THE BAY CITIZEN
As Mayor Cultivates New Business, Treatment of Backer Is Questioned
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From left, Mayor Edwin M. Lee, Ron Conway and the tech entrepreneur Sean Parker at the TechFellow Awards in February.
By MATT SMITH
Two days after the Nov. 8, 2011, San Francisco mayoral election, Mayor Edwin M. Lee and his top campaign contributor, the Silicon Valley investor Ron Conway, met for a two-hour dinner at Café des Amis in San Francisco’s tony Marina District.
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The topic, as venture capitalist Mr. Conway described it: how to “preserve the momentum” of the independent expenditure committees for which the investor had raised $600,000 to help elect Mr. Lee. The outcome of the dinner was the San Francisco Citizens Initiative for Technology & Innovation, or sf.citi, a nonprofit technology business league with the goal of helping to lure technology companies to San Francisco.
Five months after the election, however, questions have been raised about Mr. Lee’s actions on behalf of companies in which Mr. Conway has a financial interest. The mayor’s actions follow a controversy in 2011 in which Mr. Lee, while serving as interim mayor, helped steer local tax breaks to Twitter and Zynga, two other companies backed by Mr. Conway.
Mr. Lee told The Bay Citizen that he has intervened to attempt to prevent the city’s tax collector from charging a 14 percent hotel tax on short-term apartment rentals arranged by the online booking agency Airbnb, a company that received major backing from Mr. Conway’s SV Angel investment firm. And Mr. Lee’s staff has moved to help another company backed by Mr. Conway, Square, which makes a device that allows users to collect credit card payments on their smartphones. Mr. Lee said his office has intervened to keep the city’s taxi regulators from banning the device, which the regulators contend may be viewed with suspicion by passengers.
“This is less about Ron Conway and more about sf.citi and how we can help companies that are giving back to San Francisco,” Mr. Lee said.
Tony Winnicker, an adviser to Mr. Lee who served as his campaign spokesman, said the mayor made support for local technology investments a key part of his 2011 campaign message, and that aiding local startups is a matter of following through on a promise to voters. As of late 2011, a document obtained by The Bay Citizen revealed, Mr. Conway’s SV Angel firm has or had investments in 69 San Francisco-based companies. Mr. Winnicker said it would be impossible to pursue a local tech-industry policy without somehow benefiting Mr. Conway’s investments. Other investors in his SV Angel funds include former Gov. Arnold Schwarzenegger.
“We make no apologies,” Mr. Winnicker said. “Lee is following through on what he promised he would do as mayor.”
Critics, however, contend that this is an example of how Mr. Lee’s actions demonstrate his lack of independence from his political backers. Mr. Conway is a Republican. Mr. Lee is a Democrat.
“There’s a distinct difference between pursuing policies that raise the tide for everybody and pay-to-play politics to reward one particular supporter’s investment,” said Aaron Peskin, a former Board of Supervisors president who is now head of the local Democratic Party. “This is about rewarding a major campaign contributor. It’s pay-to-play politics pure and simple.”
Mr. Winnicker said he “vehemently” disagreed that Mr. Lee’s actions amounted to “pay for play.”
Corey Cook, an assistant professor of politics at the University of San Francisco, said it was not unusual for politicians to find backers in industries they support. But, Mr. Cook said, the mayor’s close ties to Mr. Conway could harm him politically.
“It’s not that Lee risks violating ethics standards,” Mr. Cook said. “It’s that he feeds into the perception that he’s not an independent politician.”
On March 12, San Francisco’s treasurer and tax collector posted on the agency Web site a rule specifying that online brokers who help people rent their rooms to vacation travelers must pay the city’s 14 percent hotel occupancy tax. The obscure-seeming rule was of keen interest to Airbnb, the leader in this nascent business, which employs 125 people at its San Francisco headquarters.
Later in the month, an employee of Mr. Conway’s SV Angel investment firm sent an e-mail to local technology firms urging them to send employees to a hearing about the rule.
Last Tuesday, Mr. Lee announced the formation of a “Sharing Economy Working Group,” which the mayor said in an interview had as a goal creating legislation to give a tax break to companies like Airbnb.
The next day, the fourth-floor hearing room of San Francisco’s City Hall was packed to overflowing with 120 young people, many wearing buttons with the Airbnb logo.
At the hearing, Jay Nath, Mr. Lee’s chief technology officer, urged the city’s tax administrator to postpone enforcing the tax until a newly appointed “collaborative consumption work group” could come up with a compromise.
“The important thing is to have a policy discussion first, so we can see how to support companies built around the model of collaborative consumption,” Mr. Lee said in an interview.
Mr. Lee’s stance seemed to represent an about-face from the position of San Francisco’s previous mayor, Gavin Newsom. In March 2010, Mr. Newsom wrote to Nancy Pelosi, then the speaker of the United States House of Representatives, urging her to derail efforts by online travel agencies, a category that includes companies like Expedia and Travelocity, to obtain relief from local hotel taxes.
Jennifer Matz, Mr. Lee’s director of economic and workforce development, defended the apparent turnabout, saying that room rentals by individuals should be viewed in a different light than the hotel business.
She said several mayoral staff members have been in discussions for the past month to help support a new type of business they call “collaborative consumption,” a category that includes vacation room rentals, car sharing, parking space sharing and other such activities. Fostering the growth of these kinds of emerging companies will help San Francisco develop a reputation as a cutting-edge tech hub, and that reputation might lure larger employers, Ms. Matz said.
The meetings by Mr. Lee’s staff members followed the publication of an article Mr. Conway wrote for The Economist, in which he said collaborative consumption was “perhaps the most thought-provoking sector I see developing in 2012” for venture capital investments. He cited as examples two of his portfolio companies, Airbnb and Rentcycle, which is also based in San Francisco.
Airbnb is one of two local Conway-backed San Francisco companies that have run into recent regulatory difficulties. On Nov. 28, officials with the city’s Municipal Transportation Agency recommended that the agency’s board members consider possible problems with Square, the smartphone credit-card reader, before permitting taxi drivers to use it to collect payments from passengers. Unlike taxi-specific charging devices, the Square system is not connected to the meter, meaning that charges are not reported to regulators, according to a Municipal Transportation Agency staff report.
The agency’s board did not follow through on the staff recommendation, however. “We’ve been in discussion with people in the Municipal Transportation Agency’s taxi division to get off of initial positions that were held out of fear, and embrace what could be a technology that benefits everybody,” Mr. Lee said.