Washington has long held a reputation as an industry town: a watering hole for politicians, lobbyists and white-shoe lawyers.
The city can now add startup founders and venture capitalists to that list. Since Q3 2018, DC has seen more homegrown startup financing and LP capital raised than either Seattle or Austin, two cities more typically associated with the tech universe, according to PitchBook’s latest Global VC ecosystems report.
On top of that, VC funds in the area have collectively closed $36.1 billion in capital commitments during the period. Arlington, Va.-based Sands Capital closed its second Global Innovation Fund with $826 million in 2021, while Alexandria, Va.-based QED Investors closed its eighth fund on $650 million last year.
The nation’s capital now ranks as the fifth-most developed VC ecosystem in the country.
Washington’s position as a city for tech transplants dates back to the dot-com boom, when AOL was headquartered in the DC suburb of Sterling. More recently, unicorn companies like military software provider Rebellion Defense and identity protection startup ID.me have made their home in DC— along with media outlet Vox Media.
Behind this growth is the proximity to federal agencies and their deepening pockets for startups in regulated industries. The budget of the Defense Innovation Unit, a division of the US Department of Defense that invests in VC-backed companies, jumped more than $900 million this year.
Proximity to regulators is a major incentive for startups that face significant federal scrutiny. E-cigarette and vape manufacturer Juul, for example, moved its headquarters from San Francisco to DC in 2020, part of an effort to repair relationships with regulators.
Washington has also long been a hub for biotech companies looking to capitalize on the proximity to the National Institutes of Health, and for larger pharmaceutical giants and financial services startups that want to be close to the Consumer Financial Protection Bureau and the SEC.
“You just have some powerful forces [in financial services regulation] and it’s probably smart to be located where decisions are being made,” said Rich Leggett, managing partner at K Street Capital, a DC-based venture fund and angel syndicate.
“Power is based here in DC,” he added.
Featured image by J. David Ake/Getty Images
