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Baltimore’s startup community has a model. Now it needs to scale

At a Baltimore Innovation Week panel, leading investors and entrepreneurs laid out what it will take for the city to reach innovation hub status and how to get it there. Hint: Think about figures with a "B."

The Baltimore skyline. (Photo by Flicker user Phil! Gold)
Startups can’t stay in the early stage forever.

While a young company can benefit from the early momentum of pitch wins and resources found in a community, it eventually must figure out its business model, and ultimately scale.

Hearing leading local investors describe Baltimore’s startup community at a Baltimore Innovation Week 2021 panel discussion dubbed “Strengthening Baltimore as a Hub for Innovation,” this reporter was left with the impression that the ecosystem as a whole feels a bit like a startup.

It has a base of talent, buy-in beyond early supporters and investment that is bringing attention. It has resources like incubators and coworking spaces that are providing support. As Mike Rosenbaum, an entrepreneur who founded Otterbein-based tech workforce companies Catalyte and Arena Analytics pointed out, that wasn’t the case when he was starting Catalyte 20 years ago. And that community has grown in the last decade, as a recent report from UpSurge Baltimore highlighted.

In the wide view of recent years, they’ve all started to find each other and work together more.

“It’s starting to turn into an ecosystem,” said Jeff Cherry, the founder of stakeholder capitalism-driven accelerator Conscious Venture Labs, who moved to Baltimore from New York around 2014. “It’s starting to turn into where people are connecting, trying to do things together and trying to make the whole bigger than the pieces.”

What it needs now is to scale.

But looking at the startup hubs around the country, there are signs that what is needed is more exits, and massive investments that will help seed them.

“What we really need in this region is $1 billion exits and $10 billion exits and bigger exits than that,” said Rosenbaum. “That’s really what will supercharge an ecosystem and to do that we need an ecosystem of investors and others who can frankly identify what world class excellence looks like and help support it.”

Some of that might come with more local investors. While pointing to pre-seed, seed and later stage capital that’s available from education and government institutions and private equity firms based in the city, McKeever Conwell II, who founded pre-seed fund RareBreed Ventures last year, simultaneously identified well-known gaps in the local startup funding continuum, particularly around the Series A and B rounds. It’s at that point that the city’s current cluster of growth companies went to investors outside the area.

“I think that it’s really imperative that there are local investors and there are local investors of scale,” said Kyp Sirinakis, managing partner of Epidarex Capital, a Bethesda-based venture fund building life sciences companies around discoveries at universities in communities outside of the major hubs like Maryland. “The venture business is a relationship game and a lot of heavy work is done, especially at the early stages. … Being able to have investors that know what they’re doing, that have scalable pools of capital, that can roll up their sleeves and put money to work is actually quite important in trying to grow an ecosystem.”

Ultimately, large exits create wealthy founders and early employees, who in turn can go start new companies, and invest in others. Conwell pointed to Birmingham, Alabama, where delivery service Shipt was acquired by Target in 2017 for $550 million, exiting a group of alums who added new energy.

“If you want to create an ecosystem like that, you get those first few big wins and then build off of that,” Conwell said.

Indeed, Baltimore has such an example from the not-too-distant past, as the 2004 exit of to AOL originally put the city’s tech scene on the map, and continues to have ripple effects. Fintech company Bill Me Later approached the B’s when it sold to eBay in 2008. The 2010s crossed the threshold, as Columbia-based cyber company Sourcefire sold to Cisco for $2.7 billion in 2013, and the life sciences community is the most recent contributor, with Paragon Bioservices‘ $1.2 billon acquisition by Catalent in 2019.

For Baltimore to get a bigger base of those wins, another key will be to play to its strengths, as Cherry put it. The past few years show there’s a bench in life sciences — the area where Sirinakis works. Moderator Claire Broido Johnson, who joined the University System of Maryland’s Momentum Fund in 2019 after founding and investing in clean energy companies, brought up blue tech. It’s the kind that comes with being a port town, like offshore wind, aquaculture, healthy harbor and shipping.

Rosenbaum said there’s a major opportunity to be the global leader of impact innovation, which serve the folks who haven’t typically been seen as prime customers of Silicon Valley startups and are directly taking on societal challenges.

The state can play a role here, too, by becoming an early customer, and making massive investments in the startup infrastructure that gets to scale, said Rosenbaum, who is seeking the Democratic nomination for governor of Maryland in next year’s race.

It can set the stage for founders not just to start and grow in town, but also remain here after they exit.

“We need to be the global leader to keep talent here and attract talent here, which will keep capital here and attract capital here,” he said.

We need to be the global leader to keep talent here and attract talent here, which will keep capital here and attract capital here.

At the end of the day this is about growing the pie for all. That means part of the work to get there requires changing systems that have traditionally supported those companies, which skew overwhelmingly toward white and male founders.

“Being open to looking at a situation in a different filter and a different lens is really important as we’re trying to support and grow,” Sirinakis said. But make no mistake, VCs are still seeking returns for their LPs: “We’ll invest in what we think are the best companies.”

For one, this will involve going into the community and bringing more people to the rooms where such deals are done, Conwell said. Broido Johnson pointed out the importance of opening up access to tools and information, as the recently launched Maryland Entrepreneur Hub web portal has done.

With the Conscious Venture Labs’ VC fund, Cherry has invested 60% of the funds in women and minority founders — far above nationwide proportions for both groups. Rather than meeting quotas of founders from specific backgrounds, he is focused primarily on companies working to advance new models for impact, and seeking out communities where there are higher proportions of women and people of color in general.

“We try to open up the aperture, get into the communities and find as many people as we possibly can, and then pick the best,” Cherry said. “It just so happens that if you go into the communities, oftentimes those underrepresented entrepreneurs will have the best ideas and that’s what we’re proving out.”

Rosenbaum said it’s not just about individuals growing their networks, but setting up entire processes that lead to elevating the best talent. It could be something like what Catalyte does to identify promising software engineers without considering background, but for entrepreneurship.

“Unless we do this at scale with investments that frankly begin with a B and not an M, that will unlock economic value that will be an order of magnitude or two past that B investment,” Rosenbaum said. “We need to use overwhelming force to change that system, and that’s fundamentally how can we move the needle on this. If we do that we will unlock the entrepreneurial energies of everyone in our region, everyone in our community, not just the narrow sliver of folks who have access today.”


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