Region's Venture Capital Rank Slips

Area Overtaken by Northwest, San Diego

Regions of the West Coast and Midwest moved ahead of Washington as top destinations for venture capital in recent years, as the local venture economy grew more slowly than the national average, a Washington Post analysis shows.

In 2001, the year the technology bubble popped, Washington ranked sixth among top destinations for venture capital, after Silicon Valley, New England, the New York metro area, Texas and the Southeast. Last year, it was ranked 10th, overtaken by the Northwest, San Diego, the Midwest and Los Angeles/Orange County.

The average amount of venture capital invested across the country grew from $1.2 billion in 2002 to $1.6 billion in 2007, an increase of 33 percent. By contrast, investment in the Washington region increased in the same period to $1.24 billion from $1.1 billion, a jump of 13 percent.

Mark G. Heesen, president of the District-based National Venture Capital Association, said that Washington's sizeable telecommunications industry has never fully rebounded from the bust, while growth in life sciences and environmentally friendly technology, known as cleantech, has propelled other regions.

"The telecommunication investment levels have not rebounded in the same manner that [information technology] and life sciences have," Heesen said. "More of our companies were telecommunications-centric than many other parts of the country. . . . It's just taken a longer period to lick your wounds and get back on the horse again."

The data were provided by PricewaterhouseCoopers and the National Capital Venture Association, based on Thomson Financial data. The Washington area refers to the District, Virginia, Maryland and West Virginia.

Even if recent years showed more modest venture growth, over the past decade the Washington region has grown robustly.

In the early 1990s, economic development officials like Gerald Gordon tried to persuade venture capitalists to come to Washington.

"It became clear that one of the things retarding growth of companies in this whole region was the absence of venture capitalists," said Gordon, chief executive of the Fairfax County Economic Development Authority. "We went and talked to venture capitalists in Boston, New York and California, and we got the same answer about D.C.: 'That's a government town.' "

The tech boom of the late 1990s and early 2000s brought countless venture firms to the region. When the tech bubble burst in 2001, venture capital investment fell by half or more.

Since then, Washington has sustained a diverse base of companies built up in the boom years. Even if other areas were growing at a faster clip, Washington maintained a healthy number of deals -- about 200 per year -- comparable to the average of other regions.

"It's really much more of a balanced town than it used to be," said Roger Novak of Bethesda's Novak Biddle Venture Partners, one of the largest local venture capital firms. "The Internet and telecom continue to move ahead. You had companies that grew up like AOL and Blackboard that are spawning other companies."