How to build a tech scene - Technical.ly Philly

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Apr. 13, 2015 12:28 pm

How to build a tech scene

Entrepreneurs and academics have identified the ingredients. Does Philly have them?

At Technical.ly's NET/WORK tech jobs fair.

(Photo by Neal Santos)

Editor's note: This is the cover story of the Philly Tech Week 2015 program and magazine. Stories from the magazine will be published online this week. #PTW15 kicks off Friday, April 17.
No one would hire him.

Sick of his corporate job, Wil Reynolds went from Philly tech company to tech company, resume in hand, literally knocking on doors in search of a new gig. Half.com. GSI Commerce. Omnient. His asking price was $48,000. With three years at an online marketing startup under his belt, it was reasonable, right? He didn’t get one interview.

The bubble had just burst and Reynolds had not so long ago watched that online marketing startup, a Connecticut company called NetMarketing, implode along with it. He thought he’d take a break from the all-consuming startup life by taking a gig at a big company, but it quickly became obvious that he didn’t belong there. He needed out.

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John Moore fell into angel investing.

A biomechanical engineer by trade, he spent the first half of his career at international companies like the Bethlehem, Pa.-based B. Braun Medical and a Norristown automotive leather supplier called Seton Company. In early 2000, he quit the corporate world and moved to the city.

In between jobs, he started working with startups, helping them build business plans and strategies. It’s a move he laughs at now, calling it a “dumb idea,” because it’s hard to get paid when consulting for cash-strapped startups.

But, he said, with startups, “you just get sucked in.”

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Laurie Actman is helping build the new Penn.

The university’s is forgoing its conservative, traditional Ivy League image for one that’s more bustling entrepreneurial hub, a place that supports and encourages faculty to start their own ventures. It’s trying to change the culture of Penn where, as one Penn Medicine grad-turned-founder put it, entrepreneurialism was sometimes seen as “dirty” or “evil” compared to the ivory tower of academia.

With a series of recent spinouts, Actman is trying to change that.

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A tech scene is more than the sum of its parts, but Reynolds, Moore and Actman are representatives of three key pillars of the region’s growing innovation ecosystem. They represent, respectively, the entrepreneurs, investors and institutional anchors needed to make a tech community hum.

As Philly Tech Week turns five, we at Technical.ly Philly went searching for the elements that make a successful tech scene — and how that recipe is playing out in the Philadelphia area. Academics and entrepreneurs alike have tried to tease out the factors that make a tech scene strong. We’re no different. For this report, we talked to experts, read reports and went through our past coverage. Here’s what we found.

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Wil Reynolds’ breaking point came when his boss refused to let him shift his schedule so he could play with sick kids at the Children’s Hospital of Philadelphia. Sick kids, people. So he quit and started his own search marketing firm, SEER Interactive.

A dozen years later, Reynolds, now 37, has built a tiny online marketing empire in a corner of Philadelphia that’s seen its fortunes turn, too.

His team of nearly 100, including a growing office in San Diego, helps clients like Alibaba, ASOS and Amazon Web Services boost their web presence. SEER is about to relocate to get the whole Philly team in one place, but most of the team has long worked out of an iconic former church (“the Search Church”) in Northern Liberties, in whose sanctuary they’d host tech events, with attendees lining the old wooden pews.

Entrepreneurs like Reynolds, those running web development firms and software consultancies and venture-backed startups, are perhaps the most obvious pillar of a tech scene. They’re the lifeblood, the ones that other players in a tech scene exist to serve.

But what else does it take to build a tech scene? Does Philly have those qualities? And where does the the region’s tech scene veer from the norm?

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Entrepreneurs, investors and what one academic described as “a culture of openness.”

Those are the main three things that came up again and again in our hunt for the elements of a thriving tech scene. Those are the “obvious ones,” Babson professor Daniel Isenberg said in an interview with the Harvard Business Review about how to create a startup ecosystem. All three contributed to the rankings in the Startup Genome’s 2012 Startup Ecosystem Report, a 125-page paper written by a crew of entrepreneurs and academics that might be the most ambitious and buzzed-about effort to rank tech scenes around the world.

