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Baltimore Internet company snags $750K in funding

Matt Koll (left) and Dave Troy

A Baltimore Internet communications company has secured about $750,000 in its first round of external funding, top executives said, adding that the investment highlights the city’s growing taste for technological development.

410 Labs — which this month released to the public an email service called Shortmail.com — has garnered coast-to-coast support from both individuals and prominent venture capital firms, particularly from California’s Silicon Valley, the nucleus of national high-tech development and manufacturing.

That’s a fairly unique achievement for a new company like 410 Labs in a city like Baltimore, said several people involved with the year-old venture. And to some investors, Shortmail’s early success — 10,000 users registered within a week — indicates that co-founders David Troy, chief executive officer, and Matt Koll, chief operating officer, must be doing something right.

Koll said such widespread investment isn’t very typical of startup technology firms and illustrates a growing confidence in Baltimore/Washington-area businesses among industry heavy-hitters.

“We’re making products that are less commonly associated with our area,” Koll said. “We’re really excited and proud that we have this backing coming from both entrepreneurs and investors in our region … and investors from Silicon Valley who likewise are recognizing the potential that we have.”

About a dozen technology-sector individuals with “strong local ties” invested about half the money, Koll said, including LivingSocial founder Tim O’Shaughnessy and Abdur Chowdhury, Twitter’s chief scientist. Four venture fund firms contributed the other half, including the bi-coastal True Ventures, the biggest investor, and 500 Startups, based in Mountain View, Calif.

The other two firms are regional — the Maryland Venture Fund, a state equity investment program, and the Virginia-based Fortify Ventures. The $750,000 figure also includes Koll’s and Troy’s initial investments into the company.

Troy and Koll founded 410 Labs in June 2010 hoping to improve Internet communication with innovative products. To simplify email, Shortmail imposes a 500-character length limit, while the company’s Replyz.com, which was released last summer, aggregates web users’ questions and answers into categorized conversations. The company is also developing Mailstrom, a program that streamlines users’ separate email accounts.

When fundraising, Troy said he and his partner specifically targeted investors who are familiar with the industry or community members with whom they had existing relationships. He said they passed on anyone just offering “dumb money,” because, as Koll put it, they think of their investors also as advisers.

Mark Walsh, one of the individual investors, said he found that mindset flattering and enticing, so he eagerly jumped on board.

“Matt [Koll] has concluded that he’s in the ‘smart money’ business now,” said Walsh, CEO and co-founder of the Bethesda-based GeniusRocket. “So he gets a check, and if that person can help him, he gets a lot of added value, hopefully some brain power. Involved money is almost always better than uninvolved money.”

410 Labs follows the lean startup business model, which focuses on cost efficiency and consumer feedback. They start with a low budget to ensure money isn’t wasted on flopped ideas. Minimizing risk earns local investors’ confidence, which Koll said is especially crucial for his team.

“Experienced angel investors in the [Baltimore] area will tell you that the climate is more challenging here,” Koll said.

But that may not be true for long, according to Walsh, who said investment practices within the technology sector are evolving.

“Welcome to the new angel environment,” he said.

Several factors are converging to brew the perfect storm of opportunity for entrepreneurs, Walsh said. Prices on everything from laptops and software to server space and Internet connectivity have plummeted, he said. Human resources are also more plentiful. Younger generations are barely affected by the Internet’s learning curve, ready to build upon the first, still-sturdy pillars of technological development.

Meanwhile, as the industry becomes less exclusive and more people embrace the lean startup model, it gets easier for new firms outside traditional technology hot spots to attract investors from within those core locations, Walsh said.

Similar sentiments have been echoing through the halls of Emerging Technology Centers, a business-incubator program that aids early-stage tech companies in the city. President Ann Lansinger said ETC has seen a definite uptick in the number of applications, illustrating “the evolution of a tech community here in Baltimore.”

“I see a lot of young people, particularly with the birth of the social media movement, who are seeing new opportunities for business because the market simply didn’t exist before,” she said. “So you’re going to see an increase in the number of entrepreneurs.”

Walsh said he expects the mid-Atlantic region to explode on the technology scene, with the centrally located Baltimore as a prime example, thanks to the Johns Hopkins University and the University of Maryland pouring skilled graduates into an area already outfitted with research parks and other necessary infrastructure.

“If you ask why the focus on technology rather than other areas, it’s because that fits in with the demographics of our area,” Lansinger said. “If you’re going to be putting an incubator in a community, you have to look at what kinds of resources are available there. So in our case, we have a number of labs and good universities in Maryland, so most companies are going to be focused on technology because that reflects what’s going on here now.”

The result, Walsh said, is companies like 410 Labs, which he called a “dynamite version” of the lean model.

“The region has come a long way compared to what it was like even 10 years ago,” Koll said. “…All the different ways people in the startup community are trying to help each other – that shows it’s emerging. You get people with the right experience and good ideas, with the right approach, and other people will be interested in getting behind it.”