First 100 Days: Washington Has Become the New, New York

It used to be that anyone in the entrepreneurial world had to be keenly cognizant of what was going on in New York City.  If you were funded by VCs in Silicon Valley, Boston, or Bombay, it still paid to have your CEO and sales team have eyes and ears in NYC for two main reasons.  First, that's where the customers were.  CIOs of financial services companies were viewed as gods by many in the start-up community, controlling billions of dollars in IT spending and often willing to experiment with young companies and the next, new thing.  The large media companies, too, were seen as great early customers and hotbeds of innovation (I remember how thrilled we were when we secured Time Warner's ground-breaking Pathfinder division as a customer at Open Market back in 1995, thinking we had landed what would be the 800 lb gorilla of the Internet age).

And, secondly, NYC is where the big capital was - that is, after the company had matured past the VC financing stage.  The rules of the game for the start-up's ultimate goal, accessing the public market through an IPO, were set by the investment bankers and sales desk traders on Wall Street.  CEOs of pre-IPO companies were always shuttling into New York to talk up their companies, tell their story and get feedback to prepare for the public markets.

My how things have changed.  New York City feels increasingly irrelevant to most start-ups as both a source of customers and large amounts of capital.  Instead, Washington DC has in many ways become the New, New York.

This new dynamic was evident when I joined 100 CEOs from Massachusetts in a pilgrimmage to our nation's capital as part of my role as co-chair of the Progressive Business Leaders Network (PBLN).  Frankly, I was worried that our fate would be similar to all the other conferences I've attended since the economic crisis - that attendence would be down 20-30% from the previous year.  Instead, it was up 50%. 

As you would expect, the CEOs were keen to hobnob with the Washington elite and their peers.  But more importantly they were interested in how the new paradigm that the Obama administration is going to affect their businesses.  And like all good entrepreneurs (the bulk of our membership are CEOs of mid-sized and small young companies, not Fortune 1000), they were looking for insights and opportunities.  If you are playing in the $6 trillion energy sector, the $3 trillion health industry or even large parts of the $1 trillion IT industry that touch regulations (e.g., broadband, wireless), then what's going on in Washington DC matters to you.  Senator John Kerry repeated what has now become a common refrain from politicians:  "The next Google will emerge from the energy sector".  And it seems the US Government is determined to facilitate this by pouring billions to stimulate the sector.

To be clear, I'm not saying that there aren't many VCs in New York doing good work.  In fact, it is encouraging to see the NY-based entrepreneurial community flourish as much as it has, centered mainly around the transformation and digitization of the native advertising and media industries.  But for companies outside of NY, it is simply less relevant, whereas Washington has gone from being irrelevant, to suddenly centrally relevant.

Personally, I don't believe this power shift to Washington DC is entirely a good thing.  In truth, it makes me very nervous that we are entering an era where public opinion and public officials are against what has made this country so great and unique in the world - the aggressive pursuit of open markets, free trade and a strong distate for regulation and government intervention in business affairs.  Governments have never been good at picking winners and losers in the free market (see:  Japan, collapse of).  But, the reality is that this administration's ambitions are breathtaking and transformative.  Business leaders have never had a stronger reason to care more about following what's going on in the halls of Washington.

One of our portfolio company CEOs is amazing at spending all his time running around with clients and chasing new business.  Lately, we find ourselves coaching him to spend more time in Washington DC.  Last night, I was at a dinner with the founder of one of the most promising cleantech companies in the country and he observed that in 2008, he visited China and NYC ten times each.  In 2009, he has already been to Washington DC ten times.  It's a sign of the new reality, like it or not.

Comments

[Jason]

Great insights, now startups should see bigger pictures with political landscape.

[Troy]

Jeff, I share your concerns about the shift in public opinion away from deregulation, free trade, and market economics. But the problems our more activist federal government is pivoting to tackle -- healthcare, education, energy -- are even more threatening over the long run to American business.

If we don't get control of runaway healthcare costs, if we don't rethink the way we're educating the next generation of workers, and if we allow our economy to remain dependent on fossil fuels largely controlled by semi-hostile foreign countries, we put our entire system at risk.

Of course, there's no reason why we couldn't have both by articulating workable market-based solutions to these problems. I think those ideas, championed properly, could have a significant positive influence on policy. Finding a credible voice to champion those ideas is the current problem.

[bussgang]

Troy - market-based solutions is the right path. I'm pleased that Obama has held firm on free trade and backed off scape-goating Wall Street. Let's see if he can pull off a market-based solution to health care.

[Mark Essel]

Given the LARGE change of leadership (pretty drastic view/perspective) I can understand CEOs needing to feel out the new environment. Add to this the need to find answers for the economic slow.

After things settle in for a year or three I'd be surprised not to hear that NY is back in the spotlight of big money. We're a free market economy, or at least part of our market has to be free to properly measure innovation with $$.