With some business accelerators going out of business and some venture-funded companies continuously losing billions of dollars, it’s hard to tell if we’re running out of steam on the “disruption” boom. To learn more about how D.C.’s economic health fares, and if the startup capital well is running dry, we spoke with Andy Medici, money and tech reporter at the Washington Business Journal.

ABERMAN: Well you’ve been, I think, the closest thing that our regions had to an umpire calling balls and strikes around the tech and money economy, for a number of years now. What are you seeing? Do you think we’re at an inflection point?

MEDICI: I appreciate that, Jonathan. I think what Amazon has shown us is that a lot of what the region is, and still is, is attracting sort of the larger legacy companies to the region. Just like Marriott moving their headquarters, or Nestle. We talk a lot about the startup community, but in that vein, while we’ve seen more startup capital in this region, it’s proportional to the rest of the country. We haven’t exceeded expectations on that front, and we haven’t exceeded our own thoughts on where we are. So we’re still number four or five or six when it comes to those indications. And I think, despite a large movement to sort of rise of the rest to to bring other communities into the fold on startup capital, it largely remains a Silicon Valley, New York game.

ABERMAN: There are quarters where our funding level and V.C. is 10th, and there have been one or two or it’s been three. Our region seems to be driven by one or two mega deals. You know, if we get them, the numbers are good. If we don’t get them, not so much, but we don’t have a lot of venture funds here that are being newly raised based upon the local market. I mean, other than Blue Delta, I don’t think we have a local fund that’s being raised off local companies. Are you seeing anybody else?

MEDICI: So I understand your point, which is: can companies raise a fund based off of investing specifically in the D.C. area? And you’re right. There are very few of those. We have companies that have raised money and have invested in the D.C. area, but not as a thesis. And I think it would be really hard to make that a thesis. You know, the District of Columbia is working on building up a fund, an Inclusive Innovation Fund, that would focus just on D.C. I don’t think they’ve made any investments yet, but they’ll be sub 10 million dollars, so not of a size. You know, we’ve seen a lot of corporate venture capital, not focused on this area, but will coincidentally make investments. The Motley Fools raised a fund, Sands Capital raised a fund. But they will probably tell you that, while they make investments in this area, they are largely geographically agnostic. So you’re right. You know, not a specific focus. You couldn’t create a fund like you could in Silicon Valley and just focus on that area, for example.

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ABERMAN: And I think that is an important point, that a number of our indigenous fund managers that did raise funds in the aughts or later around a D.C. thesis, they’ve largely migrated away or are gone out of business. But yet, a couple years ago, I studied very closely the merger and acquisition patterns for our marketplace compared to Silicon Valley, and I think you and I talked about the time, the markets are roughly equivalent from the standpoint of activity, the number of deals, and velocity and wealth creation. So, do you scratch your head sometimes and say, you know, because you’re a journalist, it’s your job to understand the story. How does it parse that we can have an active community where a lot of wealth is created, but not have the startup community that many people seem to think you have to have in order to have a lot of M&A, a lot of wealth creation?

MEDICI: I think it’s interesting, because startups and venture capital, they take up a lot of oxygen, and they take a lot of buzz. But ultimately, they have just a very small portion of the overall money market. You know, New Enterprise Associates, one of the largest venture capital firms in the world, has about 20 billion in assets under management. But Sands Capital, which is just downtown across the street, has 42 billion. They’re just one private equity company. Private equity, for example, dwarfs venture capital. So we look at these M&A markets, a lot of it’s driven by private equity. A lot of it’s driven by larger corporate mergers and acquisitions. So in a way, you can have a thriving, or at least a very solid M&A market that doesn’t rely on venture capital, or doesn’t rely on those buyouts. And as we’ve seen recently with acquisitions of Social Tables and of others, that private equity is reaching sort of earlier into the company’s lifespan to grab those. So you know, we’ve seen some successes in the venture world. Appian is a three and a half billion dollar market cap company. They took some venture money, although not a lot. And its founder Matt Calkins will probably tell you that it didn’t really need all of what they took. But those are fewer and farther between than sort of more traditional companies that end up getting acquired sort of in a more traditional sense.

ABERMAN: So there’s money here. It’s more, maybe, mature money, or it’s more corporate money. And by the same token, it seems that a lot of the efforts that were launched over the last few years to do startups, 1776 being the best example, they seem to have withered away.

