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Scott Lucas | Photo: Illustration by Jesse Lenz | October 16, 2013
Is the Twitter IPO a vindication of the controversial tax breaks?
When Twitter announced on September 12—via a tweet, naturally—that it would soon take steps toward its initial public offering, its employees and investors weren’t the only ones who were giddy. The positive vibrations extended all the way to City Hall, where Mayor Ed Lee declared himself “excited.” That’s about as emotive as our mayor gets, and in this case, his fervor may have been warranted. The so-called Twitter tax breaks—a two-year-old bet that the city could lure tech companies to the mid-Market area by offering them a 1.5 percent payroll tax exemption—were largely Lee’s gamble, and an IPO is a persuasive argument that it has paid off.
“The reality is that Twitter would have moved had we not passed the legislation,” says Mark Farrell, a former venture capitalist who represents the Presidio, Pacific Heights, and the Marina on the Board of Supervisors. “You can argue whether the tax breaks were good or bad, but they were planning to move, and our efforts kept them here in San Francisco. And the growth that we’ve seen since then has been unprecedented.”
A public company is, of course, a richer company, a bigger company—a company with the ability and incentive to grow. But a strong Twitter IPO could bolster other local tech companies as well. Research conducted by Pierre Nadeau of Birbeck, University of London suggests that when tech firms are clustered geographically, they reach higher IPO values—and do so more quickly—than dispersed companies. They also file more patents and attract more venture capital. And the tighter the cluster, the better-off the companies. “A number of IPOs in close proximity,” Nadeau says, “are likely to provide strong entrepreneurial incentives and a model for success for cluster participants.” That’s good news for San Francisco’s rumored or announced IPOs, including those of Dropbox, Xoom, and Eventbrite, not to mention mid-Market’s Zendesk and Square.
Then there’s the trickle-down. Twitter’s IPO, if successful, will create a slew of new millionaires and billionaires who will no doubt spend at least some of their newfound wealth in the city. According to Securities and Exchange Commission filings, the three individuals who stand to make the most from the IPO are Evan Williams, Peter Fenton, and Jack Dorsey. Williams and Dorsey each helm other mid-Market companies—Medium and Square, respectively—and Fenton is a general partner at Benchmark Capital, which also has offices in the neighborhood and which invests in various startups, many of them based in—you guessed in—San Francisco.
Supervisor Jane Kim, who represents mid-Market, says that surrounding businesses are already feeling the salutary effects of Twitter’s presence. “The goal was to impact the vacancy rate and create jobs,” she says. “Were we successful? Absolutely.” UC Berkeley economist Enrico Moretti agrees. “It appears increasingly likely that the central-Market tax exemption will pay for itself in the form of increased revenue from new jobs, sales tax, and higher property values. This was [a good investment] even before the IPO,” he says. “It is even more true now.”
Additional reporting by Chris Smith
Originally published in the November issue of San Francisco