Seattle-based sales automation startup Outreach announced a new $65 million funding round Monday — but its CEO, Manny Medina, also had another issue on his mind when GeekWire caught up with him: Seattle’s new head tax, which will levy Outreach and other companies making more than $20 million in annual revenue in Seattle about $275 for each full-time employee in the city.
“When the city turns around and creates a tax, all of a sudden we feel like a punch in the gut because all of a sudden we have to pay for growth,” he said. “If we do well, we pay. It seems like it’s not enough to provide jobs and to be a center of excellence in technology. Now we have to also pay for excellence.”
Medina said Outreach is “strongly considering” opening an office in nearby Bellevue, Wash., in response to the head tax. The Seattle City Council passed the legislation in question last week, winning praise from many supporters in the community but frustrating the tech industry. The tax is expected to generate $45 million to $49 million annually over five years to fund affordable housing construction and homeless services.
“It’s sad because the conversations you start having after that is, ‘Where are we going to put the next 20 developers?’ ” Medina said. “Do we need to stay here? Can we put them in Bellevue? Can we put them in Vancouver B.C.?”
Outreach isn’t the only company asking those kinds of questions. In the weeks leading up to the City Council vote, Amazon paused construction on one of the office towers it is building in Seattle and threatened not to move forward with plans to occupy another. Amazon has since resumed construction on the tower it paused. The e-commerce giant says Seattle’s “hostile approach and rhetoric toward larger businesses” forces the company to question its growth in the city.
Amazon will pay approximately $11 million annually under the new law, which Seattle Councilmember Kshama Sawant and her supporters refer to as the “Amazon tax.”
“They talk about the Amazons of the world, but what about us? We are still growing at a fairly fast clip,” Medina said. “These are real issues that are undercutting the possibility of having Seattle be a center like the new Silicon Valley, which is what we all want.”
The dynamics of employee recruiting are also factoring into Medina’s thought process.
“It’s no secret that startups here thrive because we have two giants feeding our headcount, Amazon and Microsoft,” he said. “They both have their own shortcomings in terms of their culture … we use that as a way to grow our team. We were locked and loaded and we had a great plan, but now with the tax passing and the fact that we’re poaching from Microsoft, a Bellevue office starts making a lot of sense.”
He added, “And once you dip your toes into the water, where does it end? We have quite a bit of management that lives on the Eastside and commutes to Seattle. It becomes an attractive option to just come into the office there.”
Though Medina sums up much of the frustration felt throughout the tech community, others specifically don’t want Seattle to turn into Silicon Valley, a region dealing with its own affordable housing shortages and chronic homelessness. Take Glowforge software developer Rachael Ludwick, a member of the Seattle Tech 4 Housing advocacy group.
“There are tens of thousands of people like me who make a lot more than most of Seattle, all while bidding up housing prices, and who largely moved here in the last decade,” she said in an email. She added later, “I am lucky and most folks in tech are lucky … we can afford to share our luck and the larger companies are best able to make a non-ideal tax policy work without hurting lower income workers.”
The city is formulating a spending plan for the funds to be raised by the tax. Meanwhile, a coalition of Seattle businesses has launched a campaign to put a referendum on the November ballot that would allow voters to overturn the tax. If the referendum is not successful, the tax will take effect at the beginning of 2019.
GeekWire reporter Taylor Soper contributed to this story.