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Tech Firms Find Tougher Terrain


More than the venture capitalists have changed. Today's companies are less glamorous than those that succeeded during the 1990s. They're also more narrowly focused than some of the big-idea start-ups that failed when the dot-com bubble burst, such as CareerRewards (paying people to refer job candidates) and LifeMinders (sending e-mail reminders to help people keep track of their busy lives.)

Of the 18 local tech companies that held initial public offerings of stock from 2001 through 2003, seven were government contractors, a trend that did not go unnoticed by local entrepreneurs. Workshops on how to sell products and services to the federal government have become some of the most popular tech events in the area, as young firms angle to capitalize on increased defense spending and get a piece of the post-9/11 homeland-security sector, projected to have a $33 billion budget for 2005.

Matthew Calkins (Larry Morris -- The Washington Post)

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"Companies are very pragmatic, they go where they can sell," said Peter Jobse, president of Virginia's Center for Innovative Technology. "You can almost hear the stampede as you lay in bed at night as [start-ups] cross from the commercial side to the federal side."

Sid Banerjee wasn't always planning to become a government contracting executive. In the summer of 2001, Banerjee and a fellow veteran of MicroStrategy Inc. -- a business software company that rose to prominence in the late 1990s, but was later shaken by accounting irregularities -- left to start their own firm, Claraview Inc. They were unsure of what markets would be best-suited for the data-mining software they intended to develop. But after Sept. 11, 2001, Claraview executives decided they might be able to make money and accomplish some good by selling their technology to agencies that track terrorists.

"A lot of the rhetoric following the attack was about how we could have predicted or prevented that attack," Banerjee said. It was more difficult than Claraview expected to break into homeland security, but the company has made progress with other agencies, including the Education Department and the Federal Election Commission, and it has survived without outside funding.

Executives of companies still selling to the commercial markets say they continually have to prove that their offerings are not just technologically intriguing but necessary to attract customers and money.

Not long after D.P. Venkatesh decided to start a company in May 2000, he realized novelty alone wouldn't take him very far in the area's telecommunications industry. As his start-up, Vienna-based MPortal Inc., developed software to deliver data to wireless devices, Venkatesh began looking for customers. He said he encountered one sentiment again and again. "We're not really interested in the latest technology," he recalled of the response from cellular carriers. Their sole concern, he said, was "how can we increase their revenue."

So MPortal broke from the traditional software sales model and brokered per-use royalty deals that pay only when its product is used to download games or manage text message deliveries. The company may never reach the high-profile status of early start-ups, Venkatesh acknowledged, but it survived the downturn and eventually landed $12 million in venture funding. "It's not that we didn't dream big, but we wanted to build a foundation first and then scale the market."

Entrepreneurs say that in some ways, the post-bubble era has been a good time to build companies. Without investors pushing for quick exits or packs of competitors vying for the same markets, start-up executives say they have more time to fully develop their businesses.

Smart workers are abundant and dedicated. Because so many local tech workers lost their jobs in 2001 and 2002, those who did have jobs worked hard to keep them, said Paul Villella, chief executive of HireStrategy, a Reston staffing firm. More candidates lined up for each available job, and many were willing to take pay cuts just to get regular work.

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