Last year around this time, those connected with the Philadelphia area's venture capital industry were worried along with the rest of us.

Markets were falling. The federal government was rescuing major financial institutions. The economy was teetering.

KPMG L.L.P., which conducts a survey with the annual Mid-Atlantic Capital Conference in Philadelphia, found a very dark mood. Venture firms, which always want to fund the growth and expansion of new companies, were instead planning to cut costs at those companies, said Brian Hughes, a KPMG partner based in Philadelphia.

Just as two straight quarters of positive gross domestic product growth in 2009 have indicated contraction has ended, so too this year's KPMG survey shows a brighter outlook by the venture capital world.

The survey of about 300 Philadelphia-area venture capitalists, entrepreneurs and professional advisors found that 87 percent of respondents expect total venture capital investment to increase in 2010, up from 32 percent last year.

For the second straight year, the No. 1 industry sector to put money to work is expected to be "cleantech," which encompasses companies involved in areas such as energy efficiency and alternative fuels. Perhaps that should come as no surprise because that's an emphasis of the Obama administration's economic stimulus effort as well.

Venture firms are profit-making enterprises out to put their money to work in what they hope will be fast-growing businesses. They raise money mainly from institutional investors, such as pension funds and endowments.

While everyone loves a good success story of venture-backed home runs like Google, eBay and even Staples, more common are the singles and doubles - companies that may get acquired or go public but never reach household-name status.

In fact, that's how venture firms make money for their limited partners. They have to "exit" with an initial public offering or engineer the sale of an investment. And that's been a problem for nearly two years.

Mark G. Heesen, president of the National Venture Capital Association, said last week that he's very concerned about the state of the industry. A shakeup has been underway as those venture firms that were formed during the dot-com bubble era are reaching a point in their development where they need to be finding ways to return capital to their limited partners.

A healthy equity market produces 85 to 100 IPOs a year, according to Heesen. Only six venture-backed companies went public in 2008, and there've been just 10 venture-backed IPOs so far this year.

The KPMG survey asked about the barriers to going public, and Hughes said the biggest hurdle is lack of investor appetite for IPOs. With the M&A activity beginning to pick up, that alternative has been more attractive to venture firms.

Still 88 percent of those surveyed predict GDP growth of between 0 and 5 percent in 2010, compared with the negative GDP predictions of last year, said Hughes, who is co-leader of KPMG's venture capital practice.

Meanwhile, 53 percent of the respondents are now looking to inject new capital into companies as they begin to hire and plan for expansion in 2010, Hughes said.

After a year of watching business run for cover, consider these signs that 2010 may be a little better those trying to build and grow companies.

Let others focus on election day tomorrow or dread the employment report coming up on Friday.

I’m looking forward to a week of events that celebrate entrepreneurship. Starting Tuesday, the two-day Mid-Atlantic Capital Conference at the Convention Center is expected to attract 1,000 people to learn about 40 area companies, including TerraCycle Inc., of Trenton, and iPipeline Inc., of Exton.

More intriguing is what’s happening on the University of Pennsylvania campus that celebrates ideas at a much earlier stage. It’s Innovation Week at the Weiss Tech House, a student-run organization that’s proof a little money, a little structure and a lot of teamwork can produce amazing things, including new companies.

We all remember that guy in college who sold dormroom carpets out of his trunk. Well, this technology-steeped generation has grander ambitions.

Begun in May 2003, the Weiss Tech House at 33d and Walnut Streets began as a 3,000-square-foot space where Penn undergraduates could pursue their ideas. The ground floor is called the lab, but it’s more like a workshop with paint sprayer, band saw, drill press and other tools.

Upstairs are conference rooms outfitted, not with cocktail napkins on which to sketch ideas, but whiteboards, including one that runs wall-to-wall and was partly filled with hieroglyphic-like scribbling in brown marker on the day I visited.

Anne Stamer manages the day-to-day activities of the Weiss Tech House, but she stressed that this is very much a bottom-up organization. Students run the six committees, including the Innovation Fund committee that decides on the merits of student ideas.

The Innovation Fund is an in-house, mini-venture capital fund that provides cash but doesn’t take equity stakes in student projects. If accepted, the student and his team receive a $1,000 grant and access to the Tech House’s technical, legal and business mentoring resources.

