Washington Post

small washpo

A few weeks ago, the world watched as a 69-year-old airline customer was yanked from his seat. The passenger was man-handled, but it was United Airlines that really took a beating. Suddenly, everyone had an opinion. But here’s my key question: in our pursuit of business efficiency, are we missing something important?

We know that efficiency can lower costs for customers in a competitive market. For many, this is enough. The primacy of efficiency underpins the intellectual arguments for lessening of federal regulation of business, the utilization of technology in substitution for human workers and an acceptance of economic concentration of many industries such as airlines or media.

But, is that right? Are efficiency and resulting lower prices all that matter to consumers?

Last week, I interviewed Thor Cheston, the founder of Right Proper Brewing Company on What’s Working in Washington. Right Proper makes beer and operates a brew pub in the Shaw and Brookline neighborhoods of Washington, D.C. Food and beer giants such as McDonald’s and Budweiser have proven that capturing efficiencies is rewarding. Yet, Cheston’s small business is succeeding as well.

The ingredients for his success are driven very much in the personal connection his business creates with its customers. Cheston says his customers can sense the authenticity because when they drink his brew or eat his food, they know that there is a person behind the product — and an intentionality in what they experience.

Intentionality and personal connection — where consumers connect with product creators — was the subject of a subsequent conversation I had with author David Sax. He recently wrote The Revenge of Analog: Real Things and Why They Matter.

Sax noticed that as music he enjoyed became easier to access online and through devices, his interest in listening to it declined. Music became a commodity that existed in the background of his life, rather than an experience in the middle of it. He found himself making a conscious decision — to acquire vinyl record albums by his favorite artists and take the time to read album covers, listen to the pops and crackles of a less-than-perfect sound, and hold the record in his hand.

This realization that business efficiency could actually devalue the experiences led him to wonder whether what he had experienced was more widespread. He learned that as a music lover, he was not alone: vinyl records sales were increasing dramatically. Physical book sales were growing while sales of e-books declined. Moleskin, a company making high-quality blank-paper notebooks, was sold for 500 million Euros.

His conclusion? “People will pay for an experience that is superior” to what they can get in the mass market. There is a difference between a thing and an experience. One can be possessed. The other can be felt.

Sax thinks our economic discussion around efficiency misses the point. People promoting efficiency are like Star Trek’s Mr. Spock, focusing on the “logic” of business, and assuming that efficiency is all that matters. In his view, we as a society are actually more like Captain Kirk: illogical, but driven to respond to “beautifully flawed things” that appeal to our humanity.

Efficiency can give us better stuff, but how consumers truly experience that stuff is where the real value is.

This column originally appeared in The Washington Post.

 

Read more

small washpo

Experts agree that to create conditions to boost economic growth, we must focus on a region’s expertise. Well, in the greater Washington region’s efforts to find clusters that define its identity and create a competitive advantage, it might be short-changing an industry that is very much part of the equation: advocacy.

Advocacy encompasses trade associations, social science research organizations, lobbying groups, philanthropic groups and firms. It employs more than 117,000 people in our region, according to data gathered by the Stephen Fuller Institute at George Mason University. It is one of our region’s dominant economic clusters, with twice as many professionals as in our healthcare industry and three times as many as in media.

Over the last two years, advocacy was one of only two economic clusters that enjoyed job growth in the greater Washington region faster than national averages, according to the Fuller Institute. If this industry is so important, why it is not more widely celebrated or viewed as a regional economic asset?

The industry is misunderstood, albeit with some justification, and suffering from a negative association with the process of government, according to Ivan Adler, a principal at McCormick Group. He says most people don’t really know what advocacy is, believing that it “is just buying influence for wealthy corporate interests.”

Rich Gold, leader of the public policy and regulation group at Holland & Knight, attributed the misconceptions to a broad societal distrust of intermediaries — whether a hedge fund manager or a car salesman. He says for many outsiders, using intermediaries creates a fear that power is being used for self-interest, with these fears being justified through media coverage of the actions of small numbers of “bad apples.”

