Can Tech Startups Reinvent Arlington’s Economy?
With federal dollars drying up in Arlington, county leaders are hoping to build a new and different business landscape.
Arlington County has a leaky bathtub, economically speaking.
For decades, the county relied heavily on government agencies and contractors to keep its economy afloat. At times, it even seemed impervious to downturns that rocked other parts of the nation.
But with the triple-whammy of military retrenchment (BRAC), federal spending cuts (sequestration) and increased competition from neighboring jurisdictions in recent years, many of those employers have started skipping town, like water gushing down the drain.
And now that today’s companies generally use less square footage, thanks to teleworking and collaborative workspace design, some of Arlington’s once-thriving office buildings feel like hollowed-out shells.
By the time Victor Hoskins came on board to head up Arlington Economic Development (AED) in January 2015, the county’s commercial vacancy rate had hit an all-time high of 22 percent, and landlords weren’t the only ones feeling the pain. Empty offices mean fewer job opportunities countywide, fewer customers for restaurants and other service businesses that rely on the office crowd for their livelihood, and fewer tax revenues to fund local needs for emergency responders, parks and schools.
Now Hoskins and other officials are trying to fill that tub back up—by bringing in a new wave of companies. Their goal: to have the vacancy rate down to 10 percent in five years.
A decade ago, government agencies and defense-related businesses accounted for 28 percent of the county’s economy. Today, they represent 23 percent. Still significant? Yes. But not quite the force they once were.
Hoskins, meanwhile, is bullish on technology firms, noting that Arlington has already seen some homegrown tech startups rising to star status. Chief among them is Opower, a green-technology firm whose software helps utility companies save their customers money by monitoring and lowering their energy consumption. Founded in Arlington in 2007, Opower went public in 2014; in June, it sold to Oracle for $532 million. But the company isn’t leaving town. The majority of Opower’s 600 employees work in Arlington. Soon it will move into larger quarters in Courthouse, where it plans to expand its local workforce by another 70 employees.
County officials have been quick to leverage that cachet in their efforts to lure other tech companies to Arlington. Last year, Richmond-based Snagajob—whose digital platform matches hourly workers with hourly employers—opened a satellite office on North Glebe Road. It’s now the company’s fastest growing office, having increased its workforce from 30 to 80 employees in the past year.
Not only does the tech industry promise higher-paying jobs, but it also has a ripple effect. Each tech job creates five other private local jobs, Hoskins says, as tech workers go to the dentist, eat dinner out, drop off their dry-cleaning and buy things on their lunch break. Which explains why Hoskins and his team at AED have been recruiting heavily at trendy conferences like South by Southwest (SXSW). They’ve also begun staging competitions for startups, such as Ballston’s LaunchPad Challenge, and offering funding incentives to certain companies that set up shop in Arlington.
Of course, targeting technology entrepreneurs does mean going head-to-head against powerhouse regions like Silicon Valley. How can Arlington County sell itself as the better option when so many locales are similarly clamoring to attract tech businesses?
Sean Mallon, a former venture capitalist who now serves as associate vice president for entrepreneurship and innovation at George Mason University, says that Arlington still enjoys a key advantage that other regions don’t: having the federal government in its backyard. Arlington also boasts a relatively young talent pool, a more affordable cost of living—at least in comparison to places like the San Francisco Bay area—and a highly educated workforce. (County officials love to brag that 72 percent of Arlingtonians 25 and older have a bachelor’s degree at minimum—the highest rate in the nation.)
Five tech sectors have recently emerged as the county’s new economic darlings: education, medical, data analytics, cybersecurity and energy/environment. Companies in these spheres are successfully tapping into the area’s natural resources—such as retired military leaders who are available to staff cybersecurity startups. And they are capitalizing on the reputation of incumbent successes like Opower to work as recruiting magnets.
But wait. Arlington’s office vacancy woes did stem, in part, from an overreliance on the defense industry. Is the county once again putting all its eggs in one basket with technology? Local officials say no. Because the five types of tech companies are diverse enough to be operating in different sectors.
And many of those sectors are poised to explode, predicts Donna Harris, co-founder and CEO of 1776, an incubator that offers startup funding and services to entrepreneurs. (Founded in D.C., 1776 now has incubators worldwide, including one in Crystal City.)
As modern life has largely moved online—where we do everything from dating to shopping—the holdout has been old-school, government-regulated areas like education, health care and energy. Arlington is particularly well suited to fill those gaps.
“When you talk about this being a government region, it’s usually said with a negative tone, but it’s actually hugely positive,” Harris contends. Arlington’s assets include people who understand government regulations, subject matter experts, national conferences, and access to Congress and federal agencies. “It’s really a who’s who list of the institutions, enterprises and companies that know the ins and outs of the industries that are next for disruption,” she says.
Incubators like 1776 and EasternFoundry (which has offices in Rosslyn and Crystal City) are seeking to feed Arlington’s tech boom by offering mentoring, training, workspace and networking. Local startups also are benefiting from new co-working spaces—such as the CoWork Café in Clarendon and Make Offices in Rosslyn—that allow them to save overhead, and by “maker spaces” like Crystal City’s TechShop, which houses equipment like 3-D printers and other prototyping tools that startