The Maturation of PHL's Tech Startup Scene: Part I
In anticipation of Philly Tech Week next month, we are posting an in-depth look at the region’s evolving tech startup scene that Economy League Managing Director for Regional Engagement Josh Sevin prepared for last fall’s Greater Philadelphia Leadership Exchange. In the first of a two-part series, we take a look at how a growing and networked community of entrepreneurs is paving the way for startup success in the region.
In 2012, one of Greater Philadelphia’s entrepreneurial superstars made big news by moving his early-stage investment firm to University City. Given that First Round Capital was shifting its headquarters only 10 miles from West Conshohocken to West Philadelphia, this might not have appeared to be a net gain for the region. Yet managing partner Josh Kopelman’s reasons for moving the nationally prominent venture capital firm to the edge of the University of Pennsylvania’s campus indicated that this was more than just an office move. In a blog post announcing the decision, Kopelman explained that after a decade of building First Round into the third-largest venture capital firm in the U.S. by focusing on Silicon Valley and New York City, he was “done sitting on the sidelines” in his own backyard and was committed to doing more to help Philadelphia-area tech entrepreneurs get their businesses off the ground.
Kopelman’s public commitment to do more to support the local entrepreneurial scene was one more sign among many that have emerged over the past few years that sustained investments and some different approaches to spurring entrepreneurship in the region are yielding results. For a region that historically has ranked poorly on key measures of entrepreneurial activity (e.g., last out of the 10 largest U.S. regions in entrepreneurs per capita), a new narrative and dynamism has been emerging around Greater Philadelphia’s web and mobile technology startup scene that may provide lessons for spurring entrepreneurial growth across other sectors.
A Greater Focus on Entrepreneurship in PHL
Supporting entrepreneurship has become a greater focus of economic development efforts nationwide, driven in part by the oft-cited fact that nearly all of net job growth in the U.S. since 1980 has occurred in firms less than five years old. This shift has occurred within the Philadelphia region as well, with a broader set of leaders grappling with how to cultivate the region’s entrepreneurial ecosystem in a way that builds upon local strengths and culture (i.e.,not trying to become “the next Silicon Valley”). This emphasis is notable within the Global Positioning Strategy (GPS) for World Class Business Growth released by the Economy League last year with input from hundreds of regional leaders. The GPS called out strengthening entrepreneurial networks and increasing the availability of growth capital as priority strategies to achieve the long-run goal of Greater Philadelphia becoming known as a place where entrepreneurs can successfully create and grow businesses to scale.
Over the past few years, Mayor Nutter has been an outspoken supporter of the local tech scene, with the launch of the Startup PHL $6 million seed fund and ideas competition in 2012 and last fall’s tech-focused trade mission to Israel and the United Kingdom as two examples. Economic development agencies that traditionally have focused on firm attraction and expansion such as the Philadelphia Industrial Development Corporation (PIDC) and Select Greater Philadelphia have expanded their services and efforts to include supporting entrepreneurship. Highly competitive national programs investing in local entrepreneurship efforts have increasingly found their way to the region, including Goldman Sachs’ 10,000 Small Businesses initiative, Bloomberg’s Mayors Challenge, and Blackstone LaunchPad. In addition to these newer efforts, the region is home to nationally recognized tech-based economic development support organizations like the University City Science Center and Ben Franklin Technology Partners of Southeastern PA – which celebrated their 50th and 30th anniversaries, respectively, last year.
The Rise of Entrepreneur-Led Neworks
Yet an even more significant change in Philadelphia’s tech startup landscape over the past several years has been the emergence of some dynamic entrepreneur-led networks. At the center of much of this activity has been Philly Startup Leaders (PSL), which launched in 2007 as a grassroots and volunteer-based network to connect entrepreneurs from across the region. With a primary focus on technology and connecting startups with information, inspiration, and a community of peers, Philly Startup Leaders hosts dozens of annual events such as the annual Entrepreneur Expo and Founder Factory bringing together hundreds of area entrepreneurs and investors. PSL also hosts an active listserv with a following of 2,000 and growing. What started out as a small informal network of unproven entrepreneurs has grown into one of the major nodes of the region’s entrepreneur community with proven serial entrepreneurs now in leadership roles.
