Technology: Retaining Startups in Philadelphia

Strangers become coworkers at Indy Hall a coworking space located in Old City.]

Philadelphia has historically been home to some of the greatest achievements in the history of the United States. We were the capital of the country from 1790 to 1800, the world’s first electronic computer was invented here (not in Iowa), and the Fresh Prince himself, Will Smith, used to call the area home.

That’s the problem. Used to. Was.

Strangers become coworkers at Indy Hall, a coworking space located in Old City.

Many of Philadelphia’s economic and cultural homeruns leave the area for better opportunities, more money and other perks they perceive the city can’t offer them.

All that abandonment has given Philadelphians an inferiority complex, which is best illustrated by the most notorious Philadelphia ad campaign slogan from the 1970s: “Philadelphia is not as bad as Philadelphians say it is.”

And yet there seems to be some truth to that sentiment, at least in terms of the city’s technology industry. Having experienced a massive growth both in terms of size and maturity in the last five years, the Philly technology scene is still often derided for being too small, too poor, too, well, average.

Consisting of over 12,000 jobs in 2010, the city’s information technology sector made up around two percent of Philadelphia’s overall job market.  Those jobs brought in around $431 million in venture capital deals last year and tech people in Philadelphia saw a lower unemployment rate (8.1 percent) than the city’s average (11.2. percent) during the height of the Great Recession.

But despite these growth-indicating triumphs, the tech scene still dogs itself.

“If you had said something about the Philly tech community four years ago, no one would have had any idea what you were talking about,” said Gloria Bell, events coordinator for Philly Startup Leaders, in a recent interview. “The community as a whole has grown dramatically over the last few years.”

Creative coworking space, Indy Hall, has over a hundred people on its roster.

Despite that growth, Philadelphia still does face some very real problems, both economically and socially, in encouraging retention of its burgeoning tech industry.

The city’s ancient tax code, a leftover from Philadelphia’s industrial past, is highly prohibitive for new technology companies, an aspect that serves as a disincentive for business to start or locate here.

To encourage businesses to settle down in the city, Center City District President and CEO Paul R. Levy believes that we need to rely less on taxing what is mobile, like wages and jobs, and rely more in taxing what is immobile, such as land and buildings.

“We’re taxing the wrong things,” he said at a recent briefing.

The city government is currently supporting Levy’s sentiment with plans for lowering the business privilege and wage taxes and reforming the overall tax structure in the 2014 fiscal year.

A more intangible problem seems to be the disconnect between the city’s abundant university population and the tech startups and business in the area.

“Are kids from Temple going to check out Indy Hall? I don’t think so,” said Ben Kessler, a former Philly tech scene member who left the city for New York in 2009 for a job. “There needs to be more penetration in that aspect, closer ties between companies and universities.”

Kessler does have a point.  In a recent report from Campus Philly, it was revealed that the “brain drain” Philadelphia has

People from various professions work on their creative projects at Indy Hall, a coworking space in Old City.

historically suffered has begun to be stemmed with some 64 percent of regional graduates staying in the Philadelphia area after graduation.

The key to stemming that brain drain has resoundingly been the use of internships to acclimate grads to the city’s workforce. In fact, according to the Campus Philly report “From Student to Resident,” 70 percent of college students with a summer internship in Philadelphia stayed in the area after graduation. Only 21 percent of those surveyed had paid internships.

Campus Philly President Deborah Diamond said in an interview that the organization will be capitalizing on that statistic by developing programs targeted at students interested in becoming entrepreneurs in the next school year.

“Our retention programming needs to be focused on helping students who want to stay as entrepreneurs or freelancers,” she said.

The scene also faces, in Indy Hall co-founder Alex Hillman’s estimation, the problem of having a deadbeat dad in the form of the lack of a connection between Web 1.0 companies and startups.

“We need to close that gap between the old grey-haired dudes whom we think look nothing like us and us.  They can offer things to us and, quite frankly, we can offer things to them,” he said.

That gap is being bridged most actively by Philly Startup leaders, which is, in Bell’s description, reaching out to established companies and asking them to donate their time and expertise to help get the new guys off the ground.

But for John Valentine, Philadelphia rewards leader at SCVNGR, that mentor-mentee relationship isn’t relevant because it never really existed.  What is relevant is Philadelphia’s lack of a recent big, successful tech company.

While older companies such as and CDNOW put Philadelphia on the map somewhat in the past, there is currently no tech company in the city, in Valentine’s estimation, that is on that scale.

“Philadelphia has no landmark company,” he said. “And to bring venture capital to the city, you need that signature win.”

Yet despite these challenges, the Philadelphia tech scene continues to grow and gain notoriety. To Gloria Bell, the hardest thing may just be staying on the path that we’re already on.

“We’re doing well, we just need to keep doing what we’re doing,” she said. “As long as we keep this momentum going, it will be a good thing.”



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