From the start, the goal has been to teach people how to turn an idea into a product. “We try to let people know that their ideas could be valuable,” Stamer said.

While commercialization is not mandatory, many students find they want to see how far they can push their projects, she said.

Certainly, there’s been no Google or even a MyYearbook.com that’s emerged from Weiss Tech House. But a number of companies have been formed around innovations born there. They include:

* First Flavor, now in Bala Cynwyd, which makes edible film strips that taste like a food or drink that are used in advertising campaigns. It’s worked with big companies such as Campbell Soup, Diageo and Bacardi.

* Humanistic Robots Inc. , a Bristol company developing a device to clear land mines. It was awarded a $2 million Defense Department grant in February to turn its prototype into a commercially viable product.

* Innova Materials, an advanced-materials company in West Philadelphia that is providing its IonArmour antimicrobial technology to other companies for use in health-care and consumer products.

Alexander Mittal, the CEO of Innova who will give a talk about his entrepreneurial experiences Tuesday at 7 p.m. at Huntsman Hall as part of Innovation Week, called the Weiss Tech House a “very valuable program” at Penn.

Through Weiss Tech House, he built a team that helped him develop the antimicrobial technology that helps inhibit the growth of bacteria, fungus and mold on product surfaces. Now his Innova Materials employs eight people from its offices in the University City Science Center.

What impresses Stamer the most is the youthful fearlessness of many of the Tech House participants. “They are students, but they say, ‘We can do anything,' ” she said.

Whether it’s new solar panels or a new rowing machine, that’s just what they’re doing at Weiss Tech House.
 

As fun as it has been to follow the Philadelphia Phillies race to repeat as world champs, there’s one thing the team probably won’t duplicate: whopping merchandise sales.

Matt Powell, an analyst with SportsOneSource, which tracks the sporting goods industry, said sales of Phillies T-shirts, hats and other merchandise are “way off” from last year. But that’s a typical pattern for teams that produce multiple championships, he said.

While it’s too early for final figures, sales of Phillies merchandise for the last four weeks are down more than two-thirds versus last year, Powell said.

After all, how many Ryan Howard jerseys do you need?

Born in bad times

One of the counterintuitive factoids I’ve heard during this damaging downturn is that recessions are a great time to start a company.

To support the notion, some experts trot out Microsoft and Apple as examples of two that got their start during the malaise of the ’70s. However, not every small business becomes a household name with a market capitalization in the many billions of dollars.

I asked Dane Stangler, a senior analyst at the entrepreneurship think tank Ewing Marion Kauffman Foundation, about the unconventional wisdom. He said survival rates of companies born during the last four recessions are no different from those launched during economic expansions.

In fact, the United States pretty consistently creates about 500,000 new businesses every year, he said. Most of them don’t survive to see their fifth birthday, so the nation needs a steady rate of new-company formation.

This year is likely to be no different. Stangler projects that more than 500,000 people will plunge into the entrepreneurial soup in 2009.

Quotable

To me, Atlantic City is in a long-term death spiral. They just don’t have what they need to compete with the local-option slot machines that are cropping up all over the place.

Dennis I. Forst, gaming analyst at KeyBanc Capital Markets, in an interview Thursday about the casino industry on Bloomberg Radio.

Far from the debate over “too big to fail” plenty of small-business owners have grumbled that they must be “too small to matter.”

Every politician acknowledges how important the nation’s 29 million small businesses are to the economy. But their actions over the last year have been aimed at the big threats to the financial system.

Yesterday, President Obama announced new lending initiatives to help, he said, “the engine of job growth in America.” But before anyone grumbles over a new big-ticket bailout for Main Street, the first impression is what’s in the works is less than it might appear, and it’s not clear what this will cost.

First, the administration wants to increase the maximum size of Small Business Administration guaranteed loans, but it needs Congress to pass legislation to do so. The most popular loan, called the 7(a) loan, is used to buy machinery, equipment and buildings. Obama would like to see the limit rise from $2 million to $5 million.

Second, the Obama team wants to provide capital to small banks with less than $1 billion in assets, and community financial institutions. To get that capital, participating banks would have to submit quarterly small-business lending plans and pay a 3 percent annual dividend to the federal government.

