Report: Baltimore needs stronger financing system to bring more capital to startups

Reprint from Technically Baltimore

Startups in Baltimore have seen an uptick in funding over the last several years, but a “more robust” financing system is needed to help them grow.

That’s one of the main takeaways from Johns Hopkins’ 21st Century Cities Initiative. It’s called “Financing Baltimore’s Growth: Measuring Small Companies’ Access to Capital.”

Read the full report 

Using data from PitchbookCrunchbase, investment firms and banks, the report found about $560 million was invested per year in startups and small businesses as a whole over the last couple of years, said lead author Mary Miller, a visiting senior fellow at Johns Hopkins 21st Century Cities who was the lead author on the report.

Equity investment has grown in particular over the past two years to $200 million per year, the report found. That’s up from $50 million a year eight years ago. However, many of the investments are less than $1 million. Additionally, a large portion of the capital comes from outside the city – specifically, 60 percent of the investments analyzed were based outside the state.

The lack of capital here could prompt startups to leave to find money. Already, 30 percent of startups at city incubators left before receiving initial investment funding, 21st Century Cities director Ben Seigel said.

“We see that there are companies that go elsewhere because they get frustrated trying to find funding here,”  said Miller, a former executive at T. Rowe Price who has since joined Baltimore Angels and the board of Silicon Valley Bank.

Along with presenting data behind oft-heard calls for more capital, the report also makes recommendations for what could be done to improve Baltimore’s early-stage financing landscape.

Some answers could lie within the city itself.

“Our premise is we could provide a more hospitable environment simply by being more coordinated,” Miller said.

While Miller said there are good examples of events that showcase ideas being developed, more and larger programs to directly connect with investors who are interested in funding specific kinds of companies with startups are needed. Getting more organized could help attract more outside investors, she said.

Additionally, more concerted efforts to identify resources that are already here are needed, the report states.

Miller used the example of an entrepreneur that was interviewed who had success in receiving grant funding, but wasn’t aware of how to get a loan to provide capital.

“That suggests to me there aren’t good avenues of understanding the whole capital structure,” and what kinds of resources to seek out for specific needs, Miller said.

The report also looked at financing for “Main Street” small businesses, and found a similar trend of growth in recent years when it comes to bank loans. However, bank consolidation following the recession still leaves lending below 2008 levels.

Miller and Seigel hope the report can become a jumping-off point, both for going deeper in data analysis (such as a look at what local investment firms gave to what companies), as well as exploring systemic solutions.

Stephen Babcock is Market Editor for Technical.ly Baltimore and Technical.ly DC. A graduate of Northeastern University, he moved to Baltimore following stints in New Orleans and Rio Arriba County, New Mexico. His work has appeared in The New York Times, Baltimore Fishbowl, NOLA Defender, NOLA.com/The Times-Picayune and the Rio Grande Sun.