Disrupting DC: The Startup Scene in the Capital

Bridges vol. 40, June 2014 / Startup Corner

By Robin Tim Weis

The Beltway is disrupted yet again. This time, however, instead of crippling commuter traffic or dysfunctional metro lines, the source of Washington, DC’s current disruption is technical in nature. According to Karsten Strauss from Forbes Magazine, the District is number two in the world as a startup hub, thanks to its political center making it “a magnet for tech entrepreneurs.” Since the early 2000s, startups such as Living Social, Social Tables, and Silica Labs have made DC their base. According to the National Venture Capital Association, over $214 million has already been invested in DC startups in 2014, and investment sums have more than doubled since 1995.

The Challenge Festival is the latest testimony to the rapid growth experienced by the Washington, DC, entrepreneurial scene. 1776, a local startup incubator, has been synonymous with startup growth in the area. 

The demand for startups has been spurred by the human capital and political center in Washington, DC. A Google Trends graph for the search term “startups” indicates that the surge in interest has translated into Washington-area companies raking in more than $1.54 billion from venture capitalists in 2013. 

To capitalize on DC’s startup growth, 1776 embarked on a worldwide tour of the Challenge Festival. The business incubator toured 16 cities worldwide including Tel Aviv, São Paulo, Moscow, and Mumbai, as well as eight cities in the US. In each of the 16 cities, 1776 saw up to 40 startups across the four main categories of the contest (education, energy, health, and smart cities).  One startup in each category would be selected as the winner in each city, resulting in 64 of the best startups coming to Washington for the final round of the competition. Some of the 1776 startups were recently able to pitch their businesses to the President Obama when he visited the institution on July 3, 2014. 

DC Startups Represented at the 1776 Challenge Festival

Over 5000 people from around the world attended the Challenge Festival and were able to witness the participants working to create innovative solutions for global challenges. Representatives from DC included EduCannon, which helps teachers create interactive learning videos; Ethical Electric, which sells electricity from solar and wind farms; Dorsata, which helps doctors share information among health systems; and RideScout, an app that compares prices of various ground-transportation options.

These groups competed against an array of international startups. Shared economy was the focus of the week, and several startups focused on crowdsourcing as the foundation of their services. Hoard, a Berlin-based startup, provided the idea of having physical Dropboxes around cities via smart lockers, while SocioTransit, a London-based startup, connects travellers with seekers in the transportation of goods from around the world. PinkPark, a Tel Aviv-based startup, offered the world’s first online parking marketplace.

In the end, HandUp, a startup focused on human compassion, won the Challenge Cup. The San Francisco-based startup addressed two major social problems: poverty and homelessness. Through its pilot program in San Francisco, HandUp enables local users to donate money to men and women in need. HandUp’s model ensures that 100 percent of donated funds are used to meet the basic needs of the homeless, whether these needs be food, housing, or medical care. The company walked away with a $150,000 investment from 1776.

Overall, the Challenge Festival focused on the perceived lack of innovation from more established companies. “Existing firms older than five years, as a whole, have not created any net new jobs in the US over the past 30 years,” says Bob Litan, director of research for Bloomberg, who underlined the fact that, by contrast, companies younger than five years have created 2 million new jobs per year since the 2008 financial crisis. Startups are looking for ways to continue bolstering this trend.

Don’t disrupt me!

The rapid rise of startups in DC has experienced recent bumps in the road, however, as regulators try to catch up with the dynamic and disruptive nature of established startups such as Uber or Airbnb. “Everyone likes disruption until it happens to them,” said Jennifer Bradley, a fellow at the Brookings Institution,  during a panel at the Challenge Festival.  

The Who is Driving You campaign launched by the Taxicab, Limousine & Paratransit Association (with ardent support by the DC City Council, which runs and regulates DC cabs) is the latest testimony to such "road hazards," as aspects of the public sector are trying to come to terms with the deregulatory nature of startups -- which have previously tended to break existing monopolistic structures. In effect, DC cabs are currently lobbying to strip Uber and other ridesharing apps, such as Lyft, of their competitive advantages. The recent initiative is trying to build on the momentum stemming from the tragic death of a six-year-old girl in San Francisco who was killed by an off-duty Uber driver. The campaign seeks to question the thoroughness of Uber background checks and the professional nature of Uber drivers.  

Still, the interconnectivity of Uber has remained popular with customers and has even shown potential for benefitting cab drivers. What was once perceived as a low-paid service job has now become lucrative employment. According to Uber, the median income for an UberX driver working at least 40 hours a week in New York City is $90,766 a year. The average New York City cab driver makes less than $40,000 a year.

The barriers experienced by Uber and others are not confined to the US. Brussels has effectively banned any innovation by fining Uber drivers €10,000 ($13,545) for every attempted pick-up. The court decision even spurred outrage from the EU Commission. “No-one is saying that Uber drivers should not pay taxes, follow rules, and protect consumers. But banning Uber does not give them the chance to do the right thing,” says Neelie Kroes, vice president of the EU Commission. 

Meanwhile, Paris has imposed temporary hurdles on the ride-sharing business, making Uber and others wait 15 minutes before picking up a passenger. Uber is also fighting an injunction in Berlin from a regional court that would prevent it from operating altogether. Barcelona is looking to replicate Berlin, as it deems Uber-like services illegal. And the Spanish Ministry of Development has stressed that getting paid for ride sharing, without a license, is currently prohibited.

In sum, each city has its own regulations, and so far each city is reacting in its own way to the disruption that startups have brought about. If cities are sincere about fostering startups, they also need to be aware of the potential disruption that startups may bring about in formerly dominant industries.