Silicon Valley won the top spot, with non-U.S. cities like Vancouver; Sao Paulo, Brazil and Santiago, Chile taking the bulk of the spots in the top 20. Philadelphia did not make that list — though the Startup Genome’s 2014 research is now underway and local leaders are encouraging Philly founders to participate in the survey so the city can be represented.

Researchers looked at eight categories, including the usual suspects: amount of venture capital in a city, number of startups and entrepreneurial activity, “the mindset index” (“how well the population of founders in a given ecosystem thinks like a great entrepreneur,” according to the report) and the quality of a tech scene’s support system.

Philadelphia’s support system is one of its strong suits.

It boasts the thousand-member-strong, volunteer-run Philly Startup Leaders group (Reynolds joined its board late last year) that runs a popular listserv where anyone can ask for help and regularly taps more experienced entrepreneurs to share their knowledge with up-and-comers. Time and time again, we’ve heard that Philly’s entrepreneurs are, above all, accessible. You only have to ask.

The current mayoral administration has also spent the last few years throwing its weight behind the tech scene, launching a seed fund and other grant programs under the StartUp PHL umbrella, as well as conducting more symbolic gestures like attending ribbon cuttings every time a 10-person startup moves to a new office. (With the Nutter administration scheduled to be out the door this year, this element could be dialed back.)

On the flip side, Philadelphia’s early-stage capital landscape is one area where the ecosystem falls short.

While the number of venture capital deals in the region increased 42 percent from 2009 to 2013, according to a report from World Class Greater Philadelphia, it still hasn’t broken into the top ten list of U.S. locations with the largest volume of venture capital investment.

The deals are simply smaller. The 2013 value of an average Philly deal was $3.3 million, which is less than half the national average of $7.2 million, the report said.

How to build up that investment community? It’s kind of a chicken-or-egg problem.

“You need that ecosystem full of good entrepreneurs,” said Martin Kenney, a professor at the University of California, Davis who studies venture capital. “Entrepreneurs come first. Then VCs follow. Then VCs attract entrepreneurs. It’s a virtuous circle.”

Philadelphia’s flourishing, venture-backed startups like RJMetrics, DuckDuckGo and Curalate, have imported their venture dollars. If enough startups import venture dollars, venture capitalists will take note, Kenney said. That’s when they’ll set up shop in a city.

(The city’s bootstrapping community would argue about the importance of venture capital, though Kenney said that bootstrapping can’t always take you far enough. Reynolds himself has never raised money for SEER Interactive and doesn’t plan to — “That’s freeing because I’m nobody’s bitch,” he said.)

Philadelphia investors do exist, though, and a look at the city’s angel investment community offers a window into how the city is trying to find a regional identity.

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John Moore admits it was a little awkward.

Back when he had first fallen in to advising startups, he found himself staying on to work even after a contract (and the startup’s cash) had run out. So why not get paid in equity? The natural next step was to start angel investing.

The company that led Moore into the investing game was Black Gold Biofuels, a spinoff of the Energy Co-op that turns grease from Philly’s sewers into diesel fuel. That was in 2005. The decade that followed was all about upping his participation in the community. He joined angel group Robin Hood Ventures in 2006, became managing partner there a few years later, joined social impact angel investment group Investors’ Circle in 2010 and became president in 2012.

Today, Moore’s portfolio, which he describes as “modest,” includes more than two dozen companies from the Philadelphia region, like sustainable laundry service Wash Cycle Laundry, litter-fighting clothing retailer United by Blue and women’s financial advice website DailyWorth.

If you noticed a trend in Moore’s portfolio, that’s by design.

He tends to invest in entrepreneurs who have an eye toward both profit and social change. That’s because of a personal belief that these types of companies can have a real impact on the world but also because it plays to how this city’s tech scene can thrive.

“It’s hard for us to compete on tech,” he said, invoking giants like Silicon Valley and New York City and arguing, like others have, for creating an identity around the region’s strengths, like healthcare IT and social entrepreneurship. If we create a place where those kinds of startups want to be, the thinking goes, the startup scene could flourish.

That points to another element in judging the health of an ecosystem: how different it is from Silicon Valley.

