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DC’s Boom To Bust Startup Cycle Update

Here we go again. We’ve crested the top of the latest DC Region Startup roller coaster hill and we’re now speeding towards a bottom.  Just four years ago, in 2012 there was a budding DC Startup Industrial Complex. This included multiple media outlets with hot shot reporters, there were record breaking events like the DC Tech Meetup purportedly the largest meetup of its kind in the world..if not the universe. New venture funds were forming. Every week there was a new pitch event for startups raising money and yet today we enter the third tech bubble since the dot com bust in 2001.

The signs are everywhere, journalistic reporters specializing in startups like Bill Flook and Kasra Kangarloo left the Washington Business Journal and have not been replaced. Steven Overly  of the Washington post…gone and not replaced. Tech Cocktail left town. Tanya Anderson & Tech Bisnow publish no more.  In fact there are a few rags but no legitimate publishing voice left in the DC startup tech world.

In 2001 this region boasted over 20 very active Beltway-based VCs  actively investing in companies across the region. Today we’re down to just a handful: New Enterprise Associates, Revolution, New Atlantic Ventures and Grotech. The region is littered with shuttered funds like Winston Partners, Blue Water Capital, FBR and barely active zombie funds like Novak Biddle and Valhalla.

We’ve seen the hype of new rising super star funds that have come and gone in a 3 year period like Fortify and Crystal Tech Fund. There’s 1776 that promised to be an investing juggernaut and appears more like a dinghy. There was much promise, even more hype and now it’s stick a fork in them time. As active venture investors, they’re done in less than one business cycle.

Once more the DC region is mothballing it’s dreams of being the next Silicon Valley. The region’s startup ecosystem is merely a minor startup technology player compared to Silicon Valley, Boston, New York, Austin & Los Angeles.

So here we are again. Heading towards a new bursting startup tech bubble and you know what? Very few folks in the real world of this Beltway town even notices. Why? That’s because venture-backed tech startups play a minor part in the economic health of this region.

Tech startups stand in line behind Government, Government & Defense Congratulators, Lobbyists, Associations, & even Goat Herders.

Folks, that’s the way it’s going to be as long ast these conditions exist:

  1. Government Brain Drain – Most great engineers are more interested in challenging work than playing in the get rich quick casino of the startup world. The federal government and defense contractors offer well-funded budgets to work on challenging projects that break new ground. Great engineers have the opportunity to work on exciting ground breaking projects like a Mars rover or a satellite guided missile carrying drone.  These projects are infinitely more exciting than building just another e-commerce web site on a ramen diet budget.
  2. Local Government Friction – DC, Maryland and Virginia create a regional friction by pursuing  parochial interests instead of a joint goal of growing the region. Our local governments prefer to duke it out amongst themselves, growing their tax bases by luring businesses across the river while states like Texas visit DC to grow their regional bases.  When a company moves from Montgomery County to Fairfax County the region gains nothing. The energy and resources create a net negative effect on the region.
  3. Misdirected Government Action – Local governments offer tax incentives to companies and angel investors yet tax incentives don’t incent people to invest in companies that don’t exist and won’t get started due to a lack of funding. Virginia and Maryland sponsor Venture Funds  that are under-funded and hampered by government bureaucracies. Real VC partners earn more than government pay grades and are unfettered by bureaucratic regulations that hamper creativity. Real VCs are greedy capitalists not government bureaucrats. The regional governments would be better served to incent legitimate VCs to open offices and invest in regional startups.

Until these issues are corrected, the DC startup roller coaster will continue on its roller coaster. Until we do things different, we’re destined to continue to be an also-ran startup economy. And that’s okay. We’ve done fine as a government town. Maybe that’s our destiny. But let’s stop pretending we’re different unless we’re willing to do something different to build a real startup ecosystem.

And then boom the exception that proves the rule… local VC Updata raises a $160 million fund.