My response to the Oregon Governor’s Prosperity Council

Thanks for putting up with my constant cajoling on the Oregon Governor’s Prosperity Council survey. I hope you got the chance to respond. Admittedly, I didn’t want to jaundice your response with my response. But now that the submissions have closed I wanted to share what I submitted. Again, my response was very myopically focused on the Portland startup community, as is my wont. I’m sure there were a wide variety of opinions and topic submitted. And I look forward to what the Prosperity Council does with all of this feedback.

What challenge would you like addressed in the Prosperity Council’s recommendations? What is the biggest barrier or friction point in this area?

Oregon’s startup ecosystem is caught in an increasingly untenable position: we invest public and private resources into building companies here, then create tax policy that disincentivizes investment while also encouraging founders to leave the state before those companies produce their biggest returns.

The most immediate example is SB 1507, which eliminates Oregon’s conformity with the federal QSBS (Qualified Small Business Stock) exclusion — a provision that has been in place since 1993. This means Oregon residents now owe 9.9% state income tax on gains from startup exits that are tax-free at the federal level and in 45 other states. The bill was passed on party lines — with a flawed understanding and even more deeply flawed financial projections — with no meaningful engagement with the startup community before passage, and it’s retroactive to January 1, 2026.

That’s 9.9% of a successful liquidity event that often winds up funding the next generation of startups — gone.

But the bigger challenge is predictability. The Council’s own definition of business climate references “a predictable and competitive environment.” SB 1507 is the opposite — a retroactive tax change that caught the startup community off guard. Founders and investors make multi-year bets. When the rules change mid-game, they don’t fight — they move. And “move” in Oregon’s case means a 15-minute drive to Vancouver, Washington, where there is no state income tax at all.

The barrier isn’t that Oregon lacks talent or ideas. It’s that we keep building an ecosystem with one hand while undermining its competitive position with the other.

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What solution or specific change would you make?

Three things:

1. Restore Oregon’s QSBS conformity. At minimum, restore the pre-2026 status quo. The revenue projections used to justify SB 1507 are built on static scoring — they take the current volume of QSBS-qualifying exits by Oregon residents, apply the 9.9% tax rate, and project $38.9M in the 2025-27 biennium, scaling to $83M by 2029-31. But those numbers assume founders and investors don’t change their behavior. They will. At the federal level, U.S. Treasury analysis has found that QSBS revenue estimates that account for behavioral responses come in significantly lower than static projections. At the state level, the behavioral response will be far more pronounced — because the friction is near zero. Vancouver, Washington is 15 minutes from Portland with no state income tax. Founders and investors planning multi-year exits have every reason and every ability to change residency before a liquidity event. We don’t have to guess about this. Washington proposed the same QSBS elimination this year (SB 6229). WTIA warned it “sends exactly the wrong signal — telling homegrown startups to build here, but plan their success somewhere else.” AngelList researcher Abe Othman warned the biggest risk isn’t a sudden exodus but “a slow erosion of the startup pipeline” with effects that “wouldn’t be obvious for 10-to-15 years, but once they show up, they’ll be slow or impossible to reverse.” Washington listened. The proposal died. California is the one state that has survived QSBS non-conformity — but California attracts nearly half of all U.S. venture capital. Oregon doesn’t have that gravitational pull. We have a river with a tax-free state on the other side. Salem is projecting $83 million per biennium by 2029 from an ecosystem it’s actively making less competitive. That’s not a forecast — it’s a hope.
2. Require economic impact assessment before passing tax legislation that affects business formation and investment. SB 1507 was framed as closing a loophole for wealthy investors. Nobody modeled the downstream impact on angel investment, founder retention, or startup formation. The Technology Association of Oregon submitted a letter signed by 40 founders and investors, but it arrived after the decision was effectively made. That process is backwards. And here’s the irony: the state has invested roughly $8 million in Regional Innovation Hubs — 9 hubs covering all 36 counties — specifically designed to give the state visibility into and engagement with local innovation communities. That infrastructure exists. None of it was leveraged before SB 1507 was passed. We built the feedback mechanism and then didn’t use it.
3. Create a formal channel between the startup/innovation community and the legislature. Oregon has no standing mechanism for the people who actually build companies here to weigh in on policy that affects them before it passes. Other states have innovation councils, startup advisory boards, or at minimum a regular cadence of engagement. Oregon’s startup community learned about SB 1507 from tax attorneys, not from their representatives.

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What would success look like in 2-3 years?

• Founders who exit a company in Oregon start their next company in Oregon and invest in their peers starting new companies — not in Washington, Colorado, or Texas
• Angel investment activity in Oregon is steady or growing, not declining. Right now we should be measuring a baseline before the QSBS change takes full effect
• Oregon is no longer on the short list of states that actively penalize startup investment (currently alongside California, Pennsylvania, Mississippi, and Alabama — not exactly the innovation peers we aspire to)
• The startup community has a seat at the table before tax and regulatory policy affecting business formation is finalized — not after
• Clark County stops being the default answer to “where should I incorporate if I want to build in Portland?”

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Who has to act for this to happen?

