After Boom and Bust, Diversity and Maturity
Monday, May 14, 2007
Michael Chasen and Matthew Pittinsky were among the original members of Washington's tech brat pack.
A decade ago, at the respective ages of 25 and 24, they quit their jobs as KPMG consultants, rented a tiny office around the corner and opened Blackboard Inc., selling software that connects students with their teachers and coursework. The software, now used in thousands of classrooms across the country, took root about a split second before the dot-com boom devoured the area.
"When we raised money, there were only two or three venture capitalists that even considered Internet companies," said Chasen, now one of the youngest chief executives for a company listed on the Nasdaq Stock Market. "Just a year later, I was one of a hundred other CEOs my age. . . . Today every single one of those companies has gone out of business."
But even after the bubble burst, Blackboard, based in the District, had enough customers and money in the bank to survive. It went public three years ago and last week broke through the billion-dollar market cap.
Now it has become the poster child of the Washington area's technology industry -- a sign of its increasing resilience, diversity and maturity. Local venture capitalists, economists and executives often cite Blackboard when they say the technology sector has stabilized after several fitful years. Instead of being dependent on federal spending spikes or devastated by a slump in specific economic sectors, Washington's technology companies are seeing steady growth in a more balanced market.
"I think what you're seeing now is a lot of enthusiasm, but it's tempered enthusiasm," Chasen said. "So people aren't making bad investments." Instead, he said, they're holding out for "companies with real business models and stronger management teams."
That, along with a hefty amount of private equity, is helping local companies attract out-of-town talent while keeping their own workers from leaving. Similarly, investors don't have to work as hard to convince entrepreneurs that this economy can support fledgling technology firms.
"It's not as risky to start a company here anymore," said Hooks Johnston of Valhalla Partners, a Vienna venture capital firm. "If it doesn't work out, there are a lot of other opportunities in the field."
Twenty years ago, government business formed the backbone of the technology community. In the 1990s, the rise of local companies such as XM Satellite Radio and AOL helped broaden the industry and bring consumer-oriented investment to the region.
But after the dot-com crash, the region reverted to its core customer -- the government-- and was buoyed by the post-Sept. 11 federal spending boom. Now, growth in federal information technology spending has dropped to about 5 percent after several years of growing at a clip of close to 9 percent, according to Input, a Reston market research firm. So the market is beginning to round out once again, with many firms expanding their customer base to Fortune 500 companies, universities and health-care systems.
"I think we're currently at an inflexion point on the curve," said John McClain, a senior fellow with George Mason University's Center for Regional Analysis. "So if they want growth, they'll need to find other clients, and we're well positioned to do that."
Lee Technologies, a Fairfax firm that secures data centers and technology facilities, has done just that. While its biggest client is the Department of Defense, the company also works with Microsoft, J.P. Morgan and Time Warner.