Business Incubator’s Future in Peril as State Cuts Funding
By Sam Kennedy, Of The Morning Call
November 28, 2011
Viddler was merely an idea when Donna DeMarco took it to Ben Franklin Technology Partners’ business incubator program in Bethlehem.
Today, after six years under Ben Franklin’s patronage, Viddler has 15 employees and a presence on two continents, and its online video software reaches 1,400 customers, including business clients such as AOL, Gawker and a major Hollywood studio whose name is protected by a confidentiality agreement.
“We would not be here today if not for Ben Franklin,” said a beaming DeMarco as her staff settled into a new 2,000-square-foot office in south Bethlehem recently.
Ben Franklin has a record of such success stories, having gotten dozens of high-tech startups off the ground over the past three decades. Even so, its ability to help future entrepreneurs is threatened by budget cuts in Harrisburg.
Faced with declining tax receipts over the past few years, Pennsylvania lawmakers have slashed the economic development organization’s funding by about a third, to $6.7 million in 2011. The looming expiration of a key grant portends an even deeper cut next year.
While the organization also gets support from the federal government and the private sector, it is state money that pays for most day-to-day operations.
Tax revenue, “that’s what it comes down to,” said state Sen. Pat Browne, R-Lehigh. “Within the current confines of decision-making, we have to make choices.”
To make ends meet, Ben Franklin has let go three employees and accepted the retirement of two others, bringing its payroll to 25 people. More to the point, it is helping fewer clients.
In years past, the organization has typically taken on about 15 new startups, according to President and CEO R. Chadwick Paul. This year, however, the number will likely be 10.
“The budget cuts that we have suffered … have been nothing short of Draconian,” Paul said. “That caused us to cut every line item in the budget, including what we had available to invest in companies.”
Ben Franklin Technology Partners of Northeastern Pennsylvania is one of four Ben Franklins situated throughout the quadrants of the state. Located at Lehigh University‘s Mountaintop Campus, it nurtures fledgling companies through low-interest loans and access to venture capital, as well as other help.
Its incubator program, which provides laboratory and office space, is now helping 29 early-stage companies that employ more than 150 people in the life sciences, information technology, clean energy, nanotechnology and microelectronics fields.
Among Ben Franklin’s incubator graduates are Computer Aid, a South Whitehall Township company with 3,000 employees worldwide, according to its website; and OraSure Technologies, the Bethlehem maker of the world’s first rapid HIV test.
Viddler’s experience illustrates how Ben Franklin works. In 2005, DeMarco, then a software engineering consultant, was taking a graduate class at Lehigh University when she and one of her classmates came up with the idea for an online video business. Next came the pitch to Ben Franklin.
Ben Franklin welcomed DeMarco and her partner into its incubator program, lending them $450,000 over the next five years. Ben Franklin’s staff, with its many years of entrepreneurial experience, guided Viddler’s evolution from a vague concept into a genuine money-maker: Essentially, Viddler sells video software that can be embedded in customers’ websites.
Even though Viddler is technically on its own, DeMarco said she continues to turn to Ben Franklin for guidance.
“Oh, I was over there earlier today,” she said with a laugh.
For every tax dollar invested in Ben Franklin, the state reaps a return of $3.50 in tax revenue, according to a Pennsylvania Economy League study commissioned by the four Ben Franklins statewide.
“This organization is uniquely successful at what we do, and we’ve provided tens of thousands of high-paying tech jobs that have propped up the state’s economy,” Paul said. “We should not squander a precious Pennsylvania asset.”
It’s an argument Paul is taking to Harrisburg in an attempt to influence the first draft of the 2012-13 budget. So far, he has found a receptive audience.
“In a bad economy, why would you cut from the programs that create jobs?” said Sen. Lisa Boscola, D-Northampton. “It’s an investment .…These jobs are really high-paying. They are high-tech jobs.”
Browne, too, is a big fan.
“I think their work is tremendous,” he said.
Yet he did not sound optimistic when asked about the state budget.
In recent years, Pennsylvania tax receipts have repeatedly fallen short of projections, and 2012 will likely be no different, Browne said. Meanwhile, mandatory spending for social programs for senior citizens, the poor and the disabled, among others, have forced lawmakers to find other areas to cut.
Relatively speaking, Ben Franklin has fared fairly well, he added. Other state programs have seen much bigger cuts or were eliminated.
“We have been in a trough, a serious trough,” Brown said. “And it has affected our ability to make investments that we know would be helpful.”
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