Behind the D.C. Tech Revolution
A look at the region’s rapidly changing economy and the recent rise of D.C. Tech
“Moving to Silicon Valley is not a silver bullet. If it isn’t fundable here, it isn’t there,” Stephan Kann, then-Managing Director of Bridgewater Capital, told an audience of more than 60 entrepreneurs at an AccelerateDC event in Washington, D.C. this February.
In fact, there is evidence that Silicon Valley could actually hurt your chances as a startup.
Even though Silicon Valley dwarfs other regions in the amount of venture capital available, there is also a revolving door of startups traveling into the Valley, fighting for access to a piece of the pie. This migration is making it increasingly challenging to raise funds on the right terms.
Other cities across the country — from Denver to Detroit to New York — have seen this as an opportunity to emulate the success in Silicon Valley. Mainstay industries that once propped up local economies were vacating operations and shedding jobs. The shifting of resources toward cultivating local technology and entrepreneurship was seen as an investment into creating the jobs of tomorrow.
Of these cities, I would argue that D.C. was the most poised of any. In my time around the city’s development efforts, I heard multiple references to the region’s wealth of underutilized intellectual property. These resources were sitting in research institutions, waiting to be commercialized. When this is added to a local workforce committed to problem solving, proximity to the federal government, and the region’s previous tech history, no city was more well-positioned for a tech revolution than the District.
The Transformation
In 2013, the region’s economy was coming into its own and national media outlets were taking note. Coming out of the recession, the DMV area fared considerably better than any other region around the country with an unemployment rate consistently below 6 percent. As the Economist noted as early as 2011:
“Employment in the metro area has risen by about 84,000 over the past year — roughly 6% of America’s job growth, in a region with just 2% of its population.”
Even more notable is that this job growth was coming in high-wage jobs. The the Atlantic in 2013 gushed:
“A whopping 59 percent of all new jobs created [in Washington] since 2009 have been high-wage jobs, second only to San Jose. The Washington metro area includes six of the 10 most affluent counties in the nation.”
To add to this success, the District itself, which had been competing historically for businesses and residents with the cheaper Maryland and Virginia suburbs, was at the center of the growth.
In the real estate sector, the Wall Street Journal characterized D.C. as “The New Boomtown”. The recent surge of real estate investment had rapidly changed every corner of the city from Capitol Riverfront to H Street, making it more walkable, safer, and ultimately a more attractive option to people and businesses alike.
Years of investment in business attraction had also begun to pay off as the Washington, D.C. Economic Partnership and the Office of the Deputy Mayor for Planning and Development finally curbed some of the city’s historical retail leakage by attracting new tenants — like Walmart and Tesla — to open stores in the city.
As a result, D.C. was also going through a demographic shift. Once a commuter city, D.C. began to attract an increasing number of high-income, young professionals as residents within it’s borders. This, in tandem with the soaring property values, also resulted in significant gentrification of much of the city.
However, sustainability of this growth was a concern. Austerity measures were starting take hold nationally and old industries were not rebounding, demanding alternative means of economic investment. D.C. was no exception.
Enter Technology Entrepreneurship
In a grass-roots-like economic development strategy, regional groups around the country had shifted focus to non-traditional sectors and invested in entrepreneurship. The Obama administration presented this as part of their economic agenda by launching the Startup America Partnership in 2011 to promote investment in high-growth, high-technology small businesses as future job creators.
Donna Harris, a former Regional Director of Startup America, left the organization and became a co-founder of D.C.-based technology incubator 1776. As part of then-Mayor Gray’s Five Year Economic Strategy, the District invested $200 million in 1776 to help create a resource for technology entrepreneurs. Gray highlighted this effort as “a key to the city’s economic diversification.”
Harris and fellow co-founder Evan Burfield deserve a lot of credit for creating a global face to a largely hidden technology community prior to 1776’s launch in 2013. Soon after, 1776 started the annual Global Challenge Cup that would see the D.C. incubator traveling to international cities looking for talent and innovative ideas. The team at 1776 has continued to attract more capital for early-stage ventures and this past week they even launched a $12.5 million seed fund.
Since 1776 launched, D.C. has seen more than thirty incubators, accelerators, and coworking spaces pop up in a city that once struggled to retain small businesses. Higher real estate prices and cost of living in the city had been hurdles prior to this trend. Suddenly, a historically fragmented talent base was becoming centralized as groups moved into D.C. from the surrounding areas.
To continue fostering growth, Gray also expanded the incentives for technology entrepreneurs by restructuring the Qualified High Technology Companies (QHTC) tax credit and launching the first D.C. Tech Fund in an attempt to make the city more affordable for growing technology ventures. In recent years, city has also seen the launch of DC I-Corps teaching lean-startup methodology to technical founders; AccelerateDC to mentor early-stage, high-tech startups; increased spending on efforts to attract investment at SXSW; and various other programs focused on improving resources to D.C.’s technology community.
Aside from local policy efforts and 1776, an organic tech community also took shape. Local tech leaders, such as iStrategy Labs founder Peter Corbett, often are credited for building the community through early events and DC Tech Meetups. The growing community can be seen at the increasingly popular Startup Grind DC’s fireside chats and DC TechBreakfast startup pitches.
Even the local Streetwise media outlet, DC InTheCapital, recently rebranded as DCInno (“Inno” short for innovation) saying they are “very bullish on the entrepreneurship movement that has rapidly picked up steam in the region” and highlighted similar shifts in the growing tech markets of Boston and Chicago.
Capitol Advantage
To be fair, D.C. had all the makings of the perfect startup cocktail long before 1776 or Mayor Gray began their efforts. Anchored by the federal government and home to a consortium of great universities, the region has never suffered from a lack of talent or intellectual property. When considering that AOL was previously based in Dulles, Va., and CVent and Blackboard still call the DMV area home, the thought of a technology-centric economy doesn’t sound so unusual.
This has even more encouraging implications when considering how those companies impact the region long after they scale. A sign of a healthy, growing entrepreneurship ecosystem can be seen as employees of successful companies start new companies in the same region.
D.C. has seen this exact scenario play out with Blackboard for instance, where:
- Former CEO Michael Chasen started SocalRadar
- Former VP of Global Services Greg Davies founded Presidium Learning and Full Measure Education
- Former Chairman Matt Pittinsky founded Parchment
- Former Head of Product Strategy Stephen Gilfus founded Gilfus Education Solutions
- Former Senior Director of Technology Tim Chi and Regional Sales Director Lee Wang founded Wedding Wire
- Former VP of Product Strategy David Yaskin founded Starfish Retention Solutions
- Former Senior Director of Technology Chris Etesse founded Flat World Education
These spin off companies have collectively brought more than $150 million in investments to the region.
However, it is important to note that D.C. itself is, in many ways, a “series A town.” That is to say that most of the companies that have moved into D.C. since this economic shift are still very early stage and the jury remains out on where they will end up. The region’s venture capital picture isn’t anything to boast about, but the number of venture capital deals has slowly trended upward in the region since bottoming out in Q3 2009. While the average deal size is still relatively small, this could ultimately be reflective more of the growth stage these companies are in than an indicator of their long-term prospects for success.
As a result, if the city can keep these companies here and nurture them out of their WeWork or incubator space, we could be on the verge of a D.C. tech revolution.
