The Delaware Department of Economic Development will pay for 10 small businesses to participate in an online, Silicon Valley-based business incubator that links entrepreneurs with mentors and capital investors.
While the arrangement has generated praise from some in the business community, it has also raised questions about whether Silicon Valley could poach some of Delaware’s fledgling technology businesses and the jobs those companies could potentially create.
Ken Anderson, entrepreneurial and small business support director at DEDO, said retaining a business made stronger through the program could be an issue.
“We hope the businesses will have some embedded interest in Delaware, but if they can’t get financing here and they are fundable, we can’t keep them here,” he said.
DEDO has reached an agreement with One Million by One Million, a virtual business incubator founded in 2010 by Sramana Mitra, a former Silicon Valley strategy consultant and founder of three technology companies.
For $1,000, Mitra offers business owners access to her premium program. Participants in the premium program receive mentoring, business plan evaluation, access to case studies, personal introduction to venture capital firms and angel investors, and public relations tips.
Companies that have participated in the premium program include LookSmart Inc., a San Francisco online advertising company that is traded on NASDAQ, and FreshDesk, an online customer-support platform that raised $31 million in combined capital from hedge fund Tiger Global and Google’s venture capital unit.
DEDO will pay $1,000 for each Delaware-based entrepreneur to access One Million by One Million’s premium offerings, capping the program at 10 businesses for a total commitment of $10,000. Any business declared viable at the end of the one-year program will be introduced to Silicon Valley investors by Mitra, according to Anderson.
“She has credibility with Silicon Valley investors because she’s been there so long,” Anderson said of Mitra. “She knows if she brings one of her clients to them they will take a serious look at the business plan. In the absence of that, you won’t be able to get visibility with them.”
A selection committee will choose the businesses to participate in the program. The inclusion criteria is still under consideration, but metrics could include a company’s customer acquisition process, the size of its marketplace and potential revenue. Businesses in the early stages of development are eligible.
Selection for the program will be tied to a businesses’ potential for success and future job creation, rather than number of employees currently working at a business.
“If they have all the other qualifications, but have not created a job yet, they can still go through this program,” Anderson said. “If they complete the program and get mentorship and strategy support, all of a sudden they could start creating jobs because they’ve matured their model.”
Anderson said companies working with digital technologies in some capacity or a retail store that is generating money through an e-commerce platform are well-positioned to take advantage of the program.
Funds for admission into One Million by One Million are from House Bill 525, legislation that set aside money for DEDO to cultivate entrepreneurial initiatives in Delaware.
The program will address the disconnect between business owners and what some claim is a lack of available capital in Delaware. In May, some entrepreneurs charged limited access to venture capital has made Delaware a difficult business environment.
Venture capital firms typically invest in local companies or request a business relocate in order to secure financing. In a tough lending environment, the close proximity makes it easier for lenders to to keep an eye on their investment.
If a Silicon Valley venture capital firm asks a Delaware company to relocate upon their completion of the program, there is nothing that can be done to ensure the business remains in the First State.
Anderson countered participation in One Million by One Million will make a company stronger and, therefore, poised to take advantage of financing opportunities in Delaware or nearby markets such as Philadelphia or New York.
“Hopefully, a participant’s business model becomes successful when, previously, it was unfundable, and its right here in our region,” Anderson said. “But if that doesn’t happen here and it happens in Silicon Valley are we really going to hold that business back from an opportunity that they can’t get here? I think the answer is probably, ‘no.’”
DEDO Director Bernice Whaley said the selection committee will review applicants’ loyalty and connections to Delaware in an effort to limit the potential of a participant leaving Delaware. She cautioned the possibility of a departure should not diminish the agency’s efforts to assist the state’s businesses.
“It’s a risk, but that doesn’t mean we should not provide funding to our Delaware residents,” Whaley said.
Area business leaders said the program carries some risk, but could also create stronger businesses within the state.
“It’s a catch-22 and hopefully Delaware will end upon the positive end of it,” said Bob Older, president of the Delaware Small Business Chamber. “But I can honestly say the potential benefits will outweigh the risk for Delaware if these companies stay in our state.”
Rich Heffron, president of the Delaware State Chamber of Commerce said even if the companies don’t participate in the program there is still just as much of a chance they could leave the state.
“This way you will allow the business owner to learn and become successful,” he said. “Hopefully, they will stay here.”
Heffron compared participating in the One Million by One Million to the Financial Center Development Act, an 1981 law passed by the General Assembly to make the state more attractive to out-of-state banks. He said the statute was viewed as a risk at the time, but has since created 30,000 jobs in Delaware.
“Someone has to take the risk,” he said. “I don’t have a problem with the government taking the risk. That is the way the game is played today.”
Older said Mirta’s reputation among Silicon Valley investors could potentially transform a nascent business. “The directions should give Delaware businesses would be huge,” he said. “It would be a big boon for our people because she knows how to help people in the tech industry get better.”
Contact Jeff Mordock at (302) 324-2786, on Twitter @JeffMordockTNJ or firstname.lastname@example.org