Echoes of Snap, Inc.’s successful IPO were heard in tech ecosystems across the country.
In a sprawling, vivid account, the New York Times described L.A. real estate tigers salivating at the thought of a sudden onslaught of millionaires. Likely, the hawkers say, newly-minted millionaires will rush to snap up costly homes near sunny Venice, where the company is headquartered.
Introduce even the imaginary notion of a major exit like this one as an indicator of success in Philly’s tech community and you’ll split your average meetup group in half: those who praise it as a needed event to bring more growth to the region and those who say pushing for an exit when conditions aren’t right is just looking for trouble.
You could even drive a more fiery divide in that imaginary room by separating those who think the goal should be a flashy B2C company with a sexy tech angle and those who feel our true potential can be found in a B2B model, leveraging the foundation of local academic and medical research institutions.
In that imaginary room, look for us squarely in the middle. We’ll be the ones asking both ourselves, and the community, this essential question: What does tech success in Philly look like?
Spoiler alert: It’s probably not Snap.
A flashy B2C startup is how robotics software company COSY saw itself back in the day.
The company, a spinout of the University of Pennsylvania’s GRASP Lab founded in 2015, first got to work on a beacon-based navigation tool for mall-goers. In its initial stage, the company founded by Jonas Cleveland was aiming for a much more visible space than the one that led it to a $2.4 million seed round, raised from Intel and San Francisco-based venture capital firm GreatPoint Ventures, as well as local players like Safeguard Scientifics and Ben Franklin Technology Partners.
“Scout” is the name of the startup’s flagship platform, which scored it a partnership with Walgreens. While still flashy and cool, it remains out of customers’ sight: Scout helps retailers manage inventory and keep shelves stocked by using machine vision and robotics.
In other words, the 500 Startups alum became a B2B company.
“B2B is the space to be right now, especially when we’re talking about enterprise customers struggling with the use of tech,” Cleveland told Technical.ly.
It wasn’t always like that, though.
“There were a few pivots,” admitted the founder. “For any early stage company there are moments where you don’t quite know who you are and it’s important to be flexible and evolve. Maybe the evolution never stops.”
— Technical.ly Philly (@TechnicallyPHL) February 16, 2017
For Cleveland, Philly’s tech scene offers the unique advantage of a more hands-on experience versus the other, better-known startup towns like New York and San Francisco. “[In places like those], often you are polishing a machine instead of building it,” he said.
“Our ecosystem needs to grow strong companies that develop strong leaders who then can go on to build other companies,” she said.
And maybe, for continued impact, those businesses can then go and sell things to each other.
Here’s another tension sure to split the community along a different vertical: a geographic one.
See, in the suburbs/Philly-proper narrative, the squabble is not over what the sign of success should be (most agree collaboration and growth on both sides of the loose boundary is something positive), but how to get there.
Consider 2016 as a banner year in bridging the city-suburb divide: financial giant Vanguard’s return to the city after almost two decades, the opening of the Microsoft Reactor Philadelphia (the company has been in Malvern for years) and a second Center City studio from Conshohocken-based Think Company.
On the flip side, city government is doing its part too. Gateway Philly — a stimulus program for companies to establish city beachheads of at least 20 workers — was greeted with mixed reactions when it was announced in February. Tech community icons like Alex Hillman and Bob Moul both voiced concerns that the city was not addressing the bigger picture behind the city/suburb divide.
However, the stimulus seemed to entice King of Prussia’s CardConnect. The publicly traded company had been looking for the right approach to tap into the human capital that lies in Philly’s city blocks. “This is a unique opportunity for businesses to take advantage of, particularly for those in the expanding tech industry of Philly,” CEO Jeff Shanahan told Technical.ly.
But in today’s always-connected work environment, geography may be having less and less to do with success and growth. Recently, when asked if being from Philadelphia had played any role while exhibiting at Las Vegas tradeshow CES 2017, Stratis CEO Felicite Moorman said, simply:
“None,” Moorman said. “You’re in a room with companies from all over the world.”
