By Sarah Gantz
The Baltimore Sun
WWR Article Summary (tl;dr) A new report from Johns Hopkins reveals that while the amount of venture capital flowing to startup companies in Baltimore has grown significantly in recent years, much of the money comes from far-flung investors not local lenders.
Baltimore needs a more robust financing system to help small businesses grow and to attract new companies.
That’s the conclusion of a new report by Johns Hopkins University’s 21st Century Cities Initiative that evaluated access to venture capital funding and small business loans for startup companies and more established Main Street small businesses.
The report found that while the amount of venture capital flowing to startup companies in Baltimore has grown significantly in recent years, much of the money comes from far-flung investors. Lending for small businesses also has been on the rise, but still falls short of pre-recession levels.
Without access to the capital they need to grow, startups and small businesses may struggle to grow and could even be inclined to leave in search of stronger financial support.
“Our financing systems here have a lot of strengths,” said Ben Seigel, executive director of 21st Century Cities. At the same time, he said, “what we’ve seen is there is a lot of fragmentation. We could be getting a lot more out of the system we have.”
The report is based on data collected by studying investments to Baltimore-based companies through 40 public and private funding sources between 2000 and 2016, and interviews with more than 50 stakeholders from banks, investment firms, and other financing and business support organizations.
To improve the flow of cash, the report recommends the city and business community make a more concerted effort to connect businesses and investors. Local banks and venture capitalists could be passing over investment opportunities in their backyard because they are unaware of the companies.
“I think there are investors in Baltimore that are not seeing the opportunities,” said Mary Miller, a visiting senior fellow at 21st Century Cities and the report’s lead author.
Events that showcase businesses could help them connect with investors and banks. A digital exchange also could connect businesses with local sources of capital.
The report also recommends enhancing the local lending capacity, by training more lenders in small business loans, which can be complicated to manage, and exploring ways to strengthen public sources of funding.
Venture capital investments in Baltimore startups has grown to exceed $200 million a year, a significant leap from $50 million a year eight years ago, according to the report.
But about 60 percent of those investors are based outside of Maryland, which could lead to more companies leaving the area in pursuit of cash. Already about 30 percent of startups in local incubator programs leave the area in search of their first financing, the report found.
For young startups, a venture capital investment isn’t about money alone. Investors often play an important mentorship role for entrepreneurs, a relationship that benefits from living close to one another, said Jen Meyer, CEO of Betamore, an incubator and startup support organization in Baltimore.
“Having people who’ve been there and done it and can share the challenges — that’s almost as important as the money,” Meyer said.
What’s more, venture capitalists who want to keep a close eye on their investments often make relocating a condition of the deal, she said.
While lending to small businesses in Maryland has trended upward since the recession, loans to Baltimore-based companies have lagged, in part because of consolidation among community banks that traditionally have been a key source of financing for local businesses.
The report found that local banks were more likely to provide bigger working capital loans than national banks, which often focus on credit card loans.
“In the small business realm,” Miller said, “we need solutions that address all these things.”