Being good at advocacy may in itself create negativity. Stewart Verdery, founder of Monument Policy Group, observed that because being proximate to government provides an avenue for professional and entrepreneurial success, this creates a perception that our region’s professionals have a standard of living “unfairly detached from” the rest of America. Shows like “House of Cards” and “Veep” create an impression of Washingtonians that is out of touch with the daily realities of American life. It’s because of this negativity surrounding advocacy and its close relationship with government that so many people snub the industry as a source of job creation and growth.

However, advocacy is not just about corporate interests — it speaks for every significant social and economic issue facing our citizens.

“If you have a job, own a home, or a car or even have a pet, you have somebody in Washington representing your interests,” Adler says. “And this is a good thing and a right granted to us by the First Amendment.”

Let’s not forget that lobbying also creates opportunities for the creation of businesses in other industry clusters that benefit from proximity to lobbyists. Information technology, software, media and hospitality industries here all gain significant economic benefit from this accessibility.

Yes, I agree that if we want to grow as a region, we must continue to diversify — a good plan if we don’t want to be overly reliant on federal government spending. Like Pittsburgh or Detroit before us, we know that as our local industry changes, we must look elsewhere for economic opportunities.

However, let’s all take a deep breath here. Government itself is not going to disappear. The need to influence policy makers through advocacy will remain. We would be wise to separate our opinions of the entire industry of advocacy from the proven benefits it brings to our region’s economy and power.

Column originally appeared in The Washington Post.

Read more

small washpo

Maryland’s technology industry has never been short on talent or ideas, thanks partly to the federal government’s local presence. National Institutes of Health installations bolster a sizable biotechnology industry in Montgomery County, and the National Security Agency’s headquarters in Fort Meade supports a thriving cybersecurity sector in the D.C.-Baltimore corridor.

But most of that work is closely related to serving the federal government. Some regional economic experts would rather see a local technology industry linked to commercial markets, possibly enabling wealth creation of the kind seen in places like Silicon Valley. Efforts to create a broader commercial industry have been piecemeal, with some of the region’s most promising firms leaving for other cities in search of funding.

“This is a big problem that’s going to require a lot of money and a lot of concerted effort,” said Jonathan Aberman, a Virginia-based technology investor.

Maryland has tried to solve that problem by handing out small taxpayer-funded investments each year to promising start-ups in the earliest stages of development. Maryland’s Technology Development Corp. (TEDCO) hands out $100,000 investments in state-appropriated money to start-ups deemed to show potential.

But officials have found that the small investments, typically given to companies with only a few employees, aren’t enough for some firms.

On Tuesday, the state announced a program called the GAP Investment Fund. The fund is designed to make investments of $200,000 to $500,000. The plan is to cater to start-ups that…

Read entire news story in The Washington Post.

Read more

small washpo

As the greater Washington region prepares for the promised cuts in government spending, the question is whether the private sector will be able to pivot and provide new employment opportunities.

This will depend upon whether our region’s private businesses can grow. To help our local business owners get ready to meet this challenge, I asked the members of FounderCorps, a group of experienced entrepreneurs, for advice on this important topic: how do you grow a business?

For most of them, the answer is straightforward. To grow, a business must create something that people want and keep giving it to them. Alex Murphy, founder of WorkHarmony, a company that builds apps to bridge the skills gap, got to the heart of the matter: “Growth comes from doing something much better than anyone else.” What you offer a customer must “make a difference” to the customer.

Chris McAuliffe, co-founder of Theragen, sells medical products and innovations. For him, success always comes from the same place. “You must be better than your competition” in satisfying your customers.

Eric Koefoot, founder of PublicRelay, a public relations monitoring and analytics service, believes in “obsessing” about customers and whether they are happy with the product and services they are getting. If they are happy, they will tell their friends, new customers are created, and the company develops an even better reputation. For him the bottom line is simple: “without super happy customers, growth is virtually impossible.”

