Well, Yea, Actually DC Has a Tech Scene – If You Know Who to Ask

I was minding my own business today, enjoying my morning Chocolate Cheerios, when I came across this post in Venture Beat.  “Is there Hope for DC’s Startup Scene?”  Yeesh.  If you read the post, which was written by Jeff Bussgang, a friend of many of friends of mine and apparently a good guy, it’s not so bad.  The title is pretty offensive to us DC Tech folks though – something which I understand was Venture Beat’s doing not Jeff’s. Well, Venture Beat, here’s a blog post for you.  And, Jeff, if you see this blog post, I hope you won’t take what follows wrong.  I don’t intend it as a take down, or to touch off a blog fight with you!

Having said that, I do feel that I want to stand up for the place where I and Amplifier Ventures make our home, and where every day I see entrepreneurs and government working hard to make things happen.  DC has a tech scene.  It is vibrant and frankly much more diverse and established than tech scenes in many other parts of the nation.  And, the government has a role – a large role in fact – in the tech world both locally and nationally.  I do get that much of this wouldn’t be obvious from attending a Congressional Caucus meeting after getting off the Shuttle from Boston, but perhaps we need to get our friends in Congress to talk with VCs who work in their back yard.  I would probably tell them a different story.

As someone who has been part of the DC Tech community since the 1990s as an investor, and has worked in policy areas with both federal and local government officials, I have a very different view from Jeff in a number of ways.  He is not wrong about the criteria that he uses to describe a vibrant tech ecosystem, but to apply them to the DC Tech scene and find DC Tech wanting is just not right.

Entrepreneurs follow opportunity (or as we VCs like to say, “entrepreneurs follow the money”).  The DC Tech scene has a very distinct composition when compared to other regions.  Like Boston, NY and the Valley, DC has a vibrant light software startup scene.  We have accelerators, incubators, nationally recognized VC firms and local government agencies that are committed to fostering further development of this scene.  Perhaps our light software development ecosystem is not as deep as some other regions, but if you take the DC region’s overall entrepreneurial activity it is comparable to, and in some ways, more dynamic than even Silicon Valley’s.  What is not appreciated by many outside our region is that a substantial portion of local tech entrepreneurship is engaged in creating technology and providing technology to national security and the government.  And, this portion of our tech community has been extremely successful and productive for the last 25 years.

This kind of technology entrepreneurship might not be as blog worthy as the newest way to share photos of cats, but it has created wealth and entrepreneurial rewards for many people in our region.  Moreover, there is a large technology work force here – as many software engineers as the Valley, for example.  Technology M&A is also comparable. Last year I published a report about our region’s M&A activity. I looked at every M&A deal in the DC Region and the Valley from 2005 to 2011.  M&A in the Valley is concentrated in what it does best – consumer internet and semiconductors.  Tech M&A in the DC region is more diverse.  Overall activity by number of deals was very comparable.  Entrepreneurship in the DC region is very symbiotic with the federal government.  That has been its biggest strength, and creates its biggest opportunity.  When you combine that with a healthy light software innovation ecosystem the picture is more nuanced and much more exciting.

If entrepreneurship is measured against its overall success rate, rather than its success against a particular type of innovative activity, the DC region has as many, if not more, opportunities for entrepreneurs to come up with a business idea and work it through to a rewarding exit than anywhere in the US.  It may not be sexy enough to be part of the tech blog echo chamber, but it’s a fact supported by data and my anecdotal experiences every day working with serial entrepreneurs in the DC region through FounderCorps and Amplifier Ventures.

The other suggestion in Jeff’s post that I want to address is the idea that government doesn’t matter for entrepreneurship – and that it should just get out of the way.  I actually hope that his Congressional hosts don’t take that advice, and in fact do something more considered.  One of the unappreciated facts about our economy is that there is an almost direct correlation between government spending on R&D and government regulatory choices and every successful industrial cycle that that the US has benefitted from since building the nation’s railroads.  The relationship between basic science, application, national security and subsequent commercialization denotes a highly symbiotic connection between government and investors.  For example, the venture industry and entrepreneurs have benefitted mightily from the Internet, but the basic research to create it happened through US government spending and policy choices.  The venture capital industry does not create industries – it finances incremental innovations in industrial waves.  That’s not a criticism – but a fact – creating industries takes time and many blind alleys.  The VC industry needs rapid growth and returns.  It needs industrial waves to succeed for it to generate returns.

I would argue that the current challenge in the venture industry (which is related to its inability to generate extraordinary returns) is a direct reflection of the maturing of the most recent industrial wave and its monopolization and concentration.  This is why you find currently  two types of venture funds succeeding – funds that can make big bets and withstand monopolistic market power from the Five Horsemen of Technology and funds (and Angels) that grow quick acqui-hires for these same monopolies.  But, they are not funding emerging technologies and industries.

