The Maturation of PHL's Tech Startup Scene: Part II

This post is the second in a two-part series focused on the region’s evolving tech startup scene prepared for last fall’s Greater Philadelphia Leadership Exchange. (Click here to read the first post in the series.)

Collaborative Feeders

Greater Philadelphia has long been known for its innovation and leadership among technology-based economic development organizations that look to support area entrepreneurs. The list is long enough to risk omissions, but some of the long-standing players have been the University City Science Center, Ben Franklin Technology Partners of Southeastern Pennsylvania, New Jersey Technology Council, Delaware Technology Park,Greater Philadelphia Alliance for Capital and Technologies (PACT), CEO Council for Growth,Select Greater Philadelphia, BioAdvance, Enterprise Center, chambers of commerce, and small business development centers, among others.

The role played by these intermediary organizations in spurring innovation and tech-based economic development has been closely studied by University of California, San Diego sociologist Mary Walshok. Walshok last year completed a National Science Foundation-funded research project comparing innovation ecosystems in San Diego, St. Louis, and Philadelphia – all comparably sized regions with major R&D assets. Having helped establish CONNECT, a best practices model for technology networking groups based in San Diego, Walshok brought a unique mix of on-the-ground experience and academic clarity to the challenging task of understanding the cultural and social dynamics of regional innovation systems. What she found in Philadelphia was that, despite a large number of established and high-capacity innovation support organizations, they traditionally had been more focused on transactional relationship with entrepreneurs (e.g., providing seed capital and technical assistance) rather than relationship- and network-building roles and proved to be less collaborative with one another compared to those in San Diego.

There are signs that Philadelphia’s tech support – or what Brad Feld would call “feeder” – organizations are starting to take Walshok’s recommendations around investing in network-building and cross-organizational collaboration to heart. Addressing a need identified in the Economy League’s 2007 Accelerating Technology Transfer in Greater Philadelphia report, the University City Science Center moved to establish a new “clubhouse” space as part of the latest building being constructed on its University City campus. Modeled after a similar innovation clubhouse developed in North Carolina’s Research Triangle Park to provide a gathering place for that region’s researchers, entrepreneurs, investors, and resource organizations, the 4,500 square-foot flexible Quorum space was unveiled in 2011. In Quorum’s first two years, more than 18,000 individuals have attended more than 350 entrepreneur-focused programs, meetings, and events there. The Science Center makes a point of emphasizing that while Quorum is a Science Center initiative, it truly belongs to the entire region’s innovation community.

Another example of a different kind of collaborative approach among economic development leaders has been the growth of new tech entrepreneurship communities at the Navy Yard. Several years of state-supported planning efforts for a Keystone Innovation Zone at the Navy Yard among Ben Franklin Technology Partners of Southeastern Pennsylvania, Philadelphia Industrial Development Corporation (PIDC), the City of Philadelphia Commerce Department, and Delaware Valley Industrial Resource Center (DVIRC) paved the way for the creation of the federally funded Energy Efficient Buildings Hub (EEB Hub) in 2011 (now called the Consortium for Building Energy Innovation, or CBEI). With $130 million in support from the U.S. Department of Energy, a broad consortium of research institutions has joined forces with economic development and workforce agencies to advance and commercialize energy efficient building technologies. The intensive and sustained collaboration among CBEI partners is super-charging the development of a whole new set of entrepreneur supports at the Navy Yard, including the launch of new business accelerator and incubator programs as well as events and networking programs in conjunction with the Science Center’s first Satellite Quorum location.

While Quorum and recent growth at the Navy Yard are examples of place-based and programmatic collaborations to support entrepreneurial hub growth, other collaborations have focused simply on information-sharing among startup community members. Local entrepreneur and investor Mel Baiada and five regional entrepreneurship support organizations came together several years ago to develop the Basecamp Business Calendar, a comprehensive calendar of regional networking events, conferences, and forums for the entrepreneurial community with thousands of annual listings. The Basecamp Business calendar platform has subsequently been adopted in other regions across the U.S. A parallel online resource connecting entrepreneurs in the region is WeWorkInPhilly.com, a website formed in 2011 that provides a community-edited (instead of individual-curated) guide to the people, projects, companies, and resources that make up the creative and technology community in Philadelphia.