Mark Walsh, a board advisor to many well-regarded start-ups, adds that keeping customers happy is more efficient than finding new ones. “Taking care of your current customers is the easiest and cheapest path to growth.”

It’s also important to recognize that not every potential customer is necessarily a good one. Narrowing the customers on which the business will focus will accelerate the ability to achieve a higher level of competence.

Lee Weinstein, CEO of technology sales and consulting firm NewbridgeTuring and member of the board of directors of EagleBank, believes that the customers a business turns down are sometimes more important than the ones it serves. Having laser beam focus on customers’ needs makes it easy to satisfy their demands.

Many I asked pointed out that once a good customer fit is identified, the challenge is then on how to replicate this fit again and again, while growing the team, finding new customers and entering new markets. “There is no Miracle Gro for business,” is how Yonald Chery, chief technology officer of DataTribe described it. To succeed, there is no magic potion or secret sauce. Growing a business was just repetition of a formula that works.

The greater Washington region has a vibrant business community; indeed, it is the number one region for business formation in the United States. But, many of its most committed business owners are involved with serving the federal customer. Because of the nature of government purchasing rules, issues of customer attachment and building relationships are typically not part of the process of building businesses, because federal contracting rules are designed to eliminate the direct relationship between individual customers and vendors.

When we talk about having the region’s private sector grow, it is important to note the elemental truth of business growth in the private sector: connecting with the customer. It is not intuitive for a large portion of our workforce and business leaders here. We need to find as many opportunities for our region’s experienced business owners who sell to private customers to share what they have learned.

Is our region entrepreneurial enough to survive a shrinking government? It is not a lack of entrepreneurship that will challenge us. It is whether we can adopt to the dynamics of business growth through customer connection.

This column originally appeared in The Washington Post.

Read more

small washpo

Lean start-up methodology, a tool used by many successful entrepreneurs, has been used to describe the Trump Administration’s approach to governing.

While “failing fast and breaking things” is a phrase uttered by many entrepreneurs using the lean start-up approach, I am just not sanguine about its application to government leadership.

Lean start-up methodology starts with a key insight: that large and small companies are very different from each other. A small business is not a mini version of a large company. In fact, a fledgling company is not even a business at all; it is a small team with only one activity: discovering the fit between a product and potential customers. Start-up folks call this activity “customer discovery.”

During the customer discovery period, expenses are kept low and founders get out and talk with potential customers. Armed with at most an inexpensively built prototype, entrepreneurs hit the pavement even before the commercial product is completed. The goal is to first find out whether anyone will want the product before incurring significant expense or wasting years on a fruitless quest.

Frankly, I wish more entrepreneurs applied lean start-up tools. As an investor, I have met countless innovators who have built a product or service offering through considerable sacrifice and expense, without first determining whether a market for the product actually exists. Technology is surprisingly fungible, but the ability to satisfy a customer is rare.

There is no doubt that small, engaged teams encouraged to experiment are more likely to find a good product/market fit. This can be just as true in politics and government. I have seen customer discovery principles applied to effecting change within government and finding agile solutions to national security challenges.

However, in both business and in governing, there is a significant limitation to the agility and rapid experimentation at the core of the lean start-up process: it doesn’t enlighten a business leader or a government official on how to achieve consistency.

In business, the constant churn of experimentation and revision must evolve into building an organization that can scale and grow revenue through coordinated actions by larger groups who create and execute a business strategy for sustainable excellence. A consistent and predictable approach to sales, hiring, compensation and branding is a must. A constant feedback loop between customers and management is pivotal, so that as customer demand grows, the organization can obtain resources to satisfy its customers.

For governing, the same is also true.

In foreign policy, our allies examine our leaders’ statements and look for consistency in viewpoint. We also see it in the coordination necessary to provide services and engage in national security.

