Is Washington broken? Not for the city’s exploding startup scene.

November 12, 2013

Washington's newest startup incubator, 1776, launched this year with $200,000 in city funding. (Photo by Tech Cocktail)

The Odd Fellows Temple in Washington's Penn Quarter is nearly 100 years old — older, in fact, if you ignore the time they tore it down and rebuilt it in 1917. The seven-story edifice still houses the English fraternal order for which it was named. But now much of its interior has been given over to office and retail space.

On the second floor is the socially conscious startup Change.org, the online petition site. Last month, I visited Jake Brewer, the site's director of external affairs. The day hadn't begun well; a network malfunction had temporarily brought down the company's Internet connection. Since there was no way to reach the online demo he wanted to show me, Brewer steered me instead toward the office kitchen.

Like other startups in New York and San Francisco, Change.org has all the trappings of a fast-growing tech firm: The pantry overflows with snacks and artisanal coffee; an open floor plan encourages people to socialize from across the room. Lightbulbs dressed in ceramic shades cast a warm glow over tables made of buttery hardwood. Brewer handed me a mug and plopped down without removing his corduroy blazer.

Change.org's primary business, online petitions, depends mainly on the millions of people living outside the Beltway who have little connection to politics or regulation. And yet Washington, for all its reputation as a stuffy town for besuited old white men, is a natural place to find a business like Brewer's. The location helps the company grant access to decision-makers in a way that once required massive amounts of particular expertise and coordination.

Brewer's employer is, in fact, one of a growing number of startup firms that have established roots in Washington lately. According to the mayor's office, the District proper is now home to around 425 small, rapidly expanding businesses. It ranks fifth nationwide among PricewaterhouseCooper's most active regions for investment capital, drawing more than $1 billion to the area in 2011. Most of that venture capital money is centered on a single zip code: 20005, an area just north of the White House that runs the five blocks from 11th Street NW to 16th Street NW and covers Logan Circle and McPherson Square.

As you might expect, what's common among D.C. entrepreneurs is a nerdy, almost obsessive devotion to the minutiae of politics and policy, along with an appetite for solving large, structural problems such as climate change or public health. They're supported by a pool of knowledgeable insiders whose experience working with government is as valuable as their industry connections. A network of universities, meanwhile, continually turns out new workers for the local information economy. The mix not only imbibes Washington's startups with a keen interest in tackling the big issues of our time but also gives it some tools to make it through the country's least functional systems. Yes, there's a lot that's broken about Washington — and politics deserves much of the blame. But it's the city's political flavor that also makes its startup culture so valuable.


Customers plastered their New Year's resolutions on Sweetgreen's front window in Dupont Circle last year. (Photo by Elvert Barnes)

Washington's native innovators

In the halls of the U.S. Capitol, there is a system of buzzers and lights that indicate when a vote is about to occur. These signals are almost impenetrable for newcomers. So, Ted Henderson resolved to help freshmen lawmakers and their staff members interpret the signals.

Henderson is a veteran House staffer who lost his job when his boss, Rep. Dale Kildee (D-Mich.) retired. He set up a radio receiver near the Capitol to record and translate the buzzer. The result was Capitol Bells, an app that allowed constituents to follow along with House votes in real time. More recent versions have added the ability for constituents to provide instant feedback on how they want their representatives to vote. Among the app's admirers are House Minority Whip Steny Hoyer (D-Md.) and Rep. Jared Polis (D-Colo.).

Henderson isn't the only innovator who's decided to strike out on his own. Christopher Dail is a project architect at the National Heart, Lung and Blood Institute at the National Institutes of Health in Bethesda. But on the side, he runs a startup called SurveySnap, a mobile application for architectural surveys. During the recent government shutdown, Dail poured all of his efforts into the new business.

"It's a blessing in disguise," he said at the time.

Dail is a member of 1776, a startup incubator that launched this year in a 15,000-square-foot space in downtown Washington. The combination classroom and working space helps new companies get off the ground, offers workshops for entrepreneurs and features periodic "hack-a-thons." It got its start with a $200,000 grant from the city government, along with additional support from Microsoft, Comcast and Capital One, among others. By co-founder Evan Burfield's estimate, 1776 hosts roughly 170 businesses and has received applications from 500 more. The majority of its startups are Washington-based.

Stillman Bradish and Patrick Parodi run their company, The Wireless Registry, out of 1776. They're working on building  a Do-Not-Call list for retailers that would prevent marketers from using a smartphone's Wi-Fi signal to track users around brick-and-mortar stores. Bradish and Parodi are an example of just the sort of success that Washington relationships can produce. Like most policy communities in Washington, the privacy and civil liberties crowd is rather small. When the two businessmen linked up with Jules Polonetsky, the director of a local data privacy think tank. Polonetsky involved The Wireless Registry in privacy negotiations with the very marketing companies that would be affected by the list. The solution, if it works, could potentially rewrite the rules of the game for offline advertising.


Startup incubator 1776 helped celebrate more than a dozen startups in September during a mixer for Tech Cocktail, an events organization for entrepreneurs. (Photo by Tony Hitchcock / Tech Cocktail)

A fertile landscape for entrepreneurs

Part of what makes Washington''s startup scene different from larger entrepreneurial hubs like New York and San Francisco is that the area is stuffed with policy problem-solvers. Between its robust collection of nonprofits — many dedicated to education, poverty, justice, transparency and other issues — and the federal bureaucracy itself, the region supports thousands of people who are trying to solve some of America's most intractable social problems.