Back in Philly, the question of what a Philly success looks like — particularly on the B2B/B2C discussion — can rub a guy like Josh Kopelman the wrong way.
If you’re reading these here web pages, you’ve likely heard of him. The venture capitalist and entrepreneur, founder of First Round Capital and Half.com before that, says choosing one model over the other means posing a false choice.
“I believe that successful ecosystems grow as a result of successful companies, regardless of industry or whether they target consumers or enterprises,” Kopelman told Technical.ly. “Successful companies create a larger pool of experienced talent, new entrepreneurs, angel investors, etc. I don’t believe that Philly needs to choose one industry over another.”
“I mainly care about three constituencies: founders, (both current and potential) employees and investors,” said Topche. “All three of those groups are generally pretty tuned into companies that are getting big, whether B2B or B2C. Think of a company like Slack. Who in tech that you’ve met doesn’t know about Slack?”
In other words, it seems foolish to expect Philly’s growth and success to come squarely from either side of the aisle.
Another Philly tech staple, Cloudamize CEO Bob Moul, has made it clear where he stands on anything that pressures the tech scene into flashy growth spurts. Particularly, if the pressure is coming from the venture capital community.
“Saying Philly has no big ideas just insulting to the entrepreneurs who take the PERSONAL risk to create value for those who feed upon it,” Moul said in a fiery tweetstorm last year. “And certainly examples of local reputations built on exits which would stretch the definition of ‘big’ ideas. And yet we continually rip Philly for not being further along. We are absolutely STAGE APPROPRIATE in our growth trajectory.”
And then Moul dropped a true classic:
“We stand among seedlings and complain there’s no lumber yo.”
Not sharing enough of the existing success stories is also a problem for Ben Franklin Chief Investment Officer Scott Nissenbaum. “We, and I mean the broader we, don’t really highlight the successes that we have,” Nissenbaum stresses over the phone.
Though there are no specific figures available from the transaction, one could look at data analytics firm RJMetrics as a sign of last year’s successes: West Coast-based Magento acquired the Philly tech scene staple founded by Jake Stein and Bob Moore — providing both a Philly beachhead for the national company and giving spinout startup, Stitch — headed by Stein — enough cash and runway to make its business case as a standalone company.
“One of my investors called it the Triple Lindy,” a gleeful Moore said at the time. “It’s threading the needle in such a way that you’re able to create a future that’s exciting without disrupting the universe you’re in, and being able to put capital into the new business without diluting shares.”
It should be noted that the tricky move was pulled off from the B2B space, where Nissenbaum sees most of the strength for Philadelphia.
“Not sure we should we go down the path of chasing the sexy [B2C field],” said Nissenbaum. “We shouldn’t try to transform ourselves into a consumer hotbed when New York and San Francisco already do a good job at that.”
Narrowing down exactly what a Philly success should look like means negating opportunities that we may not even see coming. Neither the tech scene nor us are prepared to take anything off the table.
But a projection of what kind of successes we’re likely to see? Now that we can do.
A quick look at our 2017 realLIST can provide some insight: out of 20 companies, only seven are consumer-facing. And even so, B2C companies like smart faucet maker Tern Water pair their efforts with a classic B2B move, like selling a bunch of their product to real estate developers.
Those on a quest to find success stories in Philly may find some form of advice from Moul, who launched Artisan Mobile with lofty expectations only to “settle” for an acquisition. He would ask that you, simply, open your eyes. When prompted with a request for comment, the founder didn’t respond but launched a new tweet blitz with advice worth heeding.
“I’ve got local #philly pubs asking me once again what we need to do to ‘fix’ the tech community – it ain’t broke, folks,” Moul subtweeted. “In fact I’ll go you one better. The tech/innovation/creative/indie community is actually getting it right. Not perfect but resilient.”
Edited by Zack Seward.