In business and in government, we rightly admire people willing to take the risk of trying something new, and we should encourage the continued use of customer discovery and rapid experimentation as tools to understand how our actions affect those we serve. However, we should not confuse “busyness” or chaos for progress, and breaking things for strategy.

The mistake many make when they apply the principles of experimentation and customer discovery is to forget that it is not the process that ultimately matters, it is the outcome.

Winning in business and in government ultimately requires the same skills: focus, strength and consistency. Mastering customer discovery is not the same as scaling a business. Winning an election through agility and creativity is not the same as governing.

The quicker we encourage the application of the lean start-up methodology to improve delivery of service to citizens, the better. The quicker our presidential leadership proves that deliberate, thoughtful consistency is being applied to the act of governance, the better many Americans will sleep.

This column originally appeared in The Washington Post.

 

Read more

small washpo

Most Americans are dismayed to learn that intentional disinformation likely affected our recent presidential election. The implications for our nation are large and the stakes are high. Interestingly, many of the questions swirl around who is responsible and what methods were used manipulate our sources of news.

What isn’t being so avidly discussed is why Americans fell for it. Sadly, I think the answer may have more to do with how we do business than we are ready to comfortably admit.

A growing number of Americans are generally disgusted with the status quo. Causes for the discontent include unemployment, technological change, imports, immigration, arguments surrounding morality and spirituality, and insecurities rooted way back to the economic dislocation of the Great Recession. So yes, there was a desire for a nontraditional candidate or approach, However, that does not explain why Americans are easily manipulated by information that is simply not true. That’s where business comes in.

Marketing professionals have long pursued a very simple goal: get people emotionally attached to a product so they will want to consume it. With the advent of mass media, this business model required even further simplification. The broader the reach, the more widely understood a message had to be: use the right toothpaste to get a good date. Drive a high-end car to be respected by others. Drink the newest beer to have a good time.

The evolution of the delivery of the marketing messages, from radio to TV, then to the Internet, onto mobile and beyond, created the conditions for more effective access to targeted consumers. However, each medium created pressure for brevity and spawned further simplification of messaging. All this while mass media expanded beyond anyone’s expectations and innumerable sources of information aimed at consumers exploded into a cacophony.

For marketers, the task of coaxing consumers was compounded by the challenge of rising above that noise. Anthropologists and psychologists have shown how the human mind determines which information to ingest and act upon. When information triggers a deep emotional response — and connects to a primal need — it will have a strong effect on behavior. It’s why so many advertisements are based on the fear of missing out or sex appeal.

Humans adapt to our environments and modify our behavior from what we learn. In an accelerating world of shorter and pithier soundbites, we instinctively seek simplicity by selecting which information suits us best. That, in turn, creates greater pressure on advertisers to find attractive ways to attract consumers’ attention.

Enter the marketplace of news. Decades ago, there were comparatively few journalistic outlets providing news at dedicated times of the day. But today, just like the flow of products competing for our attention, news is unending, often alarming, and all-too-often “breaking.”

Politicians scramble to win in this information environment. They market themselves and their ideas using methods learned from modern media and advertising. It is not surprising that our new president was a businessman, someone comfortable with winning media attention by rising above the noise with messaging that was catchy, easily understood and triggered emotional reactions.

After decades of watching commercials that told consumers what they need and how they will feel if they buy a specific product – where broader concepts are obscured or misstated – many Americans have not honed their ability to think critically about whether information is objectively true. They don’t recognize when a highly complex issue has been crudely summarized by the mass media to the detriment of one’s ability to form an educated opinion. Americans have been subtlety conditioned to value information that triggers an emotional reaction. There was no sinister intent – it was just business.

Long after today’s political scandal-of-the-day is resolved, a bigger issue will remain: Americans’ developed preference for shallow but exciting information. When ideas are sold the very same way soap is sold, the most important nuances will often get lost in the wash.

