PBJ: Despite drop in state funding, Ben Franklin Tech Partners boosted GSP by $4.1B since 2006
This article was originally published by the Philadelphia Business Journal.
By Michelle Caffrey
Funding from the combination economic development organization and seed fund Ben Franklin Technology Partners increased Pennsylvania’s gross state product by $4.1 billion over the past five years, according to a new report from the Pennsylvania Economy League.
Commissioned by the statewide organization, the report quantified the cumulative impact its four Ben Franklin Technology Partners (BFTP) regions have made on Pennsylvania’s overall economy between 2012 and 2016, the last year for which full data was available. Greater Philadelphia is served by Ben Franklin Technology Partners of Southeastern Pennsylvania, but the report did not include regional-specific data.
To make sure the findings were truly reflective of BFTP’s efforts — which include a range of activities to support emerging companies in the state, along with seed funding — the study compared BFTP’s portfolio companies with a control group of similar companies in the state that did not receive funding.
Here's how the findings broke down:
In that five-year span, BFTP organizations invested more than $82 million in 560 companies, the report said. Through that time, those companies created 3.6 more jobs on average than a company not backed by the organization. From 2012 through 2016, BFTP-backed firms generated a total of 4,182 new jobs. The bulk came from a smaller number of companies, the report noted, demonstrating the "skewed nature of returns to innovation and also [highlighting] some of the risks associated with venture investing." Startups often rely on contractors or temporary workers, it added, meaning some jobs originating with BFTP’s portfolio companies might not be included in the data.
The jobs created by BFTP portfolio companies pay an average of about $79,000 in 2016, significantly higher than the state’s average annual wage of roughly $52,000. “These are jobs in client firms that would likely not have existed except for BFTP intervention and investment," the Economy League report said. "Employment gains increase each year as new companies are added to the roster of BFTP clients and as existing client companies continue to retain and create new jobs due to BFTP investment in earlier years."
In addition to the primary jobs BFTP-funded firms created, its backing also sparked economic ripple effects that spurred the creation of an additional 7,225 more jobs, according to the report.
Its portfolio companies paid $350 million more in state taxes than Pennsylvania would have received without BFTP, as well as $36 million in taxes generated from other companies doing business with BFTP firms.
Combining it all — the direct help BFTP provided startups and the indirect economic activity the organization spurred and BFTP’s work – added $4.1 billion to Pennsylvania’s gross state product, according to the report. It described the regional organizations as “crucial elements of the business, academic, and economic development ecosystems in their respective coverage areas.”
The report focuses on 2011 to 2016, though it also includes cumulative data all the way back to 1989, when the information was first collected about the program, formed in 1982. Since then, BFTP regional organizations directly added 54,000 additional jobs in the state, and indirectly created 94,000 more, the report found, resulting in a total boost to Pennsylvania’s economy of $25 billion.
Despite its contributions, state funding for the organization has dropped by a substantial 50 percent since the fiscal year 2008, falling from about $28 million to $14 million. In a statement, Philadelphia's regional organization said the drop has forced BFTP to turn down investments in “deserving companies and has seriously short-funded others.
“We interact with nearly 600 enterprises annually but can invest in a small percentage: 50 to 60 startups each year,” RoseAnn B. Rosenthal, president and CEO of Ben Franklin Technology Partners of Southeastern Pennsylvania said in a statement. “Our region must increase its ability to seed and nurture innovation if we are to remain competitive and generate the economic opportunities that are critical for sustainable families and communities.”