Mirroring the rise of Philly Startup Leaders has been the overall growth in networks and events bringing together the region’s tech startup community, including Philly Tech Meetup, Startup Weekend, BarCamp, Uncubed, the Philly Geek Awards, and many others. The third annual Philly Tech Week, organized by Technical.ly Philly, drew more than 20,000 attendees to 100+ events last spring. This year will feature signature events like the world’s largest game of Tetris played on the façade of the 29-story Cira Centre and curated one-day conferences focused on hot topics in tech. And while many tech scenes tend to be predominantly male and white, there has been a mini-explosion of networks, events, and programs focused on women in tech, including the Philly Women in Tech Summit, Geek Girl Dinners, TechGirlz, Web Start Women, and Girl Develop It, as well as connecting minority entrepreneurs, including the Enterprise Center, the Minority Angel Investment Network, DreamIt Ventures’ Minority Entrepreneurship Accelerator Program, and the Close the Divide Project.
Putting a lie to the modern myth of the lone tech entrepreneur finding inspiration in his basement or garage, Philadelphia has seen the dramatic growth of a whole new class of entrepreneur-led co-working and incubator spaces, such as Indy Hall, Benjamin’s Desk, Venturef0rth, CultureWorks, Seed Philly, and Devnuts for technologists and entrepreneurs actively seeking collaboration and community. There’s even a Cheers-like hangout bar – National Mechanics – in Old City amidst the growing tech startup scene along N. 3rd Street (or N3rd Street as it’s proudly being marketed).
On the Road to Becoming a Startup Hub?
According to Brad Feld, an influential thought leader around startup hub growth, these developments might be the crucial pieces that enable Philadelphia to achieve a greater overall level of entrepreneurial activity. A successful early stage investor and entrepreneur, Feld’s first principle for dynamic entrepreneurial communities is that they must be led by entrepreneurs. He distinguishes entrepreneur leaders from everyone else, who he calls “feeders”. Feeders include all of the other players and supporters in a local entrepreneurial ecosystem, including government, universities, nonprofits, large companies, venture capitalists, and angel investors. In his recent book Startup Communities, Feld argues that members of feeder organizations can play important leadership roles, but that in the absence of a critical mass of entrepreneurs, a startup community won’t develop into anything meaningful. In a special edition of MIT Technology Review published last summer focusing on startup hubs, Feld summaries his leaders-feeders view:
“If you’re in a city where there’s no clear startup community, the goal is not raise a bunch of money to fund a nonprofit, the goal is not get your government involved. The goal is start finding the other entrepreneurial leaders who are committed to being in your city over the next 20 years. Then, as a group, get very focused on knowing each other, working together, being inclusive of anyone else who wants to engage, doing things that help recruit people to that geography, and doing selfish stuff for your company that also drives your startup community.”
To Feld, the limiting factor for a startup community rich in core assets (universities, proximity to markets, quality of life) and feeder/support organizations like Philadelphia is the number of and engagement among serial entrepreneurs. That’s where Kopelman’s decision to play a more active role in Philadelphia’s startup scene takes on a greater level of importance. And he’s joined by a growing list of successful repeat tech entrepreneurs based in the region: Bob Moul of Artisan Mobile, Lucinda Duncalfe of Real Food Works, Ned Moore of Clutch, Jonathan Brassington of LiquidHub, and Mike Krupit of Trajectify, among others.
