How New Orleans Built a Bustling Tech Hub in Katrina's Wake

No one would say that Hurricane Katrina was a good thing. But the city's startup founders say it stirred their fighting spirit.
Coworking space Launch Pad one of the IP Building039s many tenants.
Launch Pad

Brent McCrossen left New Orleans for Seattle in September of 1998, part of enormous "brain drain" that hit the city even before the arrival of Hurricane Katrina. But four years ago, he returned to the city, as part of a thriving startup scene that arose in the wake of the storm.

In the late '90s, life in the Big Easy was a little too, well, easy, McCrossen says. He wanted a challenge. To make something of himself, to build something new. New Orleans just wasn't the place to do that. There simply weren't many opportunities for ambitious young people, so many of them moved on. "I remember my mom crying as I pulled out of the driveway," he says. "But I always told her I'd be back once I'd found something to bring back with me. I just didn't know what."

Audiosocket

Roughly 42,000 people between the ages of 22 and 35 left New Orleans during the decade. Plagued by crime, poverty, and a dearth of jobs, the city's population grew only 4 percent in the '90s, well behind the 10 percent growth nationwide. Moneyball author Michael Lewis, venture capitalist and early Compaq investor Ben Rosen, and Steve Jobs biographer Walter Isaacson were among the city's bright stars who departed the city in the decades prior. Even before Hurricane Katrina and the flood that followed, many feared that New Orleans was dying.

Ten years after Katrina, New Orleans remains 30 percent smaller than before the disaster. But the young and educated have flocked to the city, creating new opportunities in the process. "You can come to this place that has this history where you can have a real impact," says Michael Hecht, president of the economic development organization Greater New Orleans Inc. "You can help the world, have a great time doing it, and not feel like you're in the rat race that you'd be in the New York or San Francisco."

Between 2007 and 2012, over 44,000 college graduates moved into New Orleans, a 25 percent increase for the city, according to Forbes. Meanwhile, the city has launched myriad programs to attract first-time entrepreneurs, and tax breaks have attracted a growing number of tech startups, including the education company Kickboard and big data company Lucid. This creates not only new jobs but new possibilities. Years after leaving the city, some are even coming back. Keeping his promise, McCrossen returned in 2011, bringing his digital music company, Audiosocket, along with him.

No one would say Katrina was a good thing. But the consensus is that it made New Orleans stronger. "It put the fight back into us," McCrossen says. "It made us realize how precious the city is. We had that rare event where we almost lost everything but got another chance." The city's tech scene still faces more than a few challenges, some of which took root even before the storm. But the brain drain is long over.

The First Attempt

Around the time McCrossen left New Orleans, Tim Williamson returned. He left in 1987 and spent several years working in finance and then running technology startups. He returned to city in 1998 to run Cox Interactive Media's New Orleans operation. One night in 1999, Williamson and four other local technology business people met up for drinks at the Loa Bar downtown and ended up venting their frustration over the state of the city, which was bleeding jobs and talent as energy companies like Exxon Mobil moved to Texas. "In our lifetime, we went from being a leading city in the South, to developing the worst education system in the country, a murder capital, a corrupted government and loss of corporate headquarters," Williamson says. "Our parents felt the best thing for us was to move away."

As a result, they hatched a non-profit called Idea Village, an organization designed to foster a startup ecosystem in New Orleans. "The idea was to reverse decades of decline specifically by founding high-growth technology companies to bring jobs," he says. "What we decided to do was connect folks in the business, government and universities to identify and retain entrepreneurial talent."

Russell Armstrong, former chief of growth of mSchool, and mSchool founder Elliot Sanchez at Idea Village.Idea Village

Williamson and the rest of the Idea Village crew spent the next several years mentoring early-stage companies, but it was an uphill struggle in those early days. The business community in New Orleans was more focused on the past, trying to lure back energy companies. The idea of fostering a grassroots startup ecosystem was a foreign one. Plus, New Orleans wasn't all that welcoming to outsiders.