• Legislature: QSBS restoration requires legislative action. The referendum effort (Rep. Ed Diehl) is one path, but a legislative fix is faster and sends a clearer signal
• Governor’s office: The Prosperity Council’s own mandate conflicts with SB 1507. Acknowledging that publicly would matter
• Business Oregon / state economic development: Should be tracking startup formation, angel investment, and founder retention as core metrics — not just large employer recruitment
• The startup community itself: We need to show up. That’s completely on us. Part of the reason SB 1507 passed without startup input is that the community isn’t organized for policy engagement the way other industries are. That’s on us too

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What existing state programs and policies does Oregon have that are most helpful to you that you want to see continue?

• Oregon InC (Innovation Council) and the SBIR/STTR matching programs — these directly support early-stage companies
• Prosper Portland’s startup grants and scholarships — particularly for underrepresented founders (e.g., TiE XL Bootcamp scholarships)
• The university-to-startup pipeline — PSU, OHSU, OSU, and UO all have emerging commercialization programs. These need sustained investment, not cyclical funding
• Business Oregon’s support for organizations like OEN, TAO, and TiE Oregon — these are the connective tissue of the ecosystem, and they operate on shoestring budgets relative to their impact

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What promising models or effective best practices have you seen in other states that you’d like Oregon to emulate?

• Washington State fought off the same QSBS proposal (mentioned above) — but the key lesson isn’t the outcome, it’s the process. Washington’s tech community had an organized voice (WTIA) and a legislature willing to listen. Oregon’s startup community had no equivalent channel. The proposal passed before anyone could respond
• Colorado’s startup ecosystem has benefited from intentional state investment in innovation districts and a competitive tax environment that doesn’t penalize startup exits
• Indiana’s innovation council model provides a standing advisory body with startup and VC representation that reviews proposed legislation for economic impact before passage
• Utah’s Silicon Slopes is a public-private partnership that coordinates ecosystem support, talent pipeline, and policy advocacy — giving the startup community both visibility and a seat at the table. Oregon has the pieces but no coordination layer at the state level

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What other ideas or input would you like the Prosperity Council to know?

I’ve been working in, on, and around the Oregon startup community for 30 years. I co-founded PIE (the Portland Incubator Experiment), I’ve run Silicon Florist — a blog covering Oregon startups — for 18 years, and I’ve spent time in every corner of this ecosystem from pre-seed founders to corporate innovation programs.

What I can tell you is that Oregon’s startup community is remarkably resilient and resourceful — but it’s held together by volunteer effort, personal relationships, and organizations operating well below their potential because of limited resources. The talent is here. The ideas are here. What’s missing is a state government that treats the startup ecosystem as strategic infrastructure rather than a revenue source to be tapped.

And SB 1507 is not an isolated incident. This is a pattern that goes back over a decade:

• 2009-2010: The legislature passed what became Measures 66/67 (approved by voters January 2010) — a new gross receipts tax on corporations including unprofitable startups, and a top personal income tax rate of 11%, the highest in the country. A double hit to founders and the investors trying to fund them. (https://siliconflorist.com/2009/10/12/oregon-startups-death-taxes/)
• 2012: The Oregon Investment Act (HB 4040) nearly died in a short session because “too many of our legislators are unfamiliar with the important economic contributions of Oregon’s entrepreneurial community.” The startup community had to stage a last-minute rally. (https://siliconflorist.com/2012/02/26/legislating-oregons-entrepreneurial-future-oregon-investment-act-house-bill-4040/)
• 2015: The legislature cut $2 million from the Oregon Growth Fund, the state’s seed capital program for early-stage companies. (https://siliconflorist.com/2015/06/24/oregon-startups-angel-seed-funding-activity-oregon-lawmakers/)
• 2019: The Oregon Growth Fund was approved at $630K instead of the requested $2M — the third time in seven years. (https://siliconflorist.com/2019/06/05/fundraising-is-hard-enough-lets-encourage-the-state-of-oregon-not-to-make-it-harder-before-noon-on-june-6-2019/)
• 2023: RAIN’s CEO had to actively solicit startup community input for a House Revenue Committee meeting — the legislature wasn’t seeking it on their own. (https://siliconflorist.com/2023/09/15/voice-your-startup-concerns-to-the-oregon-legislature/)
• 2024: Business Oregon’s own Innovation Index ranked Oregon in the bottom third of states for 8 of 17 metrics measuring five-year change. “Opportunities” were conspicuously absent from the state’s own SWOT analysis. (https://siliconflorist.com/2024/07/31/business-oregon-releases-2024-innovation-index-and-its-not-pretty/)
• 2026: SB 1507 eliminates QSBS conformity, retroactive to January 1, without consulting the startup community.

The Prosperity Council survey closes today. The QSBS bill was signed without meaningful startup community input. The pattern is consistent across administrations, across sessions, across years: decisions get made, then the community is asked what it thinks. If this Council wants to make a real difference, flip that sequence. Ask first. Build the feedback loop. And start by acknowledging that SB 1507 sent exactly the wrong signal to every founder and investor weighing whether Oregon is the right place to build.

NOTE: I also remember freehanding some commentary in the form in regards to Business Oregon and the opportunity to rethink and refactor the organization — or to raze it to the ground and rebuild something more inline with the needs of our state. Apologies, I did not capture that content verbatim. But you get the gist.