Can the Washington D.C. Metro Area Become the Next Silicon Valley?

What will it take for the Washington D.C. area to become the next Silicon Valley? Local investors and entrepreneurs weigh in on the policy, funding, tech expertise and education environment needed to tap into the region’s potential.

By Avery Fellow | February 16, 2010

According to National Venture Capital Association statistics, the Washington D.C. metro region regularly places sixth, seventh or eighth in the list of top ten U.S. technology markets, which include Silicon Valley, Boston, L.A., New York, Seattle/Portland and North Carolina. Local entrepreneurs and venture capitalists say it will take a fusion of tech-focused policy, investment funding, education and mentorship for the D.C. area to make the first spot.

John Backus, entrepreneur and founder of New Atlantic Ventures (NAV), an early-stage venture capital fund based in Northern Virginia and Cambridge, Massachusetts, said the region is moving in the right direction.

"20 years ago we weren’t in the top 20," Backus said. "And I think we can crack the top five in the next five years."

NAV Founder John Backus

Policy promoting business growth is key. Currently, Virginia is working hard to bill itself as a business-friendly state and Maryland recently announced its plans to become a national hub for cyber security.

According to a Pollina Corporate study that looks at factors such as taxes, human resources, right-to-work legislation, energy costs, and infrastructure spending, Virginia is the second most business-friendly state in the U.S.

"We need to see another wave of big successful companies like we saw in the late 90s and early 2000s, because those companies spawn entrepreneurs and ideas," Backus said.

To support business growth, Virginia governor Bob McDonnell is pushing a plan to eliminate capital gains taxes for founders and investors in startup companies over the next three years. He is also trying to encourage energy and biotech companies to locate in the area. The Ignite Institute for Individualized Health, a new genetic research institute, has plans to break ground in Fairfax County later this year.

Another key factor is financing availability, and the Washington D.C. area already has a good number of venture capital and angel funding sources.

McLean Capital Partner Dendy Young

"I think that is what’s keeping the D.C. area alive" in the entrepreneurial space, said Dendy Young, managing partner of McLean Capital LLC, a private equity firm based in McLean, Va.

"Entrepreneurs tend to start companies where they are, out of college, or out of the job that they’re in. We have good colleges, we have a good employee and employer base," said Backus. The D.C. area boasts tech-strong universities such as the University of Maryland, the George Washington University, Virginia Tech, and George Mason University.

But many college graduates are drawn to the stability of the government market. "There is a greater proportion of smart people here who are focused on government and government-related jobs than there are in entrepreneurial scenarios," Young said.

Blogger and entrepreneur Elias Shams, founder of B2B telecom marketplace Telezoo, agreed that a lot of the region’s talent is funneled into government-related jobs. Shams believes this situation can be helped through more active mentorship.

"Given the number of potential entrepreneurs our local schools – University of Maryland, the George Washington University, Virginia Tech – matriculate annually, we need many more successful mentors active in the community," Shams said.

Young agreed. "We need an ecosystem to provide people with support and good advice."

Entrepreneur groups such as the NVTC Entrepreneur Center, TiE Washington.D.C., 1410Q, and DC Lean Startup, are all supporting this ideal.

Shams also believes tech-savvy government officials can contribute to the entrepreneur environment in the Nation’s capital. Shams called on Gov 2.0 experts Mark Drapeau, Alec Ross, Federal CIO Vivek Kundra and Federal CTO Aneesh Chopra to "figure out how Gov 2.0 efforts and initiatives can fundamentally shake up DC’s startup environment."

"Our region needs an injection of entrepreneurial opportunity, fast." Shams said.

"We’re still moving up in the pecking order," said Backus. "This is not something that happens overnight. But there is a chance to jump two, three, four rungs in the next five years," Backus said. "If we can convince people that now is the time to consider leaving the place that they’ve lived the last five years or ten years because this is a better economic climate, it will pay off well," Backus said.

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