Why You Should Start a Company in... Washington, D.C.

When one thinks of Washington D.C.’s tech prowess, it conjures up images of “War Room”-style military centers buried deep underground. Internet companies do not automatically spring to mind.

But it’s a government-style telecom beast, MAE East to be specific, that laid the foundation for a thriving Internet community. This Internet exchange point, one of two launched by MCI in 1992, provided a good location for telecom providers, and thus MCI and AOL made D.C. their home. This Internet exchange point, launched in 1992, provided a good location for telecom providers, and thus MCI and AOL made D.C. their home.

Today, D.C.’s startup community reaps the benefits of those early tech companies, giving rise to capital from ex-AOL and ex-MCI executives who cashed out. They supplied the basis for Internet startups such as Summize, which Twitter acquired earlier this year to boost its search capabilities, and Living Social, which contends with Groupon in the social commerce space.

The government still largely sets the tone for new companies, talent and funding, however. Tige Savage, a former AOL executive who is now co-founder and managing director at Revolution, an Internet holding company launched with former AOL CEO Steve Case, spoke with Fast Company about what sets D.C.’s startup scene apart.

How is D.C. better or different for entrepreneurs than other cities?

In a historical context, D.C. has some advantages. The obvious advantage is that the federal government is here, and that manifests itself in a couple of ways. One is it's a very steady economy. We don't have the ups and downs of a lot of other areas which makes it a place that's attractive to start a business. Second is there's a lot of R&D money that comes out of the federal government – something like $15 billion a year – that is spent locally on R&D. Third, the federal government is a big customer. Fourth, there are things that are here because of the federal government; I'll use AOL and MCI as examples because a generation ago they were small technology companies that grew to be big technology companies.

What is happening in D.C.’s entrepreneurial ecosystem that makes it sustainable?

We have a pretty vibrant angel community of a handful of folks who made money in some of the local companies. People like Ted Leonsis, with whom we invest a good amount and who owns the Capitals and the Wizards, but he made his money at AOL. People like Steve with whom I and another guy co-founded Revolution and we're a supplier of capital to the market, less on an angel basis and more of an institutional basis. People like Nigel Morris who really used applied technology against a traditional business sector and created Capital One. He's more of an angel. There's a list of folks like that.

Does D.C. tend to breed, or attract, entrepreneurs?

There's a constant influx of really well-educated people, some of whom come here just for some stint during an administration or because they're interested in some issues or etc. and some of whom stay. They're attracted for whatever reason. They come here and it's a very dynamic city in terms of population. It's becoming more that there are people who live here, but historically “Nobody's from DC,” because everybody comes, they work for an administration, they leave. Everybody comes, they're on a military assignment, they leave. Everybody comes because they're working for a company that has to do something with the government then they leave. That's changed over time but government still changes every four years so there's a constant influx of oftentimes very bright people, a lot of whom leave but some of whom stay. I would say it still attracts people and it still breeds people.

Where do startups tend to cluster in the metro area?

It depends, it's a really good question. Living Social is based in Washington, D.C. A lot of the technology-oriented companies are based in Northern Virginia and a lot of the bio-tech companies are based in Maryland. That's not a steadfast rule but that's generally true and the reasons are legacy reasons. Those technology and telecom companies are over where MAE East was, in Northern Virginia.