MEDICI: Yeah. The 1776 as we know it now is owned by a Philadelphia based company that used be called Benjamin’s Desk, and they purchased 1776, and the name. The 1776 seed fund was small. It was a good attempt at trying to do something local. But you were right. You know, that entity is making only small investments, now add on investments with extra money, but there really aren’t a lot of those institutions left. You know, Disruption Corp failed, and it failed in a sort of pretty spectacular fashion. And we haven’t seen a lot of those sorts of systems replace. You know, Mach 37 sort of went by the wayside. It’s currently being managed as sort of a half and half consulting, but at the end of the day, you know, those movements, sort of the local specific movements, a lot of those have gone by the wayside as people sort of expand geographically, and they sort of use technology down to just create a larger pipeline that’s usually across the country.

ABERMAN: So when you cover a company like an Industry Dive, or a Canvas as two recent examples of companies have gotten significant private equity investments, what are the hallmarks of these types of businesses that grow here?

MEDICI: Well, Industry Dive is a great example, because it’s a very successful company in a space where people don’t think there can be much success anymore, which is in news and publishing. Which is an area that we’ve actually had previous successes, with Vox being an example. But Industry Dive, with its co-founder Sean Griffey, who still runs it, was very limited initial funding. Sub one million, niche markets, and then an absolute focus on execution within those markets. They didn’t skimp on journalism, and they built publications that people wanted to read in very specific markets. In waste management and construction management. They’ve been branching out. I think they’re in banking now as well. So, they have a number of verticals. I think there is a focus on very specific niches in markets that are healthy, and that’s what you saw success with this Industry Dive. Meanwhile you have companies recently such as GoCampus and Interfolio, which really found their niche within very specific business processes. And I think that highlights one of the strengths of this region. They start with a problem, and then they try to work to fill that problem, as opposed to trying to create a new market. Silicon Valley, I think, is known for creating new markets where they didn’t used to be one. AirBnB is a great example, where house sharing really, although it existed for ages before this, wasn’t formalized in some sort of network that was easier to use. So you have GoCanvas and Interfolio, and even Social Tables, which found a home in specific niches, and an effort to fill a specific business needs. So, there’s built in customers. There’s built in markets, and I think that’s a hallmark of a successful sort of local company.

ABERMAN: I actually have found over the years that what you’re describing is, I think, one of the distinguishing characteristics of this business community in that, because there’s not a lot of available risk capital, people who want to start businesses are hyper focused on finding customers really quickly. So they tend to go into niches rather than try to create, because creating a new market requires a lot of money on the come. So it’s not surprising that it’s one of those interesting questions: which came first, the lack of money or the entrepreneurs that are improvisational? Or is it the other way around, that money doesn’t come in the early stage because it’s not necessary?

MEDICI: And I think there’s a good chicken or the egg type of problem there. I do say that I think sometimes the prevalence of huge amounts of money tends to distort markets. We’ve seen Softbank make a number of investments. WeWork, at a 47 billion dollar valuation, which has sort of evaporated in recent days, as people have sort of taken a hard look at the company. But those sorts of mega funding deals, they do tend to distort markets by raising valuations, but also it by making it seem normal for companies not to reach a sort of cash flow, break even, or positive point. You’re just drawing out that pain longer. So I think in D.C., a lot of companies, sometimes fortunately, sometimes unfortunately, have to make those difficult choices early on as opposed to later. How do I grow? How do I grow sustainably? What does the endpoint look like? How long do I have? And I think that’s a discussion that, in other places, is delayed longer because of that amount of money. Now I will say that there are companies that have complained to me privately that if they don’t end up raising money here, they do end up raising money from New York or elsewhere. So I think, could there be some more local money? Sure. But does Softbank have a beneficial effect on the market? I think that remains to be seen.

ABERMAN: As you look at this market and the crossroads, what do you think is going to be the good news, or the things that we’re going to build our innovation economy on, over the next two or three years?

MEDICI: I think the good news is that we are probably going to be more resistant to whatever recession comes our way. I know that that’s something that people have talked about, but historically, the government has been sort of a buffer. But I think in many ways, we have larger legacy companies that might shield us better from that impact. I think some of the good news is that we’re going to see new players. I really do think we’re going to see new players emerge on the funding front. I think there are gonna be some interesting experiments locally to see what works and what doesn’t. But ultimately, I think what people have done, which they’ve always done, is build strong revenue focused companies on specific products. One that we haven’t talked about yet, but is always in the front of people’s minds is Cvent, which is sort of a longtime, long growth, long road, hard road story for its founder, Reggie Agarwal, which ended in a 1.65 billion dollar purchase by private equity. I think sometimes it’s easy to look at the funding numbers from venture capital and see D.C. further down than people would like, but there are still success stories to be made here, and I think that’s always something that people should keep in their mind. There are stories that are made here.

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