Does DC Know Startups?

The short answer is no, but perhaps there’s hope.

The day after President Obama was inaugurated for a second term, I was invited to speak at the (MUCH smaller) inaugural meeting of the newly formed Congressional Caucus on Innovation and Entrepreneurship.  The caucus is a bi-partisan group, created by Rep. Jared Polis (D-CO), Darrell Issa (R-CA), Vern Buchanan (R-FL) and Gary Peters (D-MI), to focus federal policy efforts on supporting startups and innovation.

I have to admit my expectations were pretty low.  After my euphoria over the passing of the JOBS Act last year, the latest fiasco over the fiscal cliff have me pretty down on Washington’s ability to get anything done that will help create a more robust business environment.  I have been to DC a few times with the policy business group I helped co-found, The Alliance for Business Leadership, and every time I’m there, I’m struck by the contrast with the more thrilling, action-oriented world of startups and venture capital.

That said, the House Members and staffers seemed genuinely interested in the components of a vibrant start-up ecosystem.  I gave them a briefing of why Boston and NYC have such vibrant start-up environments, with the former being in the midst of a renaissance and the latter emerging from nowhere over the last 5-10 years to legitimately become one of the world’s major start-up centers.

I cited a few elements, which echo a presentation I have given in the past about Boston’s Start-Up Scene and that my NYC-based colleague, Matt Witheiler, has written about NYC.  Specifically:

  • There are four important ingredients for a start-up ecosystem to thrive:
    • Intellectual capital – Universities, young people, creative (whacky) people, expertise in multiple disciplines
    • Angels, Advisors and Accelerators – that first capital and good advice to transition from idea to reality and provide mentorship
    • Venture capital – the necessary capital to scale, advice, mentorship, guidance from those who have “seen the movie”
    • Successful companies – to inspire, partner with, poach from and/or sell to
    • I also observed the important cultural characteristics of successful start-up ecosystems.  They are open, diverse, inclusive, welcoming of outsiders/immigrants and creative types, and rich in information exchange.

Today, Boston and NYC are shining examples of these elements.  Boston has always had rich intellectual capital, but was historically weaker in the cultural characteristics than it is today.  The angel community has also stepped up in a more meaningful way recently, which has been very positive.

NYC has historically fallen short on intellectual capital, but that has changed dramatically in recent years with all the talent streaming out of Wall Street and Madison Avenue into start-ups.  Further, following the interesting entrepreneurs and ideas, there’s been an explosion in NYC’s angel community. This has led to an environment that has never been more promising.

With the audience being a policy one, I gave some simple advice to policy makers:  avoid getting involved in areas where government doesn’t have a role (e.g., picking winners with targeted tax breaks) and focus instead on fundamentals (e.g., education, infrastructure) and policy issues that matter to entrepreneurs (e.g., immigration reform, reforming community and state colleges to fit the needs the start-up employers, and capital formation issues like crowdfunding).  I gave a nod to local government leaders like Governor Patrick and Mayor Bloomberg who have been terrific champions in their respective communities. When you ask local business leaders, they will all tell you that those two politicians “get it”.

I can’t predict whether this new caucus will have an impact, but clearly comprehensive immigration reform is on Congress’ short list for important initiatives in 2013 and Rep. Polis was one of the co-sponsors of the Start Up Visa Act, so he clearly “gets it”. If every entrepreneur reached out to their House Representative and encouraged them to join this Caucus, perhaps it would have a small impact.  Meanwhile, I was happy to leave Washington DC and get back to action-oriented Start Up Land!

6 thoughts on “Does DC Know Startups?

  1. When are they going to realize – I don’t want a tax break. It’s not helpful to a startup that may very well not make money in the first year at all. It doesn’t help me to pay my team.
    The SBA is useless to me today.
    What I want is a program similar to Startup Chile that does not require me to leave United States. I want a multi-stage $100,000 grant (not a SBIR investment) available to any entrepreneur in USA. $20000 for customer validation and $80000 for scaling. The proportional amounts may change, but you get the idea. The business would be subject to audit of books while in the program.
    The minimum requirement for funding would be to demo a high fidelity prototype.

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  2. This is another thoughtful article by Jeff.
    DC has lots of lawyers and I’m one of them… I agree that to be successful startups should value the cultural characteristics Jeff has mentioned, openness, diversity, inclusiveness and the like.
    In fact, I believe these are important values for all firms, including lawyers and other services providers supporting startups, not to mention the creativity that comes from a start-upy environment. To be truthful about it, though, I don’t believe that’s the current paradigm.
    I’ve experienced this first hand, as after many years of experience in IP and much of it with startups, some colleagues and I left a large firm a few years ago, only to find that it is relatively impossible to break into startup work. Mind you, our billing rate is less than half of the big firm rate. The reason is probably that entrepreneurs need funding, and angels and VC’s are for the most part tied to a few very large firms.
    To be honest about it, it’s easier for us to find clients with big companies overseas, whether because we’ve had past working relationships doing their IP litigation and understanding their technology, though often they put high value on background, educ, experience versus contacts and marketing, which for the most part they already have covered.
    I realize the same even holds true for funders, as everyone wants to be the next Goldman Sachs. But to the degree this snobbery, for want of a better word, can be overcome – I think startups would see much better work for lower pricing, better/faster ways to cover their legal, accounting, financing and other needs.
    I’m not sure what the best solution is, but I’d love to see thought leaders put some thought into this issue.

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  3. Jeff – Zvi and I put together something similar when we created Proudly Made in DC (http://proudlymadeindc.com). Truth be told, the community has grown so much in the past two years that we’ve had trouble keeping up with everything going on.
    Many of us spend considerable time in primary startup communities, such as the bay area and New York. DC isn’t there yet, but it has plenty going for it.

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  4. Jeff,
    There are two sides to DC. There’s Capitol Hill, and there’s the real DC – which is a young but thriving ecosystem.
    * The DC Tech Meetup, which has been running for a couple years now, is one of the biggest meetup groups in the country, and we have over 1,000 people come out every month.
    * Startups are making it happen, notables including HelloWallet, OPower, LivingSocial, etc… not to mention offices of Google, Twitter, Facebook, SpaceX, etc. And you may have heard of some previous DC startups like AOL and UUNet
    * The investment community is strong and getting stronger, with accelerators and angel groups on the early stage side, and later stage VC firms like GroTech, Revolution, Valhalla, Novak Biddle, and many more
    * Take a look at what’s happening on Foster.ly or ProudlyMadeInDC or InTheCapital to get a sense of what’s happening on a daily basis.
    Next time you’re in DC, come say hi.
    -Zvi
    Founder, Contactually (we’re a DC startup too)

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  5. Thanks for breaking down the four elements of a healthy entrepreneurial ecosystem. Might you have any advice on how RDCs and other business development advocates can help cultivate a healthy culture?

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