Much of their work takes place quietly. That's because, unlike the consumer-focused startups of Silicon Valley, Washington's high-growth companies tend to focus on business-to-business opportunities. That's not surprising for a region that grew fat on the back of contracting in the last decade.

"When you think about the fact that you have almost every major association in the country and parts of the world represented here — and you have some sort of office for almost every corporation — it only makes sense that you've got everyone at your fingertips for an enterprise deal," said Jennifer Boss, the District's director of business development.

The influence-peddling and industry networking that may have earned Washington a bad name isn't merely a way for startups to make money — it's also helped emerging businesses locate startup talent. People used to talk about the revolving door between Congress and K Street, or between federal agencies and big contractors. Yet, increasingly, the people coming out of government and contracting jobs who understand law, regulation and politics are turning that expertise to their entrepreneurial advantage. A whole startup accelerator, Acceleprise, has sprung up in Dupont Circle just to help fledgling enterprise technology businesses.

Even as longtime Washington professionals may be recycling or retrofitting their skills for the new economy, the city's academic institutions are churning out entrepreneurs from scratch. Four years ago, Georgetown University's business school mostly prepared its students for a career in banking. Now, electives in entrepreneurship are available across campus, from the law school to the School of Foreign Service.

Jeff Reid is the founding director of the Georgetown Entrepreneurship Initiative. He believes that while most students arrive in Washington expecting to play a role in government, many wind up starting businesses once they've been exposed to the city's startup culture.

"Entrepreneurship can pair with just about any interest," he said. "It's really fun to watch."

Tech companies in particular benefit heavily from the city's financial incentives. The D.C. government waives corporate income taxes for the first five years of a tech startup's existence and provides a reduced rate after that that's comparable to nearby Virginia. A $10,000 credit for every additional employee further brings down the cost of labor, and there's also a relocation credit of $7,500. While entrepreneurs say taxes on capital gains are still uncomfortably high compared with neighboring states, the benefits seem to be drawing people in. The amount of money invested in District tech startups has more than doubled in the previous year.


Mark Zuckerberg during an interview at the Newseum in Washington, D.C. Zuckerberg expressed surprise at the negative reaction to advertisements sponsored by his immigration reform group, FWD.us. (Andrew Harrer/Bloomberg)

Working the system, not circumventing it

The rise of Washington entrepreneurs is particularly fortuitous at a time when the primary driver of the city's economy — the federal budget — is waning. Startups have emerged as a source of inspiration against the backdrop of partisan paralysis. If Washington's most recent story has been about the failure of established institutions, its narrative in the coming decade may be all about the businesses that have been formed to traverse the gridlock.

That cuts against Silicon Valley's version of this tale: that as official Washington grinds to a halt, enterprising engineers will take over and rescue the country from the incompetence of its own government. In reality, even when the Bay Area takes an interest in social and political issues, the solutions have rarely scaled because they've failed to account for unforeseen political and regulatory obstacles.

"The Valley has this beautiful — and it really is beautiful, I think — belief that ultimately the will of the citizen and the consumer interest and 'what makes sense' will prevail if you build a better widget," said 1776's Evan Burfield. By contrast, "Washington understands that these are incredibly complex issues with coalitions and competing interests and overlapping power dynamics. The people who do really well here get that the world is incredibly messy and that the ability to navigate through that mess and get good outcomes — that is a highly cherished skill set."

Mark Zuckerberg knows a bit about that. The Facebook co-founder's advocacy group, FWD.us, stumbled early when it ran a handful of political ads touting the conservative background of several Republicans. The idea was to give the lawmakers some cover in exchange for supporting immigration reform. The ads, orchestrated by a high-profile political operative, backfired. Progressives revolted. Tesla chief executive Elon Musk, one of the group's members, quit altogether, calling the action "a little too Kissinger-esque." In a September visit to Washington, Zuckerberg acknowledged that FWD.us had "a lot to debug" and that he was "shocked" that senior Democrats would want to disassociate themselves from a group that was also funding Republicans (and vice versa).

Other Valley-based attempts to drive innovation on big policy challenges have fallen short, too. In 2011, Google abandoned its two-year effort to build a nationwide electronic medical records database because it had difficulty getting the various IT systems in pharmacies, hospitals and doctors' offices to cooperate with one another. If that reminds you of a certain government effort to build a health insurance hub, the comparison isn't far off the mark.

Perhaps experiences like these explain why the Bay Area has mostly shied away from policy fights. Washington's fledgling startup community, however, actively welcomes the challenge, driven by a mixture of idealism and wonkishness you'd be hard-pressed to find elsewhere.

Back in Change.org's kitchen, Jake Brewer argued that for some startups, there's a disaffection with both the nonprofit sector and the public sector. He cited his company's status as a certified B corporation. B-corps have an explicitly pro-social corporate mission that seeks to emphasize the public good as much as shareholder profit.

"Certified B-corp means we technically are for profit, but we're actually for impact," said Brewer. "And there's a startup community in D.C. that's unique — it's more like the for-impact startup community."

Update: The original version of this post reported that D.C. had more startups per million residents than any other region in the country. Since D.C. is a city and not a state, it's not quite an apples-to-apples comparison, so we've removed the line.

Brian Fung covers technology for The Washington Post.
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Brian Fung | November 12, 2013