A More Proactive University Role with Entrepreneurship 

Perhaps the most powerful feeder engines and assets to spur entrepreneurship in our region are Greater Philadelphia’s universities, which consistently crank out talent, ideas, and technologies that can be converted into startup successes. Several area universities have taken a more proactive approach toward encouraging student and faculty entrepreneurship in recent years. Drexel University President John Fry and Philadelphia University President Stephen Spinelli, who co-founded Jiffy Lube in 1979 and built Babson College’s top-ranked entrepreneurship program, in particular have been outspoken visionaries for aligning campus resources and policies in support of entrepreneurship. In developing a new strategic plan for Drexel, Fry has championed the creation of a new innovation district adjacent to 30th Street Station and has overseen the formation of the university’s new Drexel Ventures seed funding, incubation, and technology transfer initiative. Spinelli has spearheaded Philadelphia University’s shift to a more project-based and problem-solving curriculum intended to prepare its design, engineering, and business students for entrepreneurial pursuits.

Temple University, too, added and expanded entrepreneurship curriculum and programs of study. It has a reputation for weaving entrepreneurship minors into non-business disciplines and consistently ranks among the top 20 entrepreneurship programs in the U.S. Drexel, meanwhile, has opened Philadelphia’s first stand-alone school of entrepreneurship and changed its policy to allow students to work at startups to fulfill their six-month cooperative work experience requirements.

A lively debate, however, exists about whether one can “teach” entrepreneurship or whether related academic programs attract high-potential entrepreneurs. Opportunities for students and recent graduates to get more direct “real world” exposure to entrepreneurship – both on and off campus – have definitely been on the rise in the form of business plan competitions, hackathons, and entrepreneurship clubs. The success of Goldman Sachs’ 10,000 Small Businesses intensive entrepreneurship education program at Community College of Philadelphia points to the potential effectiveness of programs targeting more seasoned businesspeople looking to grow their enterprises.

Entrepreneurship’s recent surge in popularity on campus may be due, in part, to the lasting effects of the Great Recession, as deteriorating prospects for new entrants into the labor market have driven many to consider the need to create their own opportunities. Whether a long-run trend or immediate economic necessity, more than 700 area students ended up expressing interest in serving on the new Dorm Room Fund’s investment committee when it launched last year. More than 100 students from campuses across the region turned out for a Philly College Entrepreneurs event last fall targeting current and would-be entrepreneurs.

Resources to support campus entrepreneurship are also coming from outside of the region, as two national initiatives that aim to foster a new generation of entrepreneurial leaders via university and recent graduate engagement – Blackstone LaunchPad and Venture for America – announced local partnerships within the past year. The Blackstone Charitable Foundation is granting $3 million for a partnership with the University City Science Center, Temple University, and Philadelphia University to replicate a successful program that introduces entrepreneurship as a viable career path and provides students and alumni with skills and guidance around entrepreneurial pursuits. Similar to Teach for America, Venture for America offers two-year fellowships to elite recent graduates that place them within emerging startups.

Among the trickiest and ripest opportunities for universities to spur increased regional entrepreneurship are technology transfer offices, which exist to transfer university research results and inventions to commercial application for public use and benefit. Created under the Bayh-Dole Act of 1980 to manage intellectual property and licensing for research universities, technology transfer offices (TTOs) have struggled to balance the interests and needs of faculty around invention disclosures, university administrators seeking to maximize licensing revenues, and entrepreneurs and potential industry partners looking to access technologies with commercial potential. While TTOs across the country frequently suffer from lack of resources, several local universities have made an explicit effort to increase their technology transfer capabilities and funding, be proactive in their outreach to faculty and researchers, and work to build an institutional culture that supports commercialization and entrepreneurship.

The University of Pennsylvania, long known for its basic research prowess alongside its applied medical and engineering strengths, unveiled a new UPstart company formation program within its Center for Technology Transfer in 2010 that focuses on helping its diverse faculty form new companies based on their inventions and discoveries. UPstart has been credited with starting to improve awareness and change the culture among Penn faculty about entrepreneurship opportunities – no small feat at such a large university with so much tenure – and has had three times the national success rate on commercialization grant awards. Building off the work of UPstart, the university recently launched the Pennovation Center, a business incubator and lab space located in Penn’s new South Bank campus in Grays Ferry.

