Our region has a vibrant innovation ecosystem that is one of the most important in the United States. Advanced technologies that drive the country’s economy are nurtured here and further developed and deployed by our highly talented workforce and entrepreneurs. People often don’t see the scale and depth of our innovation and entrepreneurship activity because they focus on the wrong metric.
Many people use a region’s level of venture capital funding as a proxy for the level of innovation. This is a good criterion for evaluating a community centered on the venture-backed start-up business model: businesses are started by angel investors who work with founders to advance a technology to the point of commercial application; venture capital is used to fill out the team and provide multiple rounds of growth capital.
When people apply this criterion to our region, they see a comparatively low level of venture capital activity and conclude that our region must not be a driver for innovation. They couldn’t be more wrong.
What powers our region is its proximity to Washington, D.C. As the seat of government and an international city, it draws peoples’ attention and dollars. People come here to change the world or serve the public interest. That positive reality has become obscured by the cynicism that many feel about government. But that doesn’t change the many positive aspects that this proximity creates.
The first such positive feature is the access to federal research and development money and output. Our region gets a very large share of federal R&D funding – tens of billions of dollars each year. In addition to paying for many highly skilled technologists, this funding often creates market-leading businesses. This happens because substantially all that funding is for applied, not basic, research, meaning that our technologists build things that have utility. There are many examples of this, including Medimmune, which commercialized biotechnology technology developed at the National Institutes of Health, AOL which effectively commercialized the world wide web started by the Department of Defense, and Invincea, a venture-backed start-up that commercialized cybersecurity technology funded by Defense Advanced Research Projects Agency.
Tens of billions of dollars in additional funding is spent in our region on technology services, solutions and products. People outside the region look at these purchases as largely being consultants cobbling together technologies and not innovating. First of all, that is not true. Many of the technologies that we now take for granted – GPS and video conferencing as two examples – were developed by local companies under government contract. Yet even when they are applying or supplying more established technologies, these countless companies, large and small, build significant businesses and train talented technologists. And as an ancillary benefit, government purchasing practices have also created a nation-leading community of successful women and minority technology business owners.
Even when the government is not directly involved as a funder or a customer, entrepreneurs often use proximity to it to grow their businesses. Some gain key insights into market regulation and coming regulatory changes to build businesses. For example, Capital One, which revolutionized the credit card industry, MCI, which challenged the status quo on long-distance phone calls and disrupted the telecom industry, AmeriChoice, which brought managed care to Medicaid recipients and the Inova Schar Cancer Institute that is seeking to treat cancer on a genomic level are all companies that apply in concert technology and regulatory insight. Others create businesses that explain or communicate the goings on of a national and international capital, such as emerging media businesses like Vox and Axios, or veteran companies like the Washington Post.
Because our innovation businesses can often grow with government funding or by being proximate to power, they tend to be more mature and established before they need or want venture capital. They also have tangible, usable technology to utilize. This means that when our local businesses do turn to venture funding for growth, they are much better investments. The data shows that our region’s venture capital funding generates better returns for investors than do those of other U.S. regions.
In sum, our region’s model of developing innovation-based businesses is broader and more durable than a system solely centered on venture capital. Moreover, it has created an ecosystem that applies technology and takes a practical approach to technology creation. This process is funded at a level that exceeds the amount of venture capital that is deployed in any region of the United States.
Application of technology supports a broad diversity of industrial clusters in our region — media, energy, advertising/PR, advocacy, cybersecurity, precision medicine and more. Our technologists are driving advances in genomics, machine learning, robotics, virtual reality and advanced software. Viewing our region in its totality, the conclusion is clear: the greater Washington region has an innovation community that is unique and exciting. We have a workforce that knows how to create advanced technologies and apply them, and start-ups that build compelling businesses.
For any business that is looking for technology talent or for new technologies to acquire, this region is incomparable. Once you see its merits, how you could you not want to be part of it?