Desks for Startups: Infrastructure for entrepreneurs or budding startup bubble?

If you have a startup in Philadelphia that has outgrown your local coffee shop, but doesn’t want an office or a storefront, well, you’re in luck. In the last six months, the number of low-cost desks for technology startups, often coupled with mentorship and business services, has exploded — more than doubling by some counts.

And, as you might expect, that growth has also sparked a debate: is the development of an infrastructure necessary in a maturing entrepreneurial market or is there a budding bubble of startups servicing other startups?

Let’s put them in three categories: (1) coworking, which puts community above all else and often creates a more diverse network of residents beyond traditional startups; (2) acceleration, which offers set, short-term housing and heavy mentorship, often in exchange for equity, before kicking their tenants out, and (3) incubation, which offers longer-term, if still temporary, housing, more passive support and voluntary education programming.

“In Philadelphia, we’re still establishing the process to create and scale business,” said Garret Melby, an old hand in the region’s investment and startup communities, one sunny afternoon in Love Park. “We have to see it shake out.”

The city already had examples in the past. The old-time crew includes Old City coworking powerhouse Independents Hall, which launched in 2007 and announced last week plans to expand again, Devnuts which opened in Northern Liberties two years later, the noted University City accelerator DreamIt Ventures and the newly morphed Good Company Group, led by Melby, as well as institutional incubators like the storied University City Science Center, the Drexel University-based Baiada Center for Entrepreneurship and others.

But the last six months has changed a lot, most notably in that third category of incubation, which can be seen as more passive and more competitive. Is this a sign of strength or of an impending collapse?

At least two more coworking upstarts are in the works: corporate-culture-focused Benjamin’s Desk was building out a space in Rittenhouse as recently as February and Coworking for Parents, led by Aliza Schlabach, is still looking for space and funding. Both have a tech bent, if not a dedicated mission in the digital world.

The continued build out of the Navy Yard, including most prominently the federally-funded and soon-to-be-rebranded Greater Philadelphia Innovation Cluster, has added another major acceleration project to city limits.

Since late 2011, the launch of the Knight Foundation-funded Project Liberty Digital Incubator, Bucks County’s Novotorium, which just added its second company, Callowhill’s Venturef0rth, which is playing to the events crowd, Seed Philly in Center City, which has its first startup, and the Good Company-merging Green Village has put more tech-focused, low-cost desks up for grabs than likely ever before. Nathan Solomon is zeroing in on a headquarters for his rumored Philadelphia Game Lab, to house young videogame pilots. Elsewhere, the Innovation Garden launched in Princeton just last month, so its impact is as yet uncertain.

In the heady days of the late 1990s dot-com bubble blow up, regional investors like Safeguard Scientifics saw co-location projects as ready deal flow — Garage.com was something of an example — but few were local and fewer were memorable. Is 2012 any different?

“Other spaces have opened and closed in Philadelphia, the suburbs, and generally the region since we opened,” said Indy Hall cofounder Alex Hillman. “I attribute it to an expectation that ‘if I build it they will come,’ which may be true, but it doesn’t mean they’ll stick around.”

We’ve seen coworking spaces come and go — the 2009-era Penn’s Landing-based Enterprise Oasis never got off the ground — and the accelerator model often takes enough heavy lifting that their deaths are slower.

So the success or failure of this shared space movement would likely first be felt in incubation world. Those spaces — Venturef0rth, Seed Philly, Novotorium and the Good Company/Green Village hybrid — are most in need of a distinct niche, as many sources agreed.

Philadelphia is far from the only city to witness a sizable boom in desks for startups.

The United States boasts more than 350 coworking facilities alone, according to 2011 data from Emergent Research. Austin, San Francisco and New York City top of the charts as some of the most coworking intense cities in the country — the 67th ward has no less than 300 traditional coworking desks itself by one count. Though not all of these spaces are geared towards startups. Still, the environment today lends them to that predeliction.

