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Recognizing the Stellar StartUps among us

A device that tells blind people what they're "looking" at. An immunotherapy to combat an aggressive form of breast cancer. A search engine for investigators that compiles in a single report more than 50 identifiable pieces of information on a person. A wireless platform to achieve energy savings and optimization. An app linking locally sourced businesses with like-minded consumers.

This is a sampling of the Philadelphia region's startup community, an inventive, millennial-magnet, increasingly important sector of the local economy.

They are businesses begun by the creative, intrepid, and not easily discouraged. Startup founders are motivated by the idea of controlling one's own destiny, or sometimes just by losing a job. Some dream of being the next Steve Jobs, Elon Musk, or Mark Zuckerberg.

"There is a lot going on in Philadelphia," Leslie Benoliel, president and CEO of support agency Entrepreneur Works, said of the startup community here. "And it's not that obvious to many."

Philadelphia Media Network is intent on changing that. The parent company of the Inquirer, Daily News, and issued a call in June for applicants to Stellar StartUps, an inaugural contest to heighten awareness of early-stage businesses in Southeastern Pennsylvania, South Jersey, and northern Delaware.

From nearly 100 applicants, a panel of five judges has selected 20 finalists in six categories: college students; health care; just plain cool idea; products/services; technology; and women/minority entrepreneurs.

Winners will be revealed at a cocktail reception and panel Q&A on Sept. 29 at the new Pennovation Center in West Philadelphia. The event is open to the public.

"There is more activity right now in the startup community than I've ever seen," said Sylvester Mobley, a Stellar StartUps judge and executive director of Coded by Kids, a nonprofit offering technology classes at city recreation centers for young people age 5 to 18 in hopes of inspiring new entrepreneurs.

Compared to five years ago, "a lot of the pieces that Philadelphia traditionally missed - access to capital and access to resources - Philadelphia has now," Mobley said.

"We're stage-appropriate," said Bob Moul, CEO of Cloudamize, a Philadelphia tech company, and former president of Philly Startup Leaders, which had a few members in 2007 and now draws more than 1,000 to its networking events. "Silicon Valley wasn't Silicon Valley 40 years ago. It was farmland."

What constitutes a startup depends on who you're talking to. For Stellar StartUps, the definition was left intentionally broad, encompassing shop owners and gadget inventors as well as developers of cutting-edge technology and even cancer researchers.

In its first analysis of the sector, the U.S. Census Bureau defined startups as nonfarming businesses no older than two years. That survey on entrepreneurship, whose results were released Sept. 1, showed Philadelphia lagged most other major U.S. metropolitan areas in businesses that were less than two years old in 2014, ranking ninth behind Miami, Dallas, Los Angeles, Houston, New York, Atlanta, Chicago, and Washington.

Locally, no comprehensive source for startup data exists, but considerable consensus indicates that there's steady growth, not surprisingly, in technology, especially related to finance, business-to-consumer, education, and health.

"We are a lot better than we used to be, but we aren't as great as we could be," said Stephen Tang, president and CEO of the University City Science Center, which is about to break ground on a four million-square-foot expansion to accommodate more startups.

Not unique to Philadelphia but certainly a boost is that barriers to entry in the tech field "are coming way down," in part because of the availability of less-expensive hardware and lines of open-source code that can be borrowed rather than written from scratch, said Josh Kopelman, one of Philadelphia's most accomplished serial entrepreneurs and venture capitalists. Kopelman, chairman of PMN's board, will be the keynote speaker at the Stellar StartUps event.

"The number of startups across the country and in Philadelphia has grown tremendously because you no longer need to raise millions of dollars to get started. You can get started with thousands," said Kopelman, who now, after the sale of a few startups, is focused on investing as a partner and founder of First Round Capital.

In acknowledgment of that, First Round Capital started a Dorm Room Fund more than three years ago in Philadelphia that typically makes investments of $20,000 per company. Now in four cities, it has invested between $500,000 and $1 million in more than 20 startups by college students, including those at Kopelman's alma mater, the University of Pennsylvania.

Part of the objective behind that initiative, said Kopelman, 45, a native New Yorker who lives on the Main Line, is getting young entrepreneurs to stay in Philadelphia after graduation, as he did.

Keeping startups here is also a priority at Ben Franklin Technology Partners of Southeastern Pennsylvania, said Jason Bannon, director of marketing and communications.

"Our current base of clients is the best place to start our next base of clients," Bannon said. "To have today's entrepreneurs be tomorrow's investors, that's something the region needs more of."

To get there, it also needs more spectacular startup successes, such as the sales of GSI Commerce of King of Prussia to eBay for $2.4 billion in 2011 and Wayne's Kenexa to IBM for $1.3 billion in 2012. Success begets success - and more willing investors, the theory in the startup world goes.

Ben Franklin Technology Partners typically provides investments to help early-stage companies reach commercialization and first customers, with $250,000 the average round per company, Bannon said.

It's the next phase of funding - up to $5 million, "to keep the engine humming" - that's harder to come by in Philadelphia, said Scott Nissenbaum, Ben Franklin's chief investment officer. "So a lot of [startups] are forced to go to Silicon Valley, or Boston, or New York to get that funding, which sometimes means they will leave the Philadelphia region," he said.

One that has stayed is Invisible Sentinel. Housed at the University City Science Center since its 2008 start, the developer of rapid diagnostics for the detection of food-borne pathogens has gotten significant traction in the beer and wine industries, where spoilage is no happy hour.

With 45 employees, the company is projecting 2016 revenues of $8 million to $10 million, double last year's, said CEO Nicholas Siciliano. Invisible Sentinel's detection systems are being used at nearly 300 sites in the United States and in more than 25 countries.

The company got started with financial help from friends and family, and later raised $7 million from angel investors, followed by some institutional dollars to fund commercialization. Expecting to become cash-flow positive this year, it is looking for large-scale capital for growth. Siciliano would not say how much, but he noted that there's "plenty of growth-equity funding for companies that are earnings-positive," not for companies that haven't reached that stage.

"There's a lot of technologies being developed at universities that could have commercial potential," Siciliano said. "How do we go about ensuring that those opportunities get funded?" He called on the city and Pennsylvania "to put their heads together to figure out how to incentivize companies like us to stay here."

Several efforts are working on that, said Ellen Weber, executive director of Robin Hood Ventures and Temple University's Innovation and Entrepreneurship Institute.

Though it is "cohesive," the city's startup community falls short on gender and racial diversity, Weber said. "It needs to be more inclusive."

The city, she added, needs "to spend some money to promote entrepreneurship . . . [and] simplify the cost of doing business in Philadelphia."

The Science Center's Tang said more big companies and institutions need to follow the lead of Comcast Corp., Independence Blue Cross, and the University of Pennsylvania by realizing that local startups "are not just interesting curiosities but key to their business and key to transforming their business."

Damian Salas, assistant dean at Drexel University's new Charles D. Close School of Entrepreneurship, has been advising Stellar finalist Tern Water. Founded by Drexel senior Mohamed Zerban, a mechanical-engineering major, Tern has developed a faucet purification system for residential properties that alerts users when filters need to be changed and of any contaminants in the water.

Philadelphia's incubator community should cater more to such companies, Salas said: "We have an opportunity to define our incubators in an industry that has already been defined in Philadelphia - social impact."

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Kristen Fitch

Senior Director, Marketing