Young people, startups fuel New Orleans’ recovery — will it be enough?

A decade after Hurricane Katrina decimated New Orleans, the city has unexpectedly emerged as one of the fastest growing hubs for entrepreneurship in the country. New businesses are launching at twice the rate they were before the storm. Between 2011 and 2013, the rate of new business growth was 64% higher than the national average. Venture capital funding, virtually nonexistent pre-Katrina, rose to $15.51 per capita by 2010 and has doubled since then, according to the Data Center, an independent research firm covering Southeast Louisiana.

A variety of factors have driven that growth, not the least of which has been an influx of young newcomers. In 2013, 7% of the population in New Orleans had moved there only in the past year, up from 3% in 2004. More than half came from outside Louisiana. Today, more than one in four New Orleans residents are between age the ages of 20 and 34, up from one in five in 2000. And the number of people living in single-person households rose from 27% to 32% over the same period. Groups that track small business growth in the city don’t keep record of their owners’ ages, but city leaders we spoke with agree young people are playing a vital role in the New Orleans’ entrepreneurial renaissance.

“We all realize we need to have a vibrant small business environment for all of New Orleans,” says Quentin Messer, president of New Orleans’ Business Alliance. “I think we should not pat ourselves on the back yet. But you now have people in the room engaged in solving this collaboratively in a way that hasn’t happened before.”

Entrepreneurs we interviewed say they are attracted to New Orleans both because of the city’s financial appeal — labor costs are low and housing, while getting pricier, is still cheap relative to cities like San Francisco and New York — and the opportunity to be part of one of what is arguably one of the most dramatic comeback stories in the country. From environmental concerns over the city’s declining coastal wetlands to systemic poverty and educational inequality, there is no shortage of problems for scrappy startups to tackle.

Houston native Crystal McDonald, 33, studied economics and finance at Dillard University, a historically African-American school in New Orleans, before moving to Chicago to work as a banker and earn her MBA at the University of Chicago. Love brought her back to New Orleans in 2012 (she married her college sweetheart) and rich business opportunities have kept her there. McDonald and her husband launched a startup, GoToInterview, a virtual job interview service, in 2013 after they struggled to find reliable part-time workers for the fast-food franchise they ran together. In a city where the majority of jobs are in high turnover industries like restaurants and tourism, they saw a need for a simple way for employers to vet job applicants without having to sift through paper applications or wait for viable candidates to work through their doors. They quickly found support from the city’s burgeoning startup network.

“Katrina was a blessing and a curse in the sense that post-Katrina [the city] has been really wonderful in attracting resources and everything you need to be successful in business,” McDonald says. “But it also stems from a sense of survival. It’s great to be part of that.”

Andrea Chen, 33, was one of thousands of New Orleans teachers who were abruptly fired during a sweeping overhaul of the city’s education system after Katrina. Jobless, Chen moved north, bouncing from couch to couch at friends’ places before eventually making her way back to New Orleans in 2006. The city was still very much in early recovery mode, and she noticed that community groups needed a space where they could organize their efforts. “We saw people painting street signs, gutting houses, this level of civic energy that was coming out of necessity,” Chen says. “It really galvanized everybody in the community to do their part.”

That was the seed for Propeller, a startup accelerator and incubator she founded in 2009. Today, the company’s 10,000-square-foot office space is homebase for 80 startups, roughly 80% of which are run by people in their 20s and 30s, Chen says. Propeller focuses on supporting businesses focused on solving four of New Orleans’ most pressing social and environmental concerns: healthcare, education equality, water management and food access. “Our goal is to have a critical mass of entrepreneurs working on an issue like [restoring our coastal wetlands],” Chen says. “That’s how we’re going to move the needle on the big challenges we’re facing.”

New Orleans has done a fine job attracting new talent. The challenge facing city leaders who desperately need entrepreneurs to keep fueling growth is figuring out how to keep them there. Start a business in San Francisco and New York and it’s certainly possible to network your way into millions of dollars of locally-based venture capital funding. Business owners in New Orleans still rely very much on out-of-state funding. To answer that need, startup support services have become the lifeblood of the entrepreneurship movement. Incubators like Propeller and 4.0 Schools, which supports “ed-tech” startups, coach fledgling founders in fundraising, help connect them to VC firms and, of course, provide access to the office space they need. 504Ward, a group with 14,000 members, looks to attract and retain young, educated workers by hosting mixers and networking events. Another startup incubator and accelerator, Idea Village, has worked with more than 4,000 entrepreneurs over the last five years in New Orleans and hosts IdeaX, a 12-week accelerator program that connects New Orleans-based founders and global business experts.

McDonald herself is very much a product of this network. She operates out of a coworking space furnished by PowerMoves NOLA, an initiative founded by the New Orleans Startup Fund, a non-profit established by city business and community leaders. When GoToInterview was just getting started, she cycled through IdeaX to fine tune her business plan and CapitalX, another IdeaVillage program, to navigate her first round of fundraising. In May, she won a $100,000 investment at a business pitch competition held by AOL co-founder Steve Case. “Everybody has been involved [in our growth],” she says. “It’s electric.”

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But the city will need more than mentorship programs to keep the talent they have attracted so far. Young people have a habit of growing older and wanting things like affordable housing, safe neighborhoods and good schools for their children. Gentrification of New Orleans neighborhoods may have made them more appealing to newcomers, but that also means rising housing costs. Rents have increased 9% since 2009, according to the National Association of Realtors, while income has dropped by 1.5%. Public schools are certainly much improved from pre-Katrina days — 88% of New Orleans students attended schools that met state standards in 2014, versus 30% pre-Katrina —  but only 40% of students attend schools that have earned an “A” or “B” grade from the state’s education department, the Data Center found.

Likewise, today’s young startup owners will one day outgrow their co-working spaces and incubator roots. They’ll need to be able to attract pros from hubs like San Francisco and New York to help scale their businesses. Last year, Idea Village spearheaded a bi-coastal startup “roadshow”, sending a cadre of the city’s brightest startup stars to court investors and business elites in Silicon Valley and New York. They brought brass bands, hosted happy hours and festooned a conference room at Facebook with Saints flags and Jazz Fest posters. It was as much an effort to get people excited about the potential of the New Orleans startup scene as it was a recruitment bid. As great as it is to be home to a legion of startups, New Orleans has yet to launch the next Uber or Etsy, let alone the next Twitter — startups-turned-corporate-juggernauts that provide not only buzz but also thousands of jobs, something New Orleans so badly needs. Thanks to the oil bust of the 1980s, the city was bleeding jobs long before Katrina hit. The biggest employers in New Orleans in the last decade haven’t been hot new startups but rather hospitals, hotels, and retailers like Walmart and Costco.

Where city and state officials have made strides is in sweetening the deal for new businesses, mostly in the form of tax incentives. One program provides a 5% to 6% state payroll rebate for up to 10 years for companies that create at least five new jobs per year. Another program gives a 25% to 35% tax break to digital media production companies. The state also implemented a Tax Abatement Program that gives a five-year 100% property tax abatement to business owners who expand, restore or improve their structures in certain areas of the city.

“I’m not saying we’re going to wake up and be Silicon Valley tomorrow,” says Messer. “But we’re going to get there.”

Correction: Due to a reporting error, we incorrectly identified the founder of PowerMoves. It was founded by the New Orleans Startup Fund. We also misidentified the New Orleans Business Alliance. It is not the small business alliance. The article has been updated to reflect these changes.