Marc Lederman is the general partner of NewSpring Capital, a firm that invests in growth-stage companies.
Angel Investor on Why He’s Pumped for Shark Tank-Style Investment Contest in Philly
As the United States has recovered from the 2008 financial crisis, the popular ABC series, Shark Tank, has become a fixture on primetime television. The show captures the frustrations and hopes of entrepreneurs as they seek investments from successful business leaders during intense pitch sessions and negotiations. While these interactions make for good reality TV, they’re also a great illustration of the important relationship between entrepreneurs and established business innovators. Such dynamics are driving forces in the expansion of various industries across the United States.
Philly is holding its own Shark Tank-style competition (called the “Lion’s Den”) as part of the IMPACT Conference on November 3 and 4. It’s a time when Philly startups will be able to pitch their companies to five of the region’s most successful entrepreneurs and active angel investors in hope of securing an investment. I’m proud to say that two of the “lions” are former NewSpring Capital portfolio company CEOs, Michael Hagan (former CEO of NutriSystem) and Jonathan Brassington (CEO and co-founder of LiquidHub). The others are Walter (Buck) Buckley (co-founder, CEO and chairman of Actua), Dr. Robert Corrato (co-founder and managing partner of Devon Hill Capital Partners), and Michael Wells (managing director of Princeton Biopharma Capital Partners.)
Philly is the perfect place to launch such a competition. Sure, people often associate the correlation between entrepreneurship and investing with Silicon Valley and San Francisco, or to a lesser extent, New York and Boston. The data supports their intuition – according to a study by the National Venture Capital Association, in the first half of 2015, the Bay Area secured venture investments of $15.2 billion, with New York metro coming in second at $3.7 billion and Philadelphia metro coming in 12th with $307 million.
Although the level of investment in Philadelphia pales in comparison to the Bay Area, the numbers don’t always tell the full story. Companies in the Philadelphia region tend to be relatively capital efficient and thus can build very successful businesses without garnering (and burning through) hundreds of millions of dollars in investment. Additionally, this is a region that historically has not been a net importer of talent. Unlike other large cities with strong universities, Philadelphia has not been able to retain many out-of-area students that earned degrees in the region. An example of this occurrence is Warby Parker, an eye-glasses startup valued at over $1 billion today. Founded in Philadelphia by four Wharton students, the company then moved to New York.
The good news is that we are beginning to see a shift in this trend.
Capitalizing on its large talent pool, world-class universities and sizable metro area, the Philadelphia region has bloomed into a diverse entrepreneurial ecosystem. The continued growth of this ecosystem will be greatly influenced by a number of critical efforts, many of which the city is already implementing, including
- The establishment of a tax and regulatory supportive climate.
- Openness of the large corporations – such as, Comcast, Independence Blue Cross and SAP – to do business with and support regional startups.
- Access to angel/seed capital and advice – what I believe is the most critical effort in cultivating a vibrant entrepreneurial environment.
I like to refer to this as the “Circle of Life” because the best source of early stage capital and advice tends to come from successful entrepreneurs, who are willing to give back. They provide the next generation of entrepreneurs with seed capital, mentorship and advice. The most successful example of this is the “PayPal Mafia,” which is comprised of former founders and executives who made their original fortune at PayPal and went on to fund and/or found businesses such as LinkedIn, Tesla and SpaceX.
Today, we’re seeing a similar relationship between veteran founders and hopeful entrepreneurs in Philadelphia. Prosperous Philly-based business leaders who found success are now completing the “Circle of Life” and investing in the next generation of entrepreneurs, providing both financial and organizational support, as well as mentorship and guidance.
In the past five to 10 years, the region has seen a number of former entrepreneurs get active in funding with the goal of supporting the next generation including:
- Josh Kopelman (founder of Half.com) who created First Round Capital.
- Andrew Newcomb (former executive at eCount) managing director of MissionOG.
- Richard Vague (founder of Energy Plus and co-founder of First USA and Juniper Financial) who established Gabriel Investments.
- David Bookspan (founder of Monetate) and Steve Welch (founder of Mitos) who created DreamIt Ventures.
The IMPACT Conference and the Lion’s Den session are great illustrations of the Philadelphia business sector rallying around and supporting its upcoming entrepreneurs. Such actions by these established leaders are playing an integral role in cultivating the entrepreneurial landscape in Philadelphia. Although the financial support is great by itself, the Philadelphia business community takes it to the next level by also providing organizational sustenance and advice to the region’s next generation of founders. An example of this support can be seen each year at the IMPACT Conference in which entrepreneurs will be provided with helpful information from seasoned executives as well as access to the region’s capital providers.
At NewSpring Capital, we’ve been an active advocate for the region’s entrepreneurial ecosystem for over 15 years. I’m personally committed to working with the numerous organizations in the region focused on making Philadelphia a premier destination for entrepreneurs from around the world and am proud to serve on the Executive Committee of the Greater Philadelphia Alliance for Capital and Technologies (PACT) as it plays a leading role in the entrepreneurial ecosystem.
These efforts are feeding the “Circle of Life” in Philadelphia and I believe the region is well-positioned as a destination for up and coming entrepreneurs. I look forward to the future and to see what companies will emerge to become the next NutriSystem, LiquidHub or Energy Plus.