Lynn Ozer, executive vice president at Susquehanna Bank, said increasing the cap on SBA loans would be “absolutely awesome” because it can cost much more than $2 million to buy a commercial building.

Susquehanna is an active SBA lender, having done 42 loans through the Philadelphia District Office alone valued at a total of $19.9 million in the federal fiscal year ended Sept. 30.

But she said raising the loan limit won’t mean much if the administration doesn’t also increase the guaranteed portion, which has been 75 percent, or a maximum of $1.5 million. If only $1.5 million of a $5 million loan is guaranteed and able to be sold in the secondary market, that won’t be a great incentive to lenders, Ozer said.

Ozer, who serves on the board of the National Association of Government Guaranteed Lenders, said what would help is to maintain the measures contained in the American Recovery & Reinvestment Act, including an increase in the guaranteed portion to 90 percent of a loan and the elimination of borrower fees.

With $375 million in new funding, the SBA said it was able to support more than $11.3 billion in lending through more than 30,000 SBA-backed loans since February.

Still there’s one thing that’s missing in these policy-driven fixes: Desire. There’s a lack of desire by businesses to borrow and a lack of desire by financial institutions to lend because the economy is still a hazy, scary question mark.

The “Beige Book” regional economic conditions released by the Federal Reserve yesterday noted that business lending has declined in the Philadelphia region. The National Federation of Independent Business says its members have postponed building inventories and gutted their capital spending plans. In its most recent survey, only 4 percent of owners reported “finance” as their No. 1 problem.

Tinker as policymakers may with loan programs, what will really help small business is a robust economic recovery.

Does anyone see it out there?

In mid-August, Inc. magazine reported that DSG Inc., of Malvern, was the fastest-growing privately held firm in the Philadelphia area.

I wrote a column about the annual Inc. 500 list, focusing on local firms such as software developer DSG.

Two months later, it turns out that DSG was not on top locally.

How could that be? I relied on data gathered and calculated by the publication for its list. The magazine requires verification for the information submitted by the companies, such as annual revenue.

The 2009 list ranks companies by the change in revenue from 2005 to 2008. DSG president and CEO Tony Varano on Monday said Inc. magazine told him it had made a data-entry error for the company’s 2005 revenue.

The project manager in charge of the Inc. 500 was out of the office. An Inc. staffer would say only that changes made to the list are rare and must be verified.

Last August, Inc. listed DSG’s 2005 revenue as $1.7 million, when it was actually $11.7 million. Its 2008 revenue was $32.1 million.

So while Inc. initially listed DSG as having three-year revenue growth of about 1,800 percent, it has now corrected it to 175 percent. Still fast growth, but the revision places DSG at No. 1,817 on the Inc. 500 list rather than the more lofty No. 82.

According to Inc. magazine, that makes Clear Align L.L.C., of Eagleville, with 2005-08 revenue growth of 1,305 percent, the fastest-grower locally.

Begun by president and CEO Angelique X. Irvin in 2003, the firm makes sensors that incorporate night-vision and other imaging technologies for military and security use.

What’s amazing is that Irvin never planned to start a business, much less build one that’s experiencing such rapid growth. (It’s No. 135 on the Inc. 500.) She’d begun work on a project for a defense contractor, then another, before she realized what she had was a company.

Totally bootstrapped, Clear Align now employs 53 people - many with Ph.D.s - at its Trooper Road operations. Its 2008 revenues were $5.5 million.

“You have to recognize it’s a combination of talent and luck,” she said.

But it’s also true that talented people can make their own luck.

If you work for a business or other organization in the region’s private sector, there’s a good chance that you’d like something to change.

Maybe it involves how you get to work. Maybe it’s about how much you pay in taxes or the type of taxes you pay.

Well, now’s your chance to tell the Greater Philadelphia Chamber of Commerce about the issues you think it should be fighting for.

New president Rob Wonderling this week unveiled the chamber’s new advocacy campaign, called Relay, by starting with a survey of more than 25,000 people in Center City’s office towers, suburban office parks and home offices everywhere.

Sent by an e-mail blast, the survey is also available on the chamber’s Web site here.

