Good news/bad news business story out of the Washington area… Venture capital funding is rebounding. Washington-area companies scarfed up $330 million in funding during the first quarter — 55 percent more than in the same quarter of 2014 and the best first quarter since 2001, reports the Washington Business Journal. That’s just what the regional tech economy needs to shake off the effects of federal sequestration and to start growing again.
The not so good news is that the D.C. metropolex, which includes Northern Virginia, is a loooooong way from establishing national leadership in the venture space. The total funding for metro Washington barely amounted to a rounding error for Silicon Valley.
Broken down by state, Virginia ranked 12th in the country for venture funding in the 4th quarter of 2014 (the most recent data available online today), according to data compiled by PricewaterhouseCoopers and the National Venture Capital Association. The $156 million raised by Virginia firms compares to $7.6 billion for California and $1.9 billion for Massachusetts.
Why so little? Northern Virginia has the best educated population of any region in the United States and one of the most tech-savvy workforces. Supposedly, corporations and capital like to locate in markets where there is a deep labor pool of technical talent. The usual response is that, well, California has Stanford and Berkeley, and Massachusetts has Harvard and MIT, and all Northern Virginia has is George Mason University… and… and… Marymount College. (OK, that’ s not entirely fair. The George Washington University engineering campus is in Loudoun County.)
But what world-class R&D powerhouses can be found in New York or Florida, both of which raised way more money? And how do you explain that Maryland, home to the Johns Hopkins University, which ranks No. 1 in R&D spending, ranks even lower than Virginia?
Clearly, the presence of a strong research university is an advantage when it comes to raising venture capital, but it’s hardly a prerequisite. I’m happy to be proven wrong on this, but I keep coming back to the fact that the corporate culture of Washington-area tech firms is geared to operating in sync with the metabolism of the federal government, not Silicon Valley. Yes, there are exceptions — and, I’d wager, they’re the ones getting the venture funding. But there don’t seem to be enough to change to fundamentally alter the nature of the Northern Virginia economy.
If Northern Virginia is ever going to wean itself from its dependence upon the federal government, we’re going to have to see a lot more venture funding than $150 million a quarter. As for the rest of Virginia, it would be nice to see any venture funding at all!
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