“Since Silicon Valley is the #1 ecosystem it is assumed that other ecosystems will perform better if they differentiate themselves from Silicon Valley and establish their own strengths,” the Startup Genome report said.

Philadelphia is working on finding its innovation identity, as some declare that it should be “the Silicon Valley of health IT” or “the countrywide hub of social entrepreneurs.”

It’s worth noting that part of what makes Philadelphia’s tech scene strong is its breadth: it touches many corners of the city, from civic hackers building apps for the greater good to the tech education groups paving the way for more women to enter the tech industry.

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Another important element of tech ecosystems is the anchor institution.

Silicon Valley has Stanford, Boston has MIT and San Diego has its University of California outpost, whose spinouts have helped turn that city into a telecommunications hub.

Philadelphia has the good fortune of having several universities, all of which are angling to groom entrepreneurs and birth companies and talent. Penn is arguably the leader, at least in terms of research investment: it has historically spent 9x more than its three neighboring universities in terms of research. (In 2012, Penn spent $911.1 million on research; the second biggest spender, Temple University, spent $130.6 million.) But despite its deep pockets, Penn hasn’t been a huge force in launching startups borne of faculty research.

That’s where Laurie Actman comes in.

Actman’s trajectory in the Philadelphia tech scene is coming full circle. In the early 2000s, Actman, as policy director for the business attraction outfit Select Greater Philadelphia, helped author a study about tech transfer in Philadelphia. She wrote about the city’s entrepreneurial ecosystem, specifically trying to answer the question: What’s holding it back?

Ten years later, after stints at City Hall, a cleantech startup and a multimillion-dollar energy research project, she’s back again, trying to answer that question, but this time, as the chief operating officer of Penn’s new Center for Innovation.

The Center builds upon the work of Actman’s boss, John Swartley, who led the entrepreneurial charge when he came to the university in 2010. Penn spinouts have seen some recent success: Graphene Frontiers, a spinout of Penn’s School of Arts and Sciences, closed a $1.6 million Series B last year and KMeL Robotics, spun out of Penn’s robotics lab, was recently acquired by Qualcomm for an undisclosed amount.

If Swartley and Actman have their way, that’s just the start. They’re running a number of efforts, like the launch of a business incubator in Grays Ferry (where KMeL Robotics, among others, is headquartered) and a National Science Foundation-backed accelerator for students, faculty and staff. They’re also hosting events to promote university research, which they hope will help build a culture of celebrating entrepreneurialism in tandem with academia, rather than seeing them as adversaries.

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Philadelphia, as a tech ecosystem, is also looking for its success stories.

“When one entrepreneur succeeds, it inspires a whole generation of entrepreneurs to say it’s possible, I can do it too,” said Isenberg, the Babson professor.

Consider Josh Kopelman, the cofounder of Half.com, which he sold to eBay for $350 million in 2000. He’s now the managing partner of First Round Capital, one of the country’s top venture capital firms. First Round has “given back” to Philadelphia, symbolically, by moving from the suburbs into the city to support the growth of the city’s tech sector. On the practical side, however, the contribution is more pronounced: The VC firm is running the city’s StartUp PHL seed fund, bringing its expertise (and additional funding) to the effort.

Despite Kopelman’s great success, his story’s dot-com era roots may be a bit removed from the current cohort of entrepreneurs building tech companies in Philadelphia.

Which brings us to one more element in healthy tech scenes: time.

“In the first decade, you are largely making it up,” wrote New York City venture capitalist Fred Wilson on his blog. “In the second decade, you start to get it right.”

Finally, “in the third decade,” he wrote, “the ecosystem is fully formed and producing great companies.”

Depending on how you count it, Philly’s startup scene is nearing the end of its first decade. The second should be exciting. Now it just has to make it to the third.

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Juliana Reyes

Juliana Reyes became Technical.ly's editorial product lead after reporting on the Philadelphia tech scene for four years. She's co-president of the Asian American Journalists Association Philadelphia chapter and a two-time Philadelphia News Award winner for "Community Reporting of the Year." The Bryn Mawr College grad lives in West Philly, likes her food spicy and wears jumpsuits often.

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