The big question to be answered is where do the next industrial waves come from?  Casting one’s eyes towards life extension, material science, artificial intelligence, man/machine interface, alternative energy, conservation, robotics and space, as just some examples, you see a large role being played by government spending and policy in shaping these nascent industrial waves.  To say that government should just stay out of these things is to completely miss the point – in a world of hedge fund driven financial investing about the primary source of long term R&D capital for emerging technology in our economy is the government.

There is certainly a large ideological battle being played out in our society about the role and expense of government.  It is playing out in the grinding fight over tax rates and government spending.  Heck, when golfers complain about their tax rates (thanks Phil Mickelson for crying about your 62% tax rate and demonstrating that you have the worst accountant on the PGA tour) we clearly have reached a point of saturation.  But, balancing a budget without recognizing the importance to our economy of government funded tech R&D and consumption is just silly.  It is like burning your furniture to stay warm.  At some point you are going to need someplace to sit.

Over the last 18 months I have worked with extremely committed people in DOD, DARPA and elsewhere in our Federal government to figure out how to get the next generation of technologies matched with entrepreneurs and into the commercial world. This is a big effort and one that is of crucial importance to national and economic security.  I expect that many of these technologies will get developed and industries will get established in Boston, NY, Silicon Valley and the DC region, as our entrepreneurial communities innovate.  But, make no mistake, the role of DC, both in its entrepreneurs and in the government will be an important part of our next industrial waves.

My message therefore is pretty simple.  Either on the level of the entrepreneur, or on the level of being a source of industrial waves, the DC region is highly relevant and important to our national economy.  To my friends in the Valley I say hello, and invite them to come spend some time with me here in DC.  It might open their eyes – and is often the case for entrepreneurs – some of them might move here.  After all, entrepreneurs follow the money.

Share

Comments

  1. Dave Anderson says:

    Spot on.
    It amazes me how people talk about the value of Big Data without mentioning that it takes Data Scientists to unlock its value.
    The Government doesn’t just provide funding. Every day we are unlocking what will be the most valuable resource to come out of DC, the data scientists, many of whom manage and work with the many data sets that smart people are working to release.

    DC Data Scientists have a group, and our next meet-up is fully subscribed at 450 people. Its time to move on from the traditional definition of “tech-scene.”

  2. Dede Haskins says:

    Excellent! Thanks for addressing the WHOLE post.

  3. Hi Jonathan, the VentureBeat headline was caused by an editor’s mistake. We’ve corrected it, and apologized to readers, and to the guest contributor who wrote the piece.

  4. Dylan Tweney says:

    Thanks for your thoughtful response. I’ll admit, that headline on Jeff’s piece was ours, and we got it wrong. We’ve since changed it, and I’m sorry for the screwup.

    For the record, we are interested in the DC startup scene, and we’ve even written about it recently: http://venturebeat.com/2012/09/04/washington-dc-startup-scene/

    Headline aside, I’m glad you read Jeff’s article closely and took the time to respond thoughtfully. I’d be happy to republish your post, or a version of it, on VentureBeat, as a counterpoint, if you’d like. Just email me if you’d be interested in that.

    Dylan Tweney
    VentureBeat
    Dylan at VentureBeat dot com

  5. Loren Burnett says:

    Jonathan, awesome response to a very poorly thought out posting. Well done, thoughtful and correct.

  6. Thanks for the thoughtful post, Jonathan. As you have heard by now, the headline of my post was incorrect and misleading, which VentureBeat has since graciously apologized for. I was writing about “Washington DC” as in the “Federal Government”. I was not addressing the Washington DC region start up scene in any way. I was asked to appear before the Congressional Congress on Innovation and Entrepreneurship to talk about start up ecosystems and the federal policy issues that needed to be addressed, such as immigration reform and supporting basic research funding. I apologize if my comments were misinterpreted by the Washington DC startup community, for whom I have great respect.

  7. As a serial entrepreneur in the DC area who works on open government data initiatives that require government participation, I agree that (revised) titles like “DC’s startup scene: Entrepreneurship blooms in our nation’s capital”. I strongly agree that technical innovation and economic growth often follows government infrastructure investment. For example, economic development comes with policy that mandates AND funds government agencies to publish valuable human health and environmental open data for both human and machine use. To be a change agent with technology, you have to understand the organizational dynamics of government and that is best done spending time with your customer … if your customer is the federal government … we’ll see you in the vibrant Washington DC area.

    Read more at http://venturebeat.com/2012/09/04/washington-dc-startup-scene/#5e5J1Wzkqboyytcv.99