For the next month, Wonderling and his staff will be in listen-mode. The intent is to cast a wide net to catch the opinions of not only the 5,000 members of the Greater Philadelphia chamber, but also non-members, the self-employed, even those in the entrepreneurial tidal pools.

But data-gathering is almost the easy part. The challenge will be to distill what they learn into an action plan. Wonderling promises a more sustained, grassroots approach to how the chamber advocates its positions on various issues.

I’d have to say the chamber has been strikingly unmemorable in taking a stand on issues, such as tax policy, that entrepreneurs wind up calling newspaper reporters about.

With the tattered shape of all government budgets, no one expects tax cuts now. (But maybe some targeted job-creation tax credits?)

In his remarks at the chamber’s annual meeting on Wednesday, Comcast Corp. executive vice president David L. Cohen noted that he was proud of the “public advocacy maturity” of the business community for supporting Mayor Nutter’s measures to close the city’s budget hole by halting cuts in the wage and business privilege taxes.

What if the survey respondents reject that maturity, as Cohen, who is the chamber’s chair, called it? What if there’s as much anger over the budget woes in the C-level suites as in the rank-and-file cubicles?

You have one month to let the chamber’s leaders know how they should respond on all sorts of issues.

So tell them.

When the steel industry collapsed in the late ’70s, there was no federal bailout to help Pittsburgh cope.

Mills closed, as did many companies that either supplied them or depended on their employees to buy their goods. But other small manufacturers adapted and found new markets, and entrepreneurs built new companies around the region’s energy, distribution, finance, robotics and health-care sectors.

Now, as the leaders of the Group of Twenty nations gather in the Steel City for their two-day summit, they’re being asked to envision a global economic renewal in the example of Pittsburgh.

Ann Dugan, dean of the Institute for Entrepreneurial Excellence at the University of Pittsburgh, hopes they understand that the region’s resilience came from its small businesses, not its Fortune 500 corporations.

Pittsburgh is a “big small town that’s been growing steadily through the years,” she said. But that growth hasn’t come from showering incentives to attract a big factory or transplant the latest “fad” industry sector.

Every area has lots of companies of between 20 and 150 workers where the real innovation and growth potential are, Dugan said.

Small businesses didn’t cause the financial crisis, the housing crisis and the economic crisis. But they were hurt just the same. Business dried up. Loans grew scarce.

As hard as the recession has been, it’s been a great time for existing small businesses, Dugan said. In general, they were quicker to react to the slowdown, cutting expenses and workers. They tend to be more efficient in their use of capital, she said.

“We’re so enamored with big companies with 30,000 employees,” she said. Often, they are less nimble to adjust to changing conditions.

Give Dugan 200 companies with 150 employees each, rather than one behemoth.

This week, politicians will fill the David L. Lawrence Convention Center debating big ideas to coordinate efforts to promote global economic recovery. The experts will parse what the proposals mean for General Electric and Microsoft as well as U.S. Steel and PPG Industries.

That’s fine, but Dugan worries that they’re all missing the message that small business holds the best hope for lasting recovery.

For the second time in six months, Accu-Weld Replacement Window & Door Co. in Bensalem was the stage for a “clean energy” revival.

More than 200 invited guests filled the white plastic chairs inside the green cinderblock garage area of the manufacturing firm to attend the nation’s third Clean Energy Economy Forum.

The setting for this forum may not have been as lavish as the Dow Event Center in Saginaw, Mich., or as modern as Fossil Ridge High School in Fort Collins, Colo. But the small-business setting was appropriate, because much of the discussion involved smaller companies trying to catch the green wave.

The master of ceremonies was, once again, Gov. Rendell, who in noting the rejuvenation of Accu-Weld’s business described the federal and state tax credits available for replacement-window purchases. He called it one of the smartest things a homeowner can do.

Then he paused, looked at John Haddon, president of Accu-Weld, and said, “And John, pretty good commercial, am I right?”

Yesterday’s forum was a pretty good commercial for the Obama administration’s efforts to subsidize and champion the alternative- and renewable-energy movement. Even coal, which the U.S. has mountains of but is demonized by many environmentalists, was cast as part of the solution to climate change, energy security, and job creation.

