Accelerators Bring Startups To Other Cities

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StartupsThe two young entrepreneurs did everything right to launch a startup company in Baltimore: They developed a bright idea. They won a local business competition. They networked.

But when it came time for Nick Miller and Adam Zilberbaum to take their business to the next level, the creators of Parking Panda — a smartphone app that helps people rent out their parking spots — took their fledgling company this month to the Big Apple.

What lured them away? A business accelerator that offered the pair $25,000, three months of office space in Times Square and the chance to schmooze with New York’s high-profile entrepreneurs and venture capitalists.

“Having the opportunity in New York and not having one at all in Baltimore makes the decision a little bit easier,” Miller said. “It’s really a great opportunity to meet people who will help our business grow.”

Baltimore might have had its own private accelerator in place this summer — Miller and Zilberbaum applied for it — but organizers couldn’t pull together the necessary funding.

From Silicon Valley in California to Silicon Alley in New York City, business accelerators are drawing attention from venture capitalists and attracting startups striving to be the next Facebook or Twitter. For many fresh-faced entrepreneurs, such programs fill the gap between having a good idea and creating a working prototype.

For other cities, there is a risk of getting lapped in the race to lure promising entrepreneurs if the local technology community can’t develop its own accelerator program.

Accelerators are “kind of a global trend,” said David Troy, an entrepreneur and prominent advocate for Baltimore’s technology community. “The challenge here is that there’s really no reason why those guys (Miller and Zilberbaum) shouldn’t be doing that here in Baltimore.”

Accelerators are short-term, intensive boot camps, helping founders through the earliest steps of building a solid business plan and a prototype website or product.

In exchange for money and guidance, an accelerator company will give its investors a small stake, ranging from 4 percent to 10 percent.

They differ from business incubators, which might nurture an already-focused startup for a couple of years and help it attract new customers.

The accelerator model is becoming “a vital part of any economic ecosystem,” said Tom Sadowski, president and chief executive of the Economic Alliance of Baltimore, a regional economic development organization. “You have to be thinking about the next generation of industry and business. It’s part of the vital infrastructure we have to have in place.”

Most of the accelerators grabbing headlines these days are funded by private investors. The concept has spread beyond the usual tech hubs to cities such as Philadelphia and Boulder, Colo.

There are also publicly funded programs that are typically associated with universities, but they tend to be more focused on commercializing highly specialized research rather than, say, building Web applications for consumers.

The Johns Hopkins University, the University of Maryland-College Park, and the University of Maryland-Baltimore County each have their own accelerator programs.

The College Park accelerator is tied to the university’s research and engineering programs, which encourage students to work on commercial applications. MTECH Ventures focuses on solving science and engineering challenges, program director Dean Chang said.

“We want to make sure we keep our best entrepreneurs here,” Chang said. “Those are the people who will end up becoming the next angel (early-stage) investors.”

In exchange for access to mentoring, lab space and research equipment, Chang said, the university takes a single-digit-percentage stake in the companies it helps build.

In Baltimore’s entrepreneurial and technology circles, the environment for fostering startup companies has blossomed the past few years. There are several technology networking events and startup business plan competitions. Several alumni from one big company, Advertising.com, have gone on to form their own businesses, including Millennial Media, a top mobile advertising network based in Canton.

Entrepreneurs in the city and the state expect to see a boost in the growth of new businesses, thanks to Gov. Martin O’Malley’s InvestMaryland program, which is authorized to pump at least $70 million into early-stage companies over the next five years. But the investments are to be put into more sure-footed startups, and not those entrepreneurs who may need the early hand-holding available in an accelerator program.

Many entrepreneurs saw the planned Startup City accelerator program for Baltimore as a missing link in the city’s offerings for local technology entrepreneurs. But organizers Mike Subelsky and Monica Beeman couldn’t persuade enough investors to pump in $15,000 each into the program.

They had some investors lined up, but not the 10 they needed to dole out $15,000 to each of 10 companies for three months this summer.

Subelsky, while well-connected in Baltimore and involved in his own tech startup, said part of the problem might have been that the program didn’t have a high-profile entrepreneur with a well-known record to attract investors.

“We didn’t have enough social proof to raise money,” Subelsky said.

He also wonders whether they asked for enough money from investors, who might have been more interested in contributing more than $15,000.

“We had many investors express interest in it, but not enough to go forward,” Subelsky said. “We got a lot of support for it; it just wasn’t workable in its current form. We have to reinvent it.”

Startup City did inspire people to submit their ideas. More than 50 entrepreneurs, including Miller and Zilberbaum, applied to the accelerator.

When Subelsky announced in late May that Startup City wouldn’t launch this summer in Baltimore, the decision was easy for Miller and Zilberbaum: They were going to New York.

New York is better known as a financial center than a beacon for startups, but venture dollars nevertheless are flowing into the city.

Venture capital investment in the New York metro region was $580 million in the first quarter of this year, according to the National Venture Capital Association, nearly triple the amount that flowed into companies in the Washington-Baltimore region during that same period.

California’s Silicon Valley remains king of the startup world, pumping $2.5 billion into new ventures in the first quarter.

Statistics on how well accelerators are positioning companies for growth are limited.

TechStars and Y Combinator finished first and second in a recent ranking by a Kauffman Fellow working with Northwestern University and the industry blog TechCocktail, which based results partly on whether the companies they assisted were able to secure additional investment.

James Jaffee, chief executive and president of the National Association of Seed and Venture Funds, said the spread of accelerators “is something we want to encourage.”

But some see the potential for a market glut.

“Like anything, there can also simply be too many of these organizations,” Lawson DeVries, a principal with Grotech Ventures, an investment firm in Northern Virginia, wrote in an email. “The success of these programs is defined by the quality of the companies coming out of their classes, and as more and more accelerators crop up, this will obviously dilute the quality.”

While plans for a Baltimore accelerator have stalled, the story of how Parking Panda at least germinated in the city is noteworthy.

Computer programmer Zilberbaum, 29, a graduate of Towson University, quit his full-time job last year and decided to become more involved in the city’s nascent tech scene.

Zilberbaum made several connections, including one with Mike Brenner, a Web designer who organized Startup Weekend — an event last month for people looking to launch their own companies.

Zilberbaum was introduced to Miller, 23, who had the idea for a parking app. They worked on the idea over the Startup Weekend; they called it Parking Panda because they wanted to include an animal’s name for marketing purposes.

They pitched their idea to a panel of judges and won first place, taking home a $2,500 cash prize. That led them to apply to Startup City in Baltimore, as well as to the Entrepreneurs Roundtable Accelerator in New York.

Then Miller and Zilberbaum headed to New York for the accelerator program. They believe the connections they make in New York will help them tremendously. But all hope for Baltimore is not lost. The pair see themselves launching pilot projects for Parking Panda in Baltimore and Washington.

“Even if we do end up in New York,” Miller said, “we intend to come back to Baltimore and run the company from here.”

Source: McClatchy-Tribune Information Services.