Silicon District: Steve Case Is Betting $450 Million on a D.C. Start-Up Hub

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Ted Leonsis, the owner of the Washington Capitals (and Wizards) joined Case to create a fund for local start-ups. Their half-a-billion-dollar bet is an important lesson in building a culture of innovation.

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Five days after Steve Case, the founder of America Online, stepped down as chairman of AOL Time Warner, the most infamous merger in modern business history, he got to work starting a venture capital firm called Revolution. In the last eight years, Revolution has been an engine of the sharing economy, launching companies like Zipcar and LivingSocial that represent innovative solutions to old problems, like What's the best way to get around town? and Where can I find a good deal? We wrote about Revolution's story here.

Today, Case and and his business partner Ted Leonsis announced that they have amassed a $450 million investment "war chest" to invest in Washington entrepreneurs and turn D.C. into a start-up hub. The Washington Post reports:

Outside the business of the U.S. government, efforts to stir up a swashbuckling business ethos that spawns cutting-edge technology enterprises have come in fits and starts.

At $450 million, which is a significant amount for a first-time effort, the fund signals that the two entrepreneurs are putting their money -- around $75 million between them -- to work in an attempt to reignite the same culture that gave rise to local innovators such as MCI and AOL.

In our interview, Case said something that stuck with me. Most of the jobs created in the U.S. don't come from big business, he said, and they don't come from small business. They come from new businesses that catch fire and scale up. "If it's the economy, stupid, then it's the jobs stupid," he said. "And if it's the jobs, stupid, then it's the entrepreneurs, stupid."

Case is putting his money where his mouth is. His bid to turn Washington, D.C., into the Silicon Valley of the East (that is not named Boston) shows you the lengths one must go to put a city on the map with America's top innovation clusters.

Boston has something that Case and Leonsis can't build on their own. That's research universities up the wazoo. At Harvard, Boston U., B.C. MIT, Tufts and so on, thousands of students work with professors supported by lavish, federally funded institutions, where they research, conduct experiments, write papers, and make incremental advancements in science and other field that they can spin off into patents, products, and even small companies.

A similar culture of inter-generational creativity thrives in Silicon Valley, where entrepreneurs who filed out of Stanford and Xerox PARC built awesome products and used their fortune to invest in the next batch of awesomeness. Like so many parts of city culture, a reputation for innovation is a virtuous cycle. Having lots of entrepreneurs attracts lots of entrepreneurs who want to be around, well, lots of entrepreneurs. But first, you have to get on the map. And D.C. isn't, really.

Case and Leonsis don't have the advantage of living in a city with a rich recent history of consumer start-ups. In the three decades since AOL launched, the northern Virginia tech corridor has thrived predominantly as a business-to-government tech corridor. That's fine. It's the kind of place you go to do lucrative tech consulting for HUD. It might be the kind of place you stay if, like LivingSocial, you happen to start your company in Chinatown. But it's not the kind of place you take your hot new mobile app or biotech idea. Not yet.

If D.C. becomes that city, it needs help. Case and Leonsis' $450 million fund is just that. It's a downpayment on a more exciting district.



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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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