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How do we retain technology startups in Philadelphia?

The argument of whether Philadelphia’s technology community is growing doesn’t seem to be the live one much anymore. The collection of 65 events celebrating Philly Tech Week last month was surely a small answer to that.

Rather, the questions left seem to revolve around the magnitude of that growth and if Philly, like other hopeful regions across the country, can have a significant share of the investment, jobs, revenue, reputation and cache that often follow leaders in that space.Philadelphia missed it’s shot 50 years ago at being Silicon Valley but is there room to be a serious player?

A Philly startup can get investment, something seen weekly. A Philly company can become a top-dollar acquisition, like the $2.4 billion eBay buyout of GSI Commerce, Dell taking Boomi or Eli Lilly snatching Avid Radiopharmaceuticals. Those examples from the last year can help shape the narrative around entrepreneurship and technology in Philadelphia, but, in the end, that just creates a lot more middle managers, not c-level leaders — see Tastykake’s submission to Flower Foods.

Recent reports show brain drain here has largely been stemmed, but the tech community has still lost its fair share of stars who could be building the job drivers of the future.

So what’s next for retaining startup talent, sustaining their growth and, dare we suggest, keeping them around long into their future?

Having experienced advancement in perception 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. It’s one of the country’s largest cities, but entrepreneurial activity here often ranks among the lowest of the 15 biggest regions.

Consisting of more than 12,000 jobs in 2010, the city’s information technology sector made up just about two percent of Philadelphia’s overall job market. The entrepreneurs among them and elsewhere in the region brought in around $431 million in venture capital deals last year, less than dot-com era heights here but again growing.

“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.”

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

Change structure and perception of city taxes

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

“[Having entrepreneurship or investment here] is not ‘a chicken or the egg’ story because neither the chicken nor the egg wants to be here,” City Councilman Bill Green said at the One Great Idea Philly Tech Week event.

“We need to create an enabling climate for businesses to grow and investments to be made.”

To encourage businesses to settle down in the city, Center City District President and CEO Paul R. Levy says Philadelphia needs 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.

The Nutter administration 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, provided the region’s recession recovery continues.

“We are motivated by fear. If you do the same thing, even if you do it poorly, no one can say you made a mistake,” said Green, who has proposed a more radical shift in tax policy that would move the city from taxing a company’s net profits to its ‘gross receipts,’ meaning all the money a business earns, regardless of how much it spends. “We need to stop tinkering around the margins. We need to make a big change.”

Ben Franklin Technology Partners President RoseAnn Rosenthal says it doesn’t start with taxes but with the people who care about those taxes.

“If you aren’t starting a business, you aren’t going to care about taxes, so you need to create a constituency of people who will put pressure to move away from such taxes,” she said.

Bolster entrepreneurial culture in Philadelphia

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 blogger and Drexel gradwho 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.”

The key to stemming that brain drain has resoundingly been the use of internships to acclimate grads to the city’s workforce, says Campus Philly President Deborah Diamond. Seventy percent of college students with a summer internship in Philadelphia stayed in the area after graduation, according to the Campus Philly report “From Student to Resident” [PDF].

Diamond said in an interview that her 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 dot-com era Web 1.0 companies and startups.

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

Philly Startup Leaders is, in Bell’s description, trying to focus there by reaching out to established companies and asking them to donate their time and expertise to help get the new guys off the ground.

Cultivate big-win examples of success

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.”

It’s something University City Science Center CEO Steve Tang has also noted.

“The top five [largest, with most employees] companies in Boston and San Francisco are all venture funded, so it’s built into the fabric there,” Tang said. “With apologies to Comcast and PECO and our other large companies, they are not venture-funded innovations or experiments. Granted, we’re much older, but there is still room for the new.”

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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Kristen Fitch Headshot 2024

Kristen Fitch

Senior Director, Marketing