Interests representing natural gas, hydro power, fuel cells, wind power, biomass and biodiesel were all in attendance at Accu-Weld. They were largely enthusiastic about the attention and money being paid by the federal Department of Energy led by Secretary Steven Chu, the Rendell administration, and the State of Delaware under Gov. Jack Markell.

At little more than two hours, the event was part celebration of progress made, part reality check over the perils of climate change, with a heavy dose of pride in American ingenuity.

The governors introduced entrepreneurs and workers trying to make it in this new “new economy.” During a question-and-answer period, businesspeople would start by praising the federal government’s commitment and incentives, but then bring up some roadblocks.

For example, many of billions of dollars spent by the federal government have been steered to automakers and other big industrial giants. Where were the loans of less than $1 million to a start-up?

Chu provided an honest, if distressing, answer: His department isn’t set up to handle loans or grants of less than $200 million. That’s something he told me that will change in the next 18 months. “Small business is where the real innovation is,” he said.

The head of Voith Hydro Inc. in York, which makes turbines for hydroelectric power generation, saw distinct lack of emphasis on hydro power in the Obama team’s plans.

And tax credits are fine, but for struggling small businesses cash up front would be better. Chu agreed to work on it.

Though we were in Bensalem, Beijing was not far from everyone’s minds. The specter of China as carbon-emitter and clean-energy innovator was invoked repeatedly.

Clean energy is the new industrial revolution, Chu said, adding that if government motivates industry in the right way, innovation will happen and jobs will be created. “So, look, it’s a race. I personally play to win,” he said.

But no one “wins” in a year or two. “This will take half a century,” Chu said.

A webcast of the forum is on the state of Pennsylvania's Web site here.

High school football season is under way, but Brian Kerrigan can be forgiven if he’s more interested in Okinawa’s Kadena Panthers right now than the South Philadelphia Rams.

The company that he runs with his wife, Kari Altman, just landed a $1.3 million contract with the Department of Defense to supply team uniforms and equipment to 41 schools on military bases in Japan, Guam, South Korea and Okinawa.

For Team Sports Planet Inc., the contract comes at a critical time for the e-commerce firm that had been named one of the nation’s fastest-growing inner-city companies 16 months ago. The growth had stalled, thanks to the recession and the resulting drop in household income, Kerrigan said.

The Sporting Goods Manufacturers Association last week said its annual study of participation in team sports noted weakness in the numbers. “Frankly, many families have not been able to afford to pay the basic fees for their children to play in local recreational sports programs or to play on some travel teams,” said Tom Cove, president of the group.

Kerrigan and Altman are veteran dot-com entrepreneurs who had prepared for big growth, not retrenchment. Team Sports Planet’s sales were nearly $2 million in 2006 and about $2.5 million in 2007. But instead of staying on track to reach $5 million as they’d scaled the business, sales began to tail off.

Team Sports Planet, which had grown to 17 employees, had to cut its workforce to 10.

As the couple reconsidered their business plan, the company was invited in June to bid on a government contract to provide uniforms to 41 high schools and middle schools in the Pacific region operated by the Department of Defense Education Activity.

This September, more than 23,000 U.S. students are enrolled in kindergarten through 12th grade on those bases. Many play American football, baseball, basketball and other sports, but they rarely stay at the same base for long. Charles Hoff, public affairs officer for DoDEA Pacific, said that 30 percent of the students “transition” between schools each year.

Team Sports Planet previously had some teams on military bases as customers, so Kerrigan and Altman were eager to win this contract even as they found out how arduous it can be for a small business to meet the constantly changing requirements of a government bid.

But setting up a virtual catalog and online ordering system that the schools can use to place purchase orders for 12 different sports played to their e-commerce strengths. On Sept. 1, Team Sports Planet was notified it had been awarded the one-year contract with four option years, each valued at up to $300,000.

That’s also good news for other local companies that Team Sports Planet uses to fill orders, including an embroiderer and screen printer. Even the U.S. Postal Service office at Ninth and Dickinson could see more volume handling Overseas Military Mail.

Kerrigan is fiercely proud to be running a business in the city that provides work for other city businesses and can serve customers all over the world. But winning this contract makes him especially happy because of whom they’re doing it for.

“It’s nice,” Kerrigan said, “to do something for the children of these men and women who serve in the military.”