostino says, adding that last year the 34 companies in the LBTC incubator collectively raised $10 million.

For now, he'd rather see companies get funding from investors close to home, rather than risk having a big venture capital firm pluck them up and take them out of Dixie.