Pando

Philadelphia Mayor to startups: Take the money and don't run

By Hamish McKenzie , written on October 26, 2012

From The News Desk

Philly has a problem: It struggles to keep good startups in the city. AdMob, Milo, Invite Media, Warby Parker, Venmo – they all started in Philadelphia. And they all left.

The city, densely packed with great universities and tens of thousands of smart students, doesn’t have a problem with generating good ideas and getting young entrepreneurs started. It’s the support, early stage capital, and deep experience that have been lacking. Part of that might be about to change.

Today, Philadelphia Mayor Michael Nutter announced Startup PHL, an initiative that provides funding and support not only for startups but also just for ideas. The City has set aside $3 million for a private firm that promises to match and manage an investment of equal value for early-stage startups in Philadelphia. It is also allocating $500,000 of grant money to a fund dedicated to ideas. The City says the goal of the fund is to entertain and implement proposals that enhance collaboration in the startup community, attract new entrepreneurs, and foster networks for collaboration between entrepreneurs, mentors, and investors. The overall initiative is based on similar moves by Mayor Michael Bloomberg in New York City and has the ultimate aim of creating more jobs in the city.

First Round Capital’s Josh Kopelman, who will serve as an advisor for the ideas fund, says Startup PHL will help build a startup ecosystem in the city, even if it won’t happen overnight. That’s an ecosystem that First Round is heavily invested in. In August, it moved from the outskirts of the city to a new space right next to the campus of the University of Pennsylvania. The office is just a couple of blocks away from the prestigious Wharton business school and sandwiched between a bike shop and a ramen bar. Last month, First Round also established a $500,000 Dorm Room Fund, run for students by students.

“An ecosystem isn’t built by a press release, it’s not built by an office move – it’s built by successful companies,” says Kopelman (who, full disclosure, is a PandoDaily investor). “Anything that increases the odds of companies being successful increases the odds of an ecosystem taking hold.”

The effects of the initiative, produced over the course of nine months in cooperation with the Philadelphia Industrial Development Corporation, won’t be immediately obvious. “This is not an overnight thing," says Kopelman. "These types of initiatives take 15 years to really make an impact, because you need to see these successful companies.”

Kopelman says Philadelphia doesn’t have an issue with attracting companies, it just has a problem retaining them. “Just like all great actors aren’t born in Hollywood, all great startups aren’t born in Silicon Valley,” he says. But the city tends to lose startups when it comes time to look for capital, or find specialist and experienced talent to add to the teams.

For Dan Shipper, the 21-year-old founder of Firefly, a three-week-old company that provides screen-sharing software for customer service, Philadelphia is becoming an increasingly attractive place to call home. The primary reason he’s in the city is that he goes to school there. He’s in his third year of studying towards a philosophy degree at the University of Pennsylvania. “It’s not a place that I would have considered before going to Penn, but now that we’re here, I really see a rising community,” he says. “The community wasn’t like this when I first got here.”

The Mayoral initiative, coupled with First Round’s move to its campus-side location and the Dorm Room Fund, helps make the city more appealing. He doesn’t want to commit to staying there for the next 10 years, but for now he has no intention of moving. “I can certainly see us staying for the immediate future.”

Shipper likes Philadelphia because its startup community is small but serious, meaning mentors, investors, and fellow entrepreneurs are very accessible. It also doesn’t hurt that it’s cheap. He and his two co-founders rent an on-campus apartment for $600 a month. It even has views of the city. For the same price in New York, you’d get a broom closet, if you’re lucky. The company also uses First Round’s office space for free.

Philadelphia is like many other second-tier tech cities in the US, which are looking for new ways to create jobs and stimulate their local economies. “We don’t have any other choice in the middle of America,” Lesa Mitchel, the Kauffman Foundation’s vice president for innovation, told me recently. “We’re losing big companies and lots of jobs.” Most new jobs in the US are created by companies that are less than five years old, according to the Kauffman Foundation.

Boosting the efforts of local governments, outside investors are also showing increasing interest in locales that aren’t in traditional tech centers such as Silicon Valley, New York, Boston, or Los Angeles. That trend is in part reflected by Union Square Ventures’ latest fund, of which five of seven startups come from Pennsylvania, Iowa, Missouri, and the UK. (The other two were from New York.) The National Venture Capital Association has figures showing increasing investment activity in cities such as Austin, Chicago, Seattle, Washington DC, Dallas, Atlanta, and Boulder, as well as Philadelphia, some of which are now topping 100 deals a year.

A Mayoral initiative such as StartUp PHL will never be a king-hit – $6.5 million (taking investment matching into account) is not enough to save a local economy or support a startup community on its own. But every little bit helps.

It’s too late to get a Warby Parker to return to the city, but it’s not too late, Philadelphians hope, to stop the next one from leaving it.