On the Record with Ellen Hemmerly

December 5, 2003
By NANCY KERCHEVAL,
Managing Editor

UMBC Research Park Corp.

Ellen Hemmerly, executive director of the UMBC Research Park Corp., oversees the development of bwtech@UMBC, the university's on-campus research park that houses RWD Technologies' Applied Technology Laboratory. She also directs techcenter@UMBC, the university's business incubator that is home to 30 startup and emerging tech firms. As such, Hemmerly, recently named to the board of The Greater Baltimore Technology Council, has had her finger on the pulse of technology, even when the heartbeat became irregular as the tech bubble burst. The Daily Record recently sat down with Hemmerly to discuss the technology industry and its future. Here is the first of the two-part series.

What is the state of the incubators right now?

Well, it is interesting because here at UMBC we've got two major projects that are focused at working with private companies. One is our techcenter@UMBC, which is our incubator program and our second-stage incubator companies. And obviously we're focused on earlier-stage companies. And the other is bwtech, which is our research park, where we are attempting to lease space to companies a little bit further along in development.

And what we have seen is the research park project; it has been difficult to lease space in the last couple of years for a number of reasons. One was the economy, companies contracting, lack of venture capital, but we were also competing against some vacant space. And historically with biotech companies, in particular, there was not very much space on the market. But that changed a little bit in the past couple of years and so it really became a more competitive market with technology companies; it was even more profound because it has been very easy to find space for tech companies. Vacancy rates have been as high in this area as 20 percent for class-A space for tech companies. And so it has been a very competitive market.

On the other hand we found we were affected somewhat by the economy with the smaller companies mainly because funding was not as readily available. And all of these companies need some sort of seed funding in order to be successful. On the other hand, whenever you go through an economic slump there are people who are starting up companies partly as a practical matter because there are not a lot of other opportunities. And some of the larger companies are contracting. And so we've continued to see over the last few years some very interesting startup companies.

One of the things that we have done at UMBC is we are more actively marketing the resources that we have at the university. So we have been actively marketing our research base, our students, our faculty, and we have also brought on some business people who we are working with startup companies to help them be successful and help them to find capital even though there is not much out there. And so I guess because of our program having a lot of resources we are happy to say that we don't have a whole lot of vacancies right now in this project.

Are they succeeding at the rate that they used to?

It is a good question. We are seeing a few more, a slightly higher percentage of business failures. Historically 80 percent of the companies that came through our incubator program are still in business and we have been running an incubator since the late 1980s. But in the past couple of years we have seen a few more companies than normal go out of business primarily because of funding issues.

Are the people who are starting up the companies products of middle management who have been laid off at a larger corporation or are they still the 20-somethings?

We are not seeing as many young entrepreneurs. And I think part of the problem or part of the reason is that young entrepreneurs have a more difficult time than they did five, 10 years ago in terms of marketing their business plan, finding investors. And so capital has been a very limiting factor but the other limiting factor has been that capital is not going to be available to start up companies unless there is experienced management — people who have done it before and often done it before successfully. And so those tend to obviously be more seasoned people.

Are they staying in the incubator longer or do you still have a limit?

We are really pretty firm about graduating companies in three or four years. And one of the things that we are very fortunate to have is we have real estate that can accommodate companies at all different stages of development. So when they graduate from the incubator program they don't necessarily have to move out of the UMBC projects because we do have second-stage space and we're in the process of building third-stage. We're building space for more successful, more mature companies at the research park. And that building just started recently.

What is different about a third-stage building as opposed to an incubator?

The rents are higher. The product is a new product. It is class-A space. Typically, there are some incubators that are new construction and may be higher-end space. We have a very nice facility but it is older space. It is really class-B space. Often companies that are further along in their development are looking for higher-quality space.

Are there different amenities?

Yes, at an incubator we have a lot of resources to support companies, particularly staff that can help with business planning and strategic advice. And we also work very closely with the university to be sure that there is collaboration whenever possible. At the research park I would characterize it as different amenities. The image at the research park is different. I think when companies get to a certain point in their development they are looking to not be in an incubator and they are looking to be in class-A commercial space. Our research park is also directly connected to the main campus.

Do these third-stage companies have a deadline to move out?

No, it is a regular commercial project. We are focused on companies that have some potential collaboration with the university and some reason to be on the campus.

Are there any similarities among the companies that are succeeding?

Our project has always been diverse and partly because UMBC strengths are fairly diverse. We are very strong in the sciences and engineering. Sixty percent of our students are in technology fields. And so companies will come to us that are working on technology, in the engineering or computer science area as well as the biotech area. Right now we've got about 26 companies, about 45 percent are biotech companies. And again I think there are three primary reasons. One is UMBC does have a strength in biotechnology, biology and chemistry, as well, and engineering. The second thing is we have wet lab space that we can market at a pretty competitive rate and we are able to rent small amounts of wet lab space. And so wet lab space, while it is easier to find than it used to be, it is still not easy to find it in smaller amounts and we also give flexible leases so companies are able to contract or grow with very little notice. So it is different than a commercial lease. And I think that is one of the reasons why they are attracted to our facility. But I think the third thing is in the greater Baltimore area we are starting to have more of a concentration of biotech companies. Historically, almost all of the biotech startups went to Montgomery County. And part of the reason was there were a lot of resources there. And if the company didn't work out, there were other opportunities for the employees in that area. But in Baltimore we are starting to see more and more biotech companies and it is very attractive to companies to be close to other biotech companies.

What is the challenge to providing wet lab space?

I think that biotech companies are still considered inherently fairly risky because most of them are in the development phase for a long time. So medical device companies are different. They tend to have products and sales more quickly but a lot of these biotech companies, it can take 10 to 12 years for them to develop a product — a drug to market. And so there is a lot of inherent risk. But very much associated with that is the cost of the space. Even generic wet lab space is expensive. And it is hard to produce wet lab space. Typically you will have a shell building and you will build out tenant improvements. For a typical office user you'd spend about $25 a square foot. For a generic wet lab user, you're going to spend about $100 a square foot. And then if you get into more sophisticated wet lab space, you can spend $200, even $300. And so because of that capital investment, there is a lot of risk in building out that space unless you have a company that is generating revenues and is considered a viable credit risk. And so, that is the issue. It is very hard to get the private sector to build out wet lab space on a speculative basis. Most of the companies we have here at the tech center would not be able to lease space from the private developer unless they deposited a huge security deposit because they are early-stage companies.

Why a deposit?

They are looking for a deposit for two reasons. One is if the company goes under, they can recoup some of the investment that they made in that space, whether it is improvements or equipment. But if the company goes out of business they are going to have to re-lease the space. And the space could be empty for three or four or five or six months. So they are looking for a security deposit to help manage that part of the risk.

Next week part two.