This column originally appeared in The Washington Post.

Read more

small washpo

While we appreciate the sacrifice and personal commitment members of our voluntary military make for all of us, we don’t hear much about how national service is a crucible for developing entrepreneurial skills.

Last week I asked several veterans about their businesses and how their service affected attitudes towards entrepreneurship. The similarities were remarkable even though each start-up is very different.

Blake Hall, founder and chief executive of ID.me identified the most important skill for effective entrepreneurs that soldiers have in spades: “the capacity to rapidly make tough decisions with limited information and limited resources in a chaotic and uncertain environment.”

His company is rapidly growing a technology product to solve the challenge of proving web users’ identities — a problem that ultimately touches on both privacy protection and ensuring the quality of information we receive. ID.me recently received a large amount of venture capital funding.

As a military leader, retired Gen. Stan McChrystal learned the benefits of agile and autonomous teams. He discovered how the ability to delegate and empower subordinates —  making them leaders themselves — is just as effective in commercial organizations as in military ranks. He believes national service makes Americans “problem solvers.” McChrystal Group now works with many Fortune 500 companies at the board level on issues such as organizational change and leadership development, providing sorely needed insight to many large businesses.

Another veteran, Mark Rockefeller, echoes the sentiment that the ability to improvise is what sets veterans apart. The founder and CEO of StreetShares remembers how often he and his colleagues were not merely following orders, but regularly improvising and acting “as the mayor, police chief, city manager, zoning board and dog catcher” in unpredictable situations during his service in Iraq and Afghanistan. StreetShares now connects more than 30,000 individual lenders with veteran-started businesses and provides valuable funding.

Some do not even wait until they their service is complete before applying entrepreneurial skills. Jim Perkins realized that many day-to-day operational issues in the national security establishment could be fixed by connecting field personnel with those who support them. His Defense Entrepreneurs Forum operates around the country, providing an operator’s perspective to solving government challenges. An invaluable resource to those in the government seeking innovation and efficiency and not satisfied with the status quo.

Over the years many veteran friends have shared with me the observation that once someone has survived the experience of being shot at, entrepreneurship isn’t anywhere near as scary. Yet, the stories I heard last week reminded me that understanding veteran entrepreneurship is more nuanced. Clearly, modern warfare, as complex and unpredictable as it has become, places a premium on improvisation and the ability to think and act decisively. It also provides the test of life experience through which people find their inner strength.

When those of us in the private sector think about veterans, it’s often as an employee. “Hire a veteran” is the patriotic urging.

However, if we really took the time to understand the skills our veterans have gained through their service to our nation, instead we might be asking for them to hire us. So many of them have the entrepreneurial skills to start new businesses and succeed.

We should be making sure that they have the resources necessary to unleash their entrepreneurial spirit. We owe that to them. And, we owe it to ourselves.

This column first appeared in The Washington Post.

Read more

small washpo

Yes, when the federal government sneezes, the greater Washington’s economy gets a cold. And so, with the growing possibility of significant cuts in the federal discretionary spending that fuels so many of our inventive local businesses, just how will the region’s innovation community fare?

Greater Washington has made an extraordinary investment in supporting start-ups founded by first time and inexperienced teams. Recently, my team at Amplifier Ventures completed a survey of accelerators, incubators and co-working spaces in our region and found 128 such organizations. Prominent examples include WeWork, 1776, Mach 37, Eastern Foundry and Biohealth Innovation, along with lesser-known ones, and then programs in just about every university and locality, public or private, for profit and not-for-profit. As programs attempt to differentiate themselves with narrow distinctions, the market for start-up assistance appears very crowded.

Away from the hype surrounding some of these programs, success is not what would be hoped using the metrics at hand. Publicly available national rankings of the best-regarded accelerators and incubators do not include a single representative from our region. Very few graduates from these programs appear on lists of venture-funded companies, business exits or national lists of rapidly growing business. While our region’s start-up formation programs focus on getting businesses going, helping them grow into lasting commercial success is apparently more difficult.