A Growing Number of Success Stories and Mentors
The old standby that success breeds success proves especially true for regions trying to achieve a higher level of entrepreneurial activity. A recent Kauffman Foundation study on startup hubs reinforced the prevailing wisdom that startup density is a highly path-dependent phenomenon. Historians and lay observers of regional economies alike can point to entrepreneurial genealogies where the success of Company A begat serial entrepreneurs B, C, and D and investors E and F, leading directly to the creation of new startups G, H, and I. Not only does this process yield a next generation of entrepreneurs and investors with a strong set of ties and relationships within a given startup community, but it moves forward with a compounding effect and explains in part how Silicon Valley managed to get so far ahead. It’s why Kopelman says “the best way to create a more vibrant startup ecosystem in Philadelphia is to help the current class of startups succeed” so that their employees become our next batch of up-and-coming entrepreneurs. In looking at the Philadelphia region’s startup family tree, a significant amount of our leading entrepreneurs and investors can trace their roots back to a handful of previously successful startups including Safeguard Scientifics, Infonautics, Half.com, CDNow, TurnTide, and Boomi.
The good news is that the list of Philadelphia-area web and mobile technology startups successes has been steadily growing. Some of the notable tech firm exits during the post-dot-com-bubble era have been online used goods marketplace Half.com (to eBay in 2000 for $350 million), anti-spam tech firm TurnTide (to Symantec in 2004 for $28 million), insurance software firm AdminServer (to Oracle in 2008 for $125 million), web advertising firm Invite Media (to Google in 2010 for $81 million), business software developer Boomi (to Dell in 2010 for an undisclosed amount), social network firm myYearbook.com (to Quepasa in 2011 for $100 million), and e-commerce software giant GSI Commerce (to eBay in 2011 for $2.4 billion). Meanwhile, the number of local tech firms securing significant venture capital – often from outside of the region – has been on the uptick, with major raises within the past year including Wilmington, DE-based SevOne ($150 million), Exton, PA-based iPipeline ($71 million), Conshohocken, PA-based NextDocs ($13.5 million), and Philadelphia-based RJ Metrics ($6.25 million), Solve Media ($6 million), Artisan Mobile ($5.5 million), and Curalate ($3 million). Whereas previous years might have seen only one or two such investments, the pace has picked up.
Artisan Mobile CEO and Philly Startup Leaders (PSL) Board Chair Bob Moul sees a marked improvement in both the quality and quantity of this latest wave of tech startups in Greater Philadelphia. He noted that the 50 companies that presented at last year’s Entrepreneur Expo – the 5th hosted by Philly Startup Leaders – were notably stronger than previous years with respect to market potential and business models. Another indicator has been the evolution of discourse on the PSL listserv, which has reflected a greater level of business acumen and tougher questions and answers compared to its earliest days.
Just as important as these exit and startup investment successes have been in developing more serial entrepreneurs with Philadelphia roots has been the willingness of this new generation of entrepreneurs to serve in mentoring roles. PSL has provided both informal and formal channels to help establish mentorship relationships between emerging and experienced entrepreneurs. The new Dorm Room Fund established by First Round Capital in 2012 to invest in student-run enterprises relies heavily upon mentors – cleverly called “RAs” in the fund’s parlance – to guide and support budding tech entrepreneurs on campus. Assembled by Kopelman, the Dorm Room Fund’s RAs are 60 veteran entrepreneurs with more than 450 years of combined startup experience and $2.7 billion in exits, and 16 of them are Penn alums.
In true entrepreneurial style, three area startup founders who found big success pre- and post-dot-com bubble launched a model for-profit accelerator program in 2008 called DreamIt Ventures. DreamIt’s three-month competitive accelerator program provides up to $25,000, office space, and technical assistance to promising technology companies and connects them to seed and early-stage investors at a Demo Day at the end of their program. DreamIt has expanded its programs to New York, Austin, and Tel Aviv, and in 2012 launched a health care IT-specific program in Philadelphia in partnership with Independence Blue Cross and Penn Medicine.
According to a recent Technical.ly Philly analysis, of the 66 companies that have participated in the first five cycles of DreamIt’s Philadelphia program, 25 remained in the region and 11 are still active. The inaugural class of the DreamIt Health program has had greater initial success with retention with 8 of the first 10 participants remaining in Greater Philadelphia.
Next month's look at PHL's tech startup scene will focus on how support organizations and higher education have been changing the way they support entrepreneurship.