The Gaps in Baltimore’s Entrepreneurial Ecosystem
A look at where the resources for entrepreneurs in Charm City fall short
Charm City is our home, and we think it’s clear that our love for Baltimore’s entrepreneurial ecosystem runs deep. But that doesn’t mean it’s perfect, and (prepare yourself for awful relationship advice) we think that part of loving something is being willing to point out its flaws.
As a company, EcoMap has two goals: to make it easy for entrepreneurs to find the resources they need, and to empower ecosystem developers to make smarter decisions when it comes to building out support infrastructure. In pursuit of the later goal, we took a hard look at our dataset of Baltimore’s startup and small business resources, and identified three areas where Baltimore could use improvement.
This is a summary article of the gaps in Baltimore’s ecosystem. For each of the three chosen, we are writing an in-depth analysis of the issue. You can check out the first in the series here: Understanding Baltimore’s Pre-Seed Funding Gap.
1. Pre-Seed Funding
Read the Report: Understanding Baltimore’s Pre-Seed Funding Gap
Note: Pre-Seed is a term arising from venture capital, but we use it here to describe the earliest capital for both high-growth startups and small businesses
In essence, Pre-Seed capital is the money used to get an entrepreneur from idea to a minimum viable product, pilot, or first customers. The Pre-Seed stage is often too early for institutional investors like venture capitalists, banks, and angels. Instead, common Pre-Seed capital sources are Friends & Family rounds, personal savings, and debt financing. However, these sources of capital are inaccessible for many people (read why).
Especially for cities like Baltimore, it’s essential that an ecosystem have adequate sources of Pre-Seed financing sources that do not rely on personal wealth, collateral or credit histories; assume wealth of one’s direct network; or carry full-time and/or revenue-requirements.
Looking at the Baltimore EcoMap, there are ~60 Funding resources that target Idea and Early stage companies (and that are not student-only). However, the 75% of this subset of resources target Early, seed-stage companies, who are typically post- or near-revenue. Pre-Seed ventures, on the other hand, typically need financing to make it to revenue.
There are only 12 Funding resources that target Idea-stage companies, the EcoMap proxy for Pre-Seed, and that are accessible to all Baltimore-based founders (not university- or student-only resources). We are not including incubators or accelerators that come with funding here (See Gap 2).
Many of these are grant programs, such as the Baltimore Women in Tech Micro-Grant, The Black Futures Micro-Grant, the Creative Baltimore Fund, The Elevation Awards, and the Grit Fund. There are also a few Community Development Financial Institution (CDFI) programs, such as Baltimore Business Lending, the LEDC SEED Loan, and the MCE Micro Loans.
The other Resources, namely the Maryland Stem Cell Research Fund, SHIFT Ventures, and the Social Innovation Fund are not direct venture funding resources. The MSCRF is a Stem-Cell research & commercialization fund, SHIFT Ventures supports Conscious Venture Lab’s Accelerator (which is a good source of pre-seed funds), and the Humanim Social Innovation Fund only supports 5 social enterprise businesses total.
While the Pre-Seed resources that Baltimore does have are great, they are not sufficient. Most of the grants are only for a few thousand dollars (except the Elevation awards, which provides a nice $10,000 per venture), which won’t always cover the startup costs for a venture (also, a few of those listed only fund nonprofit ventures, which poses a problem for startups and small businesses).
Many debt-financing sources, even from CDFIs, come with collateral or credit requirements that make them inaccessible for many. If a founder doesn’t have collateral to put up, or doesn’t have sufficient credit history, they likely wont be able to access debt financing at this earliest stage, especially in the absence of customers or pending contracts.
Why is this a problem? Because Pre-Seed capital is one of the most important parts of the funding continuum. It is quite often the capital that is needed to secure customers or satisfy initial orders, so if a startup or small business cannot access Pre-Seed capital, it’s unlikely they will be able to make it to the next stage, or be able to tap into larger funding resources.
Many ventures die in the Pre-Seed stage. If we want to see increase entrepreneurial activity in our city, and if we want to see more ventures tapping into our robust resources for Seed+ stage companies, we need to increase the number of Pre-Seed supports that our ecosystem offers.
You can read more about the importance of Pre-Seed capital, and this gap’s implications for Baltimore, in this article.
2. Investment-Included Accelerator Programs
One of the best sources of Pre-Seed funding are accelerator programs that come with investment, as they pair capital with mentorship and education. Accelerators are defined by four characteristics, including intense, competitive cohort-based programs that come with initial capital. While many of the accelerator program in Baltimore meet some of these criteria, only five of them provide funding to the ventures that they accept, and only two provide funding above $5k:
- Conscious Venture Lab ($100,000 for 8% equity)
- Accelerate Baltimore ($25,000 convertible, chance to win $100,000)
- F3 Tech ($5,000 grant)
- BCAN Founder Fellowship ($5,000 grant)
- Social Innovation Lab ($1,000 grant, chance to win $25,000)
Each of these programs has a cohort of around 5–10, meaning that in total, only about 20–30 ventures per year will be able to benefit from their program. Like with Pre-Seed funding sources, we have some great Accelerator Programs in Baltimore, but we need more of them that provide solid pre-seed capital for more types of ventures. Thankfully, accelerator activity has been increasing in Baltimore over the past few years.
3. Resources for Underestimated Founders
Personal story: One time, I was in a meeting with a foundation, talking to them about the dearth of resources for women and founders of color in the city. One of the men in the room looks at me and says:
“We have a ton of resources here, and women and minorities can use them. What’s the difference?”
You will be hard-pressed to find resources that prohibit females and founders of color from applying, so perhaps it’s correct to say that all female and minority founders can use all of the resources a city offers. With that in mind, here are some (in)famous statistics on venture capital funding:
- Only 2.2% of all venture capital deals go to female-founded companies
- 15% of all VC deals went to startups with a female-male cofounding pair
- 1% of all VC deals go to African American founders
- Between .0006-.002% of all VC deals go to African American, female founders
Having sufficient demographic-neutral resources in an ecosystem is not enough to fix the race and gender gap in entrepreneurship. You need resources that explicitly target underrepresented founders and are structured to meet their unique needs (like being less likely to receive institutional capital)
In Baltimore? Only 13% of resources target females, veterans, low-income founders, or founders of color. That means 6/6% of resources focus on female founders, for a city that is 50% female, and 8.6% of resources focus on founders of color, for a city that is 63% African American.
A gap indeed.