Ben Franklin Technology Partners: Budget cuts would "unravel" local startup support - Technical.ly Philly

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Jul. 30, 2009 2:23 pm

Ben Franklin Technology Partners: Budget cuts would “unravel” local startup support

Ben Franklin Technology Partners is keeping a close eye on the state budget. For the past five weeks, Pennsylvania has been operating without a budget as state legislators wrestle between a 16 percent income tax increase and cuts in state spending, among other points of contention between the Democratically-controlled House and the Republican-controlled Senate. As […]

Ben Franklin Technology Partners is keeping a close eye on the state budget.

For the past five weeks, Pennsylvania has been operating without a budget as state legislators wrestle between a 16 percent income tax increase and cuts in state spending, among other points of contention between the Democratically-controlled House and the Republican-controlled Senate.

As a result, state employees are no longer being paid, and expired unemployment benefits are not receiving an extension (though a tiny no-frills emergency budget may pass soon).

Caught up in the hurricane of the state budget debate is BFTP, a state-funded early stage investment group that could see its budget slashed by up to 60 percent. The organization is now asking its constituents to help push their state legislator to keep the group’s funding levels intact.

Otherwise, a cut to the funding to BFTP could have a dramatic impact on the city and the region.

And if you’re a reader of Technically Philly, that probably means you.

“If [our] line item is cut, you will see a dramatic unraveling in the entrepreneurial structure in the region.”-Roseann Rosenthal

If you count yourself among the Philly residents that believe, like we do, that the city is on the edge of becoming one of America’s premier entrepreneurial cities, a cut to BFTP will make that climb much steeper.

“Depending on the cuts that are made, even if its restored next year, the unraveling will take four to five years to reverse,” Southeastern BFTP CEO RoseAnn Rosenthal tells Technically Philly. “You lose capability, you lose connections and you lose presence.”

Since 1982, Ben Franklin Technology partners has been investing money into startups with the hope that properly invested seed money can circulate throughout the economy, and now the group is fighting to keep its current level of investment.

Currently, the organization receives $50.7 million in state funding. In his proposed budget Governor Rendell has only $35 million directed to the line item that funds BFTP. The House is currently proposing $30 million, while the state Senate proposes $20 million.

BFTP’S IMPACT ON PHILLY

The slash in funding could have a crippling effect on early stage investment in the state, and its effects will certainly be felt here in the Philadelphia region.

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“If [our] line item is cut, you will see a dramatic unraveling in the entrepreneurial structure in the region,” Rosenthal says, adding that several university programs as well as organizations, like the Mid Atlantic Capital Group, also share money from the same line in the budget.

With state money, BFTP performs three main functions: early stage seed investment, the expansion of established companies and the support of the local startup infrastructure.

BFTP is often the first investor in local startups that are then able to lure follow-on institutional investment, in fact in all cases, it’s mandatory. Center City-based TicketLeap credits a $2 million investment by BFTP as a “seal of approval” that helped legalize the company for private investors.

Vuzit, the document sharing Web site based in the University City Science Center, also received their first round of funding from BFTP.

“That was a huge endorsement,” CTO Chris Cera tells Technically Philly. “Closing out our [initial round of financing] was much easier. They really stuck their neck out for us.”

The startup incubator DreamIt also received money from BFTP. In turn, DreamIt has provided early state investment and incubation to over 20 companies, many of whom are from out of the area and end up staying in Philadelphia when their term in DreamIt’s incubator is completed.

As part of the conditions for shelling out start up money, BTFP also guarentees that companies stay in the state of Pennsylvania.

A cut to BFTP may seem sensible now with the state running in the red, but the group is not an expense, it is an investment – exactly where state dollars should be flowing, if the focus is on returning money to the regional and the state economy.

“It’s the lifeblood of early stage investing in this area, its often the first money that comes into businesses,” DreamIt Co-founder Steve Welch told Technically Philly during a question and answer session two weeks ago. “If you get rid of Ben Franklin, companies five to ten years from now will not get that next round of VC funding.”

The exact impact is up for debate, but according to a report by the Philadelphia Economic League, BFTP returns $3.50 for every dollar invested. The exact figure and methodology has been challenged, most recently in Inquirer reporter Joseph DiStefano’s PhillyDeals column.

“I would suspect the number is much higher,” Welch said of the estimated $3.50 to $1 investment return. “[BFTP companies] have vendors that are local that they are spending money on, its creates a circulation funding in the early stage businesses.”

Indeed, it is nearly impossible to exactly follow the money, but a look in Technically Philly’s archives will tell you, many of the regions technology startups have received funding from BFTP, heck New York is even jealous.

If you fancy yourself as only a casual observer of the city’s entrepreneurial community, it may be difficult to visualize BFTP’s impact. Something Rosenthal thinks can be blamed on the long cycles that startups companies go through.

“These are technologies that will not impact the region tomorrow, Rosenthal says, referencing the group’s investment in nanotechnology eight years ago. “But at some point you will have a [product] that will help you, on a shelf.”

SUPPORT FOR BFTP

For now, the group is preparing for several scenarios, including one where funding is drastically slashed. But the news is getting better.

Newly confirmed secretary of the Department of Community and Economic Development George Cornelius said that “The Bens are top priority” at his first press conference and response to BFTP’s “Call to Action,”which we reported on last month, has thus far been strong.

“We’ve gotten a tremendous response,” she says, “and [our supporters] need to keep doing that. Focus on the legislative leadership, they need to keep hearing that Ben Franklin is important”

If you’d like to support BFTP, visit the call to action section of their Web site.

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