The capital area's technology boom

Nation's Business, Oct, 1997 by Pete Weaver

Until recently, doing business in Washington, D.C., usually meant doing business with the federal government. Not anymore.

The area stretching from Washington north to Baltimore and Frederick, Md., and south into the capital's Virginia surburbs has become an entrepreneurial hotbed for two 21st-century industries: information technology and biotechnology.

The region is known as the birthplace of the Internet, and its boosters proclaim that it is now the information and network capital of the world. About 100 Internet-service providers have headquarters in the area, making it the nation's principal hub of Internet traffic.

Moreover, the region is home to an estimated 2,300 technology companies. Technology employment is growing faster in the Washington area than it is in California's Silicon Valley or along Boston's Route 128, according to a recent study by George Mason University in Fairfax, Va. Roger Stough, a professor of public policy at George Mason and principal author of the study, says, "The greater Washington area is the fastest-growing large-technology concentration in the country."

Biotech companies also have sprung up in the region, mainly to work in conjunction with renowned researchers at the National Institutes of Health (NIH) in Bethesda, Md., and at the Johns Hopkins University School of Medicine in Baltimore. More than 300 biotech companies -- many of them relatively young and fast-growing -- line the Interstate 270 corridor northwest of Washington.

Just how is it that the capital area has given rise to galloping entrepreneurship?

Russell Ramsey, president of Friedman, Billings, Ramsey & Co., Inc., a Washington-area investment-banking firm, offers an explanation: We the research brainpower at Stanford and Massachusetts Institute of Technology] formed the intellectual bases for Silicon Valley and Boston's Route 128 corridor, the Department of Defense and the NIH did the same thing here for the infotech and biotech industries.'

More Private-Sector Money

Federal funding was essential in launching the Internet and seeding biotech research but is less of a factor now. Government business "is diminishing significantly" as the core enterprise for Washington-area firms, Ramsey says, "while private business, depending on capital markets for funding, is expanding rapidly."

Indeed, Wall Street has begun to view the greater Washington area with more interest. Eighty-two companies in the region issued their first public stock in 1996, raising nearly $300 million. Since 1994, nearly $1 billion has been raised by high-tech companies in initial public offerings. In addition, venture-capital funds pumped nearly $300 million into the area's technology companies last year -- twice the previous year's investment.

"Where there's an opportunity to make money, the capital win follow," says Doug Poretz, founder and principal of The Poretz Group, an investor-relations firm in McLean, Va. Poretz provided the inspiration for the first-ever Capital Region Technology Investor Conference, held in June. The two-day conference attracted more than 500 professional investors, portfolio managers, and stock analysts. They heard presentations from executives of about 75 of the region's publicly traded companies.

Every month we already have at least one technology company raising money by going public," says Patricia Woolsey, chairman of the Fairfax County Economic Development Authority in northern Virginia, "and we're looking for more as investors get to know about what's going on here."

In November, the Mid-Atlantic Venture Fair will move for the first time to the Fairfax County community of Tysons Comer, just outside Washington. The previous six events were held in Philadelphia or Baltimore. The fair is a high-stakes dating game that attempts to match the region's venture-capital firms with growing companies in need of investment.

An industry in The Making

Another sign of the region's arrival as a technology center is the upcoming World Congress on Information Technology. Scheduled for next June in Fairfax County, it will host more than 2,000 senior-level technology executives, inventors, and research scientists from 55 countries.

This greater Washington area is on the edge of a new [information-technology] industry that will change and dominate the world for the next two decades," says Poretz.

For the past two decades, computer manufacturing and software production, concentrated in California's Silicon Valley, dominated the scene, he explains. "Now it's Washington's turn, as this second wave of business moves beyond hardware and software into the manipulation and movement of information" via the Internet.

Drawing A Crowd

With all the infotech and communications-industry concentration in the Washington area, other companies whose services require access to the Internet -- and to the brain pool surrounding those companies -- are moving into place in a wave of new business formations.

"We're in the Washington area," says Robert Wiedemer, CEO of Imark Technologies in Reston, Va., "because this is where the talent pool is forming for Internet-related businesses." Wiedemer's company provides Internet services for technical- and business-information publishers. "We don't produce the information," Wiedemer says. "We provide the Internet usage meter and the electronic meter reader."