Beyond the Growth Capital Chicken-or-Egg Debate

Except for a handful of top-tier regions for venture capital investment – the Bay Area, New York, Boston – concerns about the availability of early-stage risk capital are a common refrain for entrepreneurs and the people trying to support them. While it is true that a critical mass of entrepreneurs with promising business ideas is what grows the pool of venture capital resources based within a region over time, a real or perceived lack of available risk capital can limit growth or overall perceptions of a region’s entrepreneurial dynamism in the short run.

That said, capital has never been as mobile, and the list of tech companies attracting money from outside the region has grown rapidly over the past couple of years. Many existing venture capital funds within Greater Philadelphia such as Quaker Partners and BioAdvance have been oriented toward investment in the region’s life sciences strengths, resulting in larger, multi-round investments compared with mobile and web technology firms, whose startup costs have continued to shrink. For lower-cost tech startup ventures, some have argued that Philadelphia could enjoy a competitive advantage by promoting itself as a “bootstrapping” community that relies upon friends, family, and crowdsourced funding while taking advantage of affordable talent and low overall costs, excellent access to major markets, and a tight-knit, nurturing tech community.

Telling the Story

Although a notable gap still exists between the widely held perception – or lack thereof – and the current reality of entrepreneurial activity in the region, a new set of communications outlets and advocates have emerged along with Greater Philadelphia’s tech scene. Itself an entrepreneurial endeavor of recent Temple University graduates, Technical.ly Philly began covering technology issues in the region in 2009 and has rapidly become a trusted news source while at the same time coordinating events that bring the region’s tech community together. It has emerged along with PlanPhilly and The Notebook as one of the most dynamic and widely read of the new wave of issue-focused reporting outlets that provide a consistency and depth of coverage beyond our traditional newspapers.

Characterizing itself as both a news organization and community builder, Technical.ly Philly’s role in organizing Philly Tech Week allows it to combine its deep reporting knowledge with event planning capacity to draw more eyes to the region’s evolving tech story and to help build networks. Staging the world’s largest version of the classic video game Pong on the Cira Centre during last year’s Philly Tech Week, in particular, was a brilliant and fun way to draw attention to the creativity and energy of the region’s tech community. In addition to Technical.ly Philly becoming the unofficial digest of the region’s tech scene, the addition of the online sister publications Keystone Edge and Flying Kite has added to the pool of in-depth coverage of emerging tech entrepreneurs in the region.

Even with these new media outlets focused on telling the new Philadelphia entrepreneurship story, it’s somewhat remarkable how little widespread recognition there is of major recent tech startup successes. The best example of this might be GSI Commerce, the King of Prussia-based e-commerce giant that grew to 5,000 employees before being acquired by eBay in 2011 for $2.4 billion. Despite its impressive success and role in helping put Philadelphia on the map as an ecommerce hub, the firm has drawn remarkably little attention within the broader civic community. Another recent billion-dollar exit that went virtually unnoticed was Wayne-based employment solutions firm Kenexa’s sale last year to IBM for $1.3 billion. There’s a bit more recognition of Half.com’s $350 million sale to eBay before the dot-com bubble burst, in part due to the attention drawn at the peak of the dot-com craze as well as its role in launching founder Josh Kopelman’s future entrepreneurial and investment successes. And did you know that 28 year old Loren Brichter, a techie that the Wall Street Journal last year anointed “the high priest of app design” for creating and popularizing broadly used app features like pulling a touch screen to refresh a page and swiping to uncover hidden button, calls Philadelphia home?

A small, but dedicated network of civic and tech boosters are focused on ensuring that these stories and Greater Philadelphia’s maturing tech scene as a whole get more on the radar both within and outside of our region. A core group of messaging evangelists has been led by Luke Butler of the City of Philadelphia’s Office of the Deputy Mayor for Economic Development, Danielle Cohn of the Philadelphia Convention and Visitors Bureau, and Tracey Welson-Rossman of Chariot Solutions and TechGirlz, and they are working to package the region’s many recent successes into an ongoing narrative. The rise of Philadelphia’s innovation community now even has its own documentary with the release of the seven-episode Developing Philly series last year charting the evolution of our tech scene over the past couple of decades. (Episodes are available and worth viewing at www.developingphilly.com.)