"There was plenty of southern hospitality to visitors, so long as you didn't try to move here," says Peter Bodenheimer, a New Orleans native and entrepreneur who returned to the city in after the dotcom crash in 2000. "People would ask: 'Who's your moms' and all that."

But the devastation that followed Katrina changed that. It brought a greater appreciation of the need for new industries, and made the city more welcoming to outsiders.

The Rebirth

The influx of people who came to assist with the recovery combined with seed money and other incentives to create a burgeoning startup community. Teach for America instructors stuck around to found companies like Kickboard and Dinnerlab. People like McCrossen moved back. Locals like Bodenheimer, who had worked in city government since returning, finally had the chance to start their own companies, such as the co-working space Launch Pad.

Launch Pad

Meanwhile, the state of Lousiana began offering incentives such as a digital media and software tax credit and an angel investor tax credit to encourage more regional entrepreneurship. Local business leaders created the New Orleans Startup Fund with financial help from both the state and federal governments to provide seed funding for new companies. Incubators like 4.0 Schools and Propeller joined Idea Village in mentoring new startups, and events like Launch Pad's Launch Fest and Entrepreneur Week provided networking opportunities for everyone looking to get involved.

Of course, New Orleans isn't alone in its newfound desire for startups. You can't throw a dart at a map of the US these days without hitting a town that's trying to transform itself into the next Silicon Valley. Every municipality wants to attract more high growth companies to bring jobs to its citizens, and it seems they've all got an incubator or three dedicated to producing the next Facebook.

But New Orleans has done particularly well. Residents started 471 new business per 100,000 adults between 2007 and 2009—about 64 percent more than the average city, according to a report report from the Brookings Institute. That's up from 218 per adult before Hurricane Katrina, about 27 percent lower than the rest of the country. Hell, one New Orleans resident even a created private security app—an Uber for cops, if you will. Though that may sound dystopian, depending on your politics, it shows that the city is reaching for something bigger.

That said, the city has yet to have a breakout success to really put it on the map, and that can make raising later rounds of funding harder. "There's plenty of seed stage capital, but not a lot of growth stage capital," says Bodenheimer. But startups such as Audiosocket, Kickboard and Lucid have all raised solid rounds of funding.

More Than The Money

There's a palpable sense that entrepreneurs in New Orleans aren't just there to make money, but to make the city a better place as well. Although they've succeeded in increasing the prospects for educated young people, the opportunities have yet to trickle down to the rest of New Orleans.

There's been strong growth in high-wage jobs, but 60 percent of workers in the city are still stuck in low wage jobs according to a report by the non-profit research group The Data Center. That's particularly bad news for New Orleans, where housing prices are soaring. Meanwhile, the poverty is just as high as it was before Katrina, and there's a huge wealth gap between black residents and white residents.

"There is certainly much more startup activity going on than there has been," says Marla Nelson, a University of New Orleans Planning and Urban Studies professor who contributed to the Data Center wage study. "It's harder on the ground to see where it's making a difference. What effect they have on the economy is hard to tease out."

She also points out that much of the growth in entrepreneurship in New Orleans may stem from a lack of jobs, rather than government incentives, and that self-employed people—especially those not working in the well-funded tech sector—have far less stability and might make less money than those in steadier jobs.

Idea Village
The Gentrification Problem

The rising cost of living combined with persistent inequality could threaten the very core of what attracted so many of the companies driving the tech boom in the first place: the city's historic culture. And while everyone knows gentrification is a problem, no one knows how to fix it.

But there's good news as well. New Orleans' schools still have some growing up to do, but according to The Data Center, education is improving substantially, while incarcerations are less than half what they were before Katrina, both of which bode well for the long-term. Meanwhile, New Orleans-based non-profit arts organizations receive around four times as much revenue as the national average, showing what a priority culture is for the city.

That culture runs deep: New Orleans will celebrate its 300th anniversary in 2018. And if there's anything Hurricane Katrina taught the world, it's that New Orleans won't go out without a fight.