This morning while I was eating my Cornflakes (out of Wheaties – busy week), I read this article from the New York Times (“It’s Not the People You Know. It’s Where You Are”).  The article’s subject was technology company creation and its relationship with Silicon Valley.  And, it’s predominant thesis was that if you wanted to start a technology company you had to do it in Silicon Valley – no other place would do.

Well, as a venture capitalist and long time member of the DC region technology community, my initial reaction to this article was mixed.  Sure, I would agree that Silicon Valley is a special place – it has fostered many leading technology companies through multiple generations of entrepreneurship.  But, the only place to start a technology company? 

As I thought about the article further (OK, so how I spend my Sunday mornings could be open to some comment), its conclusion was based on a number of factors, which were presented as being unique to the Valley.  They could be summarized as the following:

• The region provides a close proximity to sophisticated venture capital. 
  
  
• The local service provider community understands how to work with emerging companies.
  
  
• There is a local culture of entrepreneurship – people are ready to work on start ups without pay for a slice of equity.
  
  
• There is ample and inexpensive physical infrastructure.

And, probably the largest argument of all – measured on a quarterly basis more venture capital is deployed in Silicon Valley (usually more than 30% nationally) than any other region of the US.  The DC region by comparison receives approximately 5% of deployed venture capital.  If you are interested you can find good historical data in the PriceWaterhouseCoopers Money Tree Survey.

But, to say that Silicon Valley is the only place to start a technology company because it gets most of the venture money is a circular argument – money pools most where there have been historical opportunities to generate return.  And, without question, Silicon Valley has had the concentrated attributes for technology company creation the longest.  That doesn’t explain why technology companies in the DC region consistently receive venture capital funding. Nor does it explain why in the last few months some very well regarded local venture capital organizations have been able to raise more than half a billion dollars to invest in deals in the region.  This capital is added to the hundreds of millions, if not billions, of dollars of venture capital already available to the region’s technology start ups.

The explanation is found, I suspect, in applying Silicon Valley’s positive attributes to the DC region.  What becomes clear is that we have here all of the positive attributes the article attributes to Silicon Valley.  This is a region where a nationally successful technology company can be established and grown.  Companies such as Blackboard, AOL, NEW Customer Services, Matrics, Webmethods and others have provided investors with exceptional returns. And, certainly, if you ask me and many of my friends in the local venture community we can each point to local companies that we have invested in that we believe are tomorrow’s technology leaders.

You probably don’t know, unless you are a member of the Mid Atlantic Venture Capital Association, that according to MAVA’s market data, there have been times over the last three years when venture capital returns from this region have exceeded venture returns from Silicon Valley.  And, moreover, our region is home to a large amount of intellectual capital.  Did you know, for instance, that on an individual inventor basis Fairfax County, Virginia is one of the UnitedState’s leading regions for patent filings?

So, what is to be made of all this?  My view is that the DC region has been home for technology entrepreneurship for a significantly shorter time than Silicon Valley, and that a good reason for the difference in the level of company formation and investment activity reflects their relative ages.  But, over time this is changing, and it will change further, based upon trends that are well established:

• There is an established entrepreneurial culture in the DC Region.  Many of these people have never worked in the government or had the government as a customer.
  
  
• There are local venture capital funds that “get it” at each stage of a company’s development.
  
  
• Next generation technology development often occurs through defense and government requirements.  Many of these activities are financed or undertaken in our region.
  
  
• The region has at least one, if not more, generations of successful technology entrepreneurs, who are now providing their expertise and capital to the next generation.
  
  
• The DC Region has become very wealthy, and with wealth comes capital for investment.
  
  
• Local technology creating labs and Universities are actively looking for ways to commercialize their technology.

As I have suggested in other postings here, there is a tendency for people to look for today’s explanations from last year’s facts and trends.  But, to do so is to underplay the importance and opportunity of this market – both as a place to start technology companies and as a place to successfully invest in them.  There are many trends that favor our market.  My suspicion is that in future years the DC region will be subject of articles that tout its overnight emergence as a technology hot bed.  And, because I ran out of Wheaties this morning you’ll be able to say you read it here first.