Avoiding Fool’s Gold: Converting Entrepreneurial Enthusiasm into Lasting Economic Development

May 14, 2012
By The 2030 Group

Jonathan Aberman is Founder and Managing Director of Amplifier Ventures.

The momentum and excitement surrounding entrepreneurship in the Greater Washington Region is palpable.  I see this every day in my various roles in our community.  My days are now full of meetings and interactions with entrepreneurs and supporters who are heavily engaged in making our region a strong entrepreneurial ecosystem. Although the circumstances are very different this time than in the late 90s, it is important to remember that we had a similar period of enthusiasm and support for entrepreneurship during that period. Unfortunately, when the Internet bubble burst in 2001 the momentum surrounding entrepreneurship stalled.

We need to make sure that this does not happen again. Last time around the sense of entrepreneurship was narrowly confined to Internet-related businesses, leaving our community vulnerable to changes in market sentiment, and reliant on venture capital and hot money. I am concerned that at the moment our community is similarly fragile. Much of our current excitement centers on consumer software, particularly software and apps that can be built for a lot of Red Bull and not a lot of money.  The challenge that this creates is that many of the likely acquirers for these businesses are not in our region.

While it is very seductive to look at the economics surrounding Facebook’s acquisition of Instagram, there is a legitimate question whether that deal would have happened if the founders of Instagram and Facebook didn’t live in the same community.  As my M&A Report discussed earlier in the Spring, it is much easier to sell a startup when it is part of an ecosystem with larger companies in the same industry.   Rapid successes like Instragram are important for encouraging entrepreneurial enthusiasm, but perhaps not particularly relevant to our own regional economy.  Moreover it perhaps obscures an important second point – not all startups can be accelerated towards an exit in a short period, nor can all innovations occur through software.

We must get our local universities more visibly engaged with our entrepreneurial community.  Endeavors like George Mason’s lean startup group and UMD/GWU’s recent Startup Job fair are reflections of what can be done when entrepreneurs team with our local universities.  I know that there is a sense in some parts of the tech community that universities are slow moving, or somehow not relevant to new models of entrepreneurship. I just don’t agree. Universities have many things that will help make our entrepreneurial community durable: resources (physical, capital and people), ideas (intellectual property for commercialization) and a long term view. Every leading technology region in the world has at its center one or more world class research universities. This is not an accident.

We must increase the interactions between our government creators of technology and our entrepreneurial community.  The federal government spends more money on technology creation than any other source – many of the industries and technologies that are the basis of our prosperity and growth were fostered by research undertaken by government labs or financed by government program managers. We should be ensuring that the companies that are formed to commercialize these technologies are established in our region.

Finally, we should be preparing for a major change in our local region’s broader economy.  The budget crisis of last summer will reverberate through our region later this year, as federal spending on outsourced IT services is likely to fall significantly.  As this spending is withdrawn it will have an adverse effect on the level of wealth and activity in our region.  In the short term the entrepreneurial community could mitigate some of these effects. However, it needs to plan for this dislocation now through programs that reach out to resources dislocated by these changes and also through building new companies that will allow our local government contractor base to capture new revenue opportunities through innovation. Broadening and deepening our entrepreneurial community over the next six months should be our highest priority.