In Philadelphia, colocation has blossomed outside of the core technology startup niche. The Knight Arts Challenge is helping to fund the soon-to-be-unveiled Sculpture Gym in Fishtown, and Manayunk has a new woodworkers’ coworking space, the newest iterations of a decades old shared art commune concept — the Kelly Writers House in University City has some common themes to colocation. More closely, there is a celebrated collaborative hackerspace scene, including NextFab Studio, Hive76 and the Hacktory crew, which works out of Nonprofit Technology Resources.

These communities are new, but the technology and entrepreneurial communities have been grappling with capacity for years. All share ideas with the startup desk phenomenon and, to be sure, in discussions, almost everyone in any of these categories preferred to not be categorized at all, quickly explaining their differering philosophies, but a primary question is still there for this community. Are there even enough viable startups?

Novotorium cofounder Mike Krupit, who told Technically Philly he sees himself outside this group, has his doubts.

“Our market didn’t need any more people selling entrepreneurs desks,” said Krupit earlier this year. “To me, Indy Hall was enough. Venturef0rth, Seed Philly, that’s all gravy. What I think about the market in general is, ‘we’re creating a bubble’.”

Others echoed the skepticism. One well-known investor, who has had a hand in incubation, asked to remain anonymous when he made this analogy: “we’re busy building houses, but the startups here are still mostly in their adolescence. Kids don’t buy houses. I hope these spaces survive and help grow up the community here, but we might have a new vacancy rate.”

If it seems tough to quantify all the desks for startups in Philly, it’s even tougher to count all the startups. DreamIt Ventures, alone, rotates 15 startups in and out of its space at a time, but not all of them make it and not all of them stay local.

“I don’t think the volume of applicants to DreamIt Philly really is a fair proxy as our offering is a rather different animal,” said DreamIT managing partner Kerry Rupp.

Rupp may not consider Dreamit to be a part of the coworking cohort, but the accelerator is actually a critical piece of what is shaping up to be a startup support pipeline. Dreamit alumni like ElectNext, Cloudmine and SnipSnap occupy desks at Project Liberty as well as other incubators and accelerators throughout the city.

Likewise, the Wharton Venture Initiative Program (VIP) is another firehose of startups that could fuel the desk market. The program’s senior associate director Claire Leinweber thinks the rise in coworking desks is a boon for entrepreneurial students who’ve benefited from Wharton’s own incubation space.

“Our students are often not ready to be in business on their own,” said Leinweber. “To have these stepping stones — that’s awesome.”

Chris DiFonzo of desk placement service OpenDesks says new funding sources have to be part of the conversation. Until then, while neophyte businesses may not be the most reliable long-term customer base, keeping young upstarts in Philly certainly couldn’t hurt.

“This is an opportunity to create a stronger network of younger, smarter technology business in Philadelphia,” said Elliot Menschik, cofounder of Venturef0rth, which began accepting applications in March 2012.

Chris Alfano, cofounder of Jarvus Innovations and the colocated coworking space Devnuts, echoed the need for a more robust network.

“It would be really good if there was some sort of central site somewhere that indexed all the spaces in the city in a format that makes it easy for people to see who currently has seats available and which space is right for them,” added Alfano. “Said place should then be used to make university students more aware that these places exist and provide a great segue into industry after college.”

Hillman says identity differentiation will play a key role in facilitating the type of connectivity Menschik and Alfano describe.

“I’d like for there to be more coworking spaces in Philadelphia for me to recommend people to when we’re not the right fit for them, and I’d expect the same from the other players,” said Hillman. “That requires that the spaces have a strong sense of their own identity to know when someone doesn’t fit for them.”

For all these accelerators, incubators and coworking spaces, success might mean a tight network built on mutual partnerships that could support Philadelphia startups by shepherding young ‘uns from accelerator to incubator or coworking space to, perhaps, an office of their very own, depending on the needs of the startup.

At its very best, what looks to many like a desking bubble could prove to be the necessary infrastructure to support the kind of tech hub that convinces entrepreneurial undergrads and masters students to stick around after graduation and supports tech startups from inception to market domination.

At it’s worst, well, we all know what happens to bubbles at their worst.