Take the development of new products. Venture capital is a lagging indicator for success in this area. If our region were creating exciting product start-ups, capital would follow. Sadly, data continue to demonstrate that the greater Washington region is not a primary market for venture capital. In fact, our share of national venture capital declined to 2.6 percent in 2016, down from 3.4 percent in 2015.

Instead, our region excels in service-based innovation businesses. We are regularly near the top of lists of high-growth companies such as the Inc. 500. On that list in 2016, the percentage of rapidly growing businesses in the greater Washington region that identified as consulting companies increased dramatically to 46 percent (from 34 percent in 2015) and government contracting also dominated. Meanwhile, software and security companies represented only 5 percent of regional companies.

This pattern is also seen in the region’s cybersecurity industry. A recent survey of the industry by TandemNSI identified more than 973 cybersecurity companies operating here and only 38 were product-based innovation companies. The rest were service-based.

None of this should surprise us – entrepreneurs follow the money, and the primary customers in this region purchase technology innovation as a service. However, this business model and customer concentration does create a highly unstable situation if government funding shrinks.

Our region is missing something in how to approach the challenge of growing 21st century innovation-based businesses. The delivery of product-based innovation, not services, is accelerating in the commercial sector, and arguably in the government sector as well. Our efforts to grow product companies focuses almost exclusively on inexperienced teams and startups, and in so doing we are losing sight of the larger issue: how do we retool our existing business base and get experienced entrepreneurs to grow highly scalable commercial product businesses? Offering cheap real estate or business advice for five percent ownership in a company does very little to address this challenge.

We must find new approaches that focus on creating technology products that will be attractive to customers outside of the region in industries such as cybersecurity, artificial intelligence, precision medicine and others.

The pre-existing failure of our region to create large numbers of product-based innovation businesses will be exacerbated by changes in federal spending. We urgently need greater integration between our largest corporations, innovators and funders to build an open ecosystem that cuts across existing regional and organizational silos. We don’t need more places to create start-ups – we need a regional plan to help them grow.

This column originally appeared in The Washington Post.

Read more

small washpo

Some think of entrepreneurial behavior as being tied to profit making, but that’s not necessarily the case, as I was reminded by Liz Norton, founder of Stone Soup Films.

Norton grew up in Washington, D.C. and went to New York to build her career in media. She fell into the rhythm of New York life and says she adopted the myopic view many New Yorkers have about other places. Living in the Big Apple doesn’t leave much room for the second banana of your home town.

When she moved back to the nation’s capital in 2005, she says she was unsure whether she would be able to apply her honed skills in media and policy here. She wondered if there was room for her in a place where there wasn’t “a decent deli or children’s shoe store.”

What she found surprised her. The first thing she recognized was the large number of not-for-profit organizations and social ventures operating in the greater Washington region. As she met with them, she saw an interesting commonalty: a communications disaster. Time and again, the high cost of the videos that organizations were using on the websites or at fundraisers to spread their message, describe their work and share their mission would leave her “dismayed.”

That’s when Norton found an entrepreneurial way to solve a big problem. “I just made the decision to stop criticizing that work and figure out a way to do it better,” she told me as we prepared for her upcoming interview on my podcast What’s Working in Washington.

The challenge for Norton was coming up with a way to provide professional quality videos to groups who had fabulous stories to tell about how they were helping the community, and desperately needed to spread awareness but couldn’t afford the cost of production.

With her business instincts, she looked for volunteers with experience in media and production. Did these people exist in D.C.? Maybe Los Angeles, but in our nation’s capital?

Norton admits to initially having low expectations herself, “I was hoping for 15 to 20 when I started the organization.” She now has more than 700 volunteers – producers, graphic designers, technicians, videographers, editors — all skilled in media creation, providing their time to Stone Soup’s projects. Why were there so many more people with the right skills available? It turns out that big customers in the greater Washington region such as the federal government produce a lot of video with local companies.

