Hawaiʻi's Technology Community

On the way back from Ryan's Geek Meet yesterday Mika and I noticed three more small businesses in our neighborhood, the east side of Kaka'ako, shuttered. We must have lost 1/3 of the small family owned restaurants and shops in this area over the past two years. I know some of the owners, and it breaks my heart to see businesses that families worked hard for years to build go under. Its starting to look like a ghost town littered with empty buildings covered in graffiti. The Economist predicts 3% growth in the US economy this year. I hope they are right, and I hope small businesses in Hawaii see the benefits soon.

The tech sector and entrepreneurs in general have seen additional hardship with a schizophrenic legislature doing everything it can to ensure investors can never trust our state's tax policies and general attitude toward entrepreneurial businesses. What happened to our grand vision of an innovation economy? Regardless of your feelings about 221, almost everyone in the business world agrees that capital flees from uncertainty. Our state government has done a great job of creating uncertainty at every opportunity. With the Superferry, Act 221, the crippling of our school system and all the other craziness over the past few years investors from the mainland and Japan aren't exactly lining up to do business in our state.

Last year we lost a lot of tech businesses, some of them relatively high profile. Others moved their development shops out of state. This year many of the businesses that received funding in 2007 and 2008, the last years of substantial tech investment in Hawaii, are struggling and unable to close new rounds to compensate. The result will be layoffs and closures. I know dozens of top notch independent developers, systems engineers and PMs who have moved to the mainland over the past two years looking for work. We are losing a lot of great minds. There are a few bright spots, such as Avatar Reality's $4.2M round last month and recruitment of top talent from California, but we need a lot more in 2010 if we are going to have any hope of creating the type of tech ecosystem required to fuel an innovation economy. From our school system to support for local entreprenuership, our government is failing us. Now more than ever, we need real leadership in the governor's office and the legislature.

I'm interested to hear how the economy has affected TechHui members including employers, employees and independent contractors.

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Comment by Daniel Leuck on April 30, 2010 at 4:22pm
Bright spot: Three Hawaii companies were covered by TechCrunch during the last month: Asia Pacific Films, Sprout and Avatar Reality. Thats probably a first for us :-)
Comment by Daniel Leuck on April 28, 2010 at 9:37am
Attorneys are arguing that it violates the due process clause of the US Constitution. Apparently there is also relevant case law. In Jeff Au's letter to the senate he argued, "SB 2401 HD1 violates the Due Process clause of the U.S. Constitution and is unconstitutional in its retroactive suspension of credits for investments that already have been made. The State cannot save money from this bill if it is struck down by the courts as unconstitutional. It will likely trigger numerous lawsuits against the State as soon as it becomes law. This bill's retroactive impact, which could go as far back as 11 years for investments made in 1999, is much longer than the 'only modest period of retroactivity' limited to approximately one year that the U.S. Supreme Court has required. This bill is also 'Illegitimate' and 'Arbitrary' and with 'Improper Motive,' as described by the U.S. Supreme Court because of the State's targeting of Act 221 investors for credit suspensions 'after deliberately inducing them' to make high tech and media investments under Act 221 by offering tax credits to them. "
Comment by Daniel Leuck on April 28, 2010 at 8:38am
Hi Barry - You are spot on. No one will trust future incentives. I know many people who weren't fans of Act 221, but think this is a stupid move. Now we, the taxpayers, will pay for an onslaught of lawsuits and the lasting ramifications of the business community distrusting the state. This legislature is unfathomably myopic.
Comment by Barry Shirota on April 27, 2010 at 9:28pm
It was supposed to sunset this year anyway. I don't see why they couldn't just leave it alone. Even if nothing really comes of it, who is going to trust any future "enticements" from the State. The product I'm working on has gotten a lot of traction in recent months, but now its future is extremely uncertain, and so are the jobs it created.
Comment by Blaine Kaho'onei on April 27, 2010 at 6:24pm
It's frustrating to see that after leaving the islands 10 years ago the State still fails to see the importance of providing incentives to nurture its Technology Industry. I had hope years ago when 221 was first introduced, however unfortunately I do agree with John's stance.

Given this current state, it will be even more critical for tech businesses in Hawai'i to launch IP that provide value; are highly scalable in a format with a lower Total Cost of Ownership and quicker time to revenue. Capital intensive technologies will continue to suffer in the meantime.

My hope is that perhaps when you have local companies utilizing PaaS or other web infrastructure technologies to take their IP to market, their future success might trigger the State revisit incentives for capital intensive science & technology ventures as Dan mentioned.
Comment by Daniel Leuck on April 27, 2010 at 6:19pm
Breaking news from then Honolulu Advertiser re: SB2401 and SB2001 - The senate passed the measures. "But supporters of the tax credit say the state won't see that money anytime soon because they will likely sue the state."
Comment by Branden Tanga on April 27, 2010 at 8:25am
It's almost like the state legislature WANTS young talented technical professionals to move to the mainland.
Comment by Cameron Souza on April 26, 2010 at 6:25pm
SB2001 & SB2401 are madness. Act 221 may have had problems, but changing the rules on investors is just plain dumb.
Comment by Ken Mayer on April 26, 2010 at 11:11am
SB2001 & SB2401 are killing us. It creates such a level of uncertainty that no one wants to invest for fear that the state will change it's "mind" and claw back some of the promised tax benefits. I'll be out of a job and looking for work on the mainland by the end of the month at this rate.
Comment by Daniel Leuck on April 26, 2010 at 10:35am
Hi John - I think a lot of people are looking at your model. In fact, your name has come up in several recent conversations about the right way to start and run a web based company.

Of course, not all companies have this option. For example, renewable energy companies and aquaculture ventures, which make up a decent portion of our local tech start-ups, require significant capital.

I missed that NYT article. Thank you for the link.


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