So, in this way, proximity to the federal government provided an unexpected resource for a new entrepreneurial model. Stone Soup Films is an enterprise solving a large problem and helping organizations who are the lifeblood of what makes this region tick.

Norton says getting experts in their field to contribute their hard work without compensation is easy, because people enjoy the satisfaction that comes from helping others. For her volunteers, engagement and meaning are more important than money. She says this doesn’t surprise her, because people are good at their core.

Stone Soup Films brings out the best in our community to help our region’s not-for-profit community tell their success stories and find new resources.

It also shows how our region is innovative and entrepreneurial in all sorts of ways.

This column originally appeared in The Washington Post.

Read more

small washpo

Venture capital is an essential resource for entrepreneurial businesses, but new entrepreneurial approaches are changing the industry.

More and more new venture capital funds are popping up in the greater Washington region. Funds such as Blu Ventures, Gula Tech Adventures, NextGen Venture Partners, DataTribe, Lavrock Ventures and Strategic Cyber Ventures are writing smaller checks and providing more hands-on mentoring than larger incumbent funds can. They challenge the prevailing model for existing venture capital funds and fill a void in the greater Washington region.

Arguably, the venture capital industry needs to be disrupted. Over the last 10 years, the herd has been winnowed significantly. Venture funding has been consolidated into fewer but larger funds, with $1 billion funds becoming more and more commonplace. Our region’s best-known venture capital organizations — name brands such as Revolution and New Enterprise Associates — are able to raise more money because of their investment success. In this way, the market works fairly, rewarding those who can generate positive returns for investors.

But with this success comes concentration of capital, and that concentration comes at a cost. It is harder for large funds to make smaller investments, or even get involved in start-up investing at all.

“As funds get bigger and bigger, it’s hard for a billion-dollar-fund manager to be excited about a seed investment of $50K,” notes Ron Gula, co-founder of Gula Tech Adventures. After all, to move the needle on a $1 billion fund, each investment must yield large dollar amounts. A $50,000 investment “takes just as much effort to help that company get to the next level as a $5 million investment, but the $5 million has 100 times the return,” Gula says.

Next thing you know, larger funds are investing in more established companies that have proven growth or momentum. Businesses at this stage are not only less risky, but better able to absorb and apply larger capital raises.

They also lead to more conservatism in the investment process itself. Large institutions raise billion-dollar funds from institutional sources such as pension funds, endowments and sovereign wealth funds. These sources require a careful investment process and a focus on legal and financial compliance. However, this professionalization comes at a cost – the venture investor loses an ability to make quick decisions on a gut feeling or to “take a flyer.”

This is a phenomenon has been observed by many entrepreneurs. Dan Mindus, founder and managing partner of NextGen Venture Partners, believes that larger funds invest around financial metrics to ensure that both investments and oversight satisfy their institutional investors, and that means subsequent board service is less about mentoring and more about process. It also may make investing in people somewhat less relevant than investing in numbers.

Clearly, there is a market for smaller, more hands-on investing in our region. Funds where the investment process can be more accommodating to the unpredictability of early stage investing.

By nature, much about start-ups in the earliest stages is uncertain, and there is a strong need for help. Gula points out how many areas where an early-stage investor should help: “You need to motivate the team, make funding decisions, have input on general strategy, speak with customers, speak with analysts, speak with media and help with recruiting.” Steven Chen of Blu Ventures readily agrees and adds “post-investment active engagement” on the part of investors is “essential for early-stage companies.”

Leaders of these emerging venture funds are evidence of a clear entrepreneurial characteristic: starting a business where they see a market opportunity. Their ability to bring experienced and engaged entrepreneurial assistance to start-ups is a welcome positive development in the greater Washington region’s ability to establish and grow technology businesses.

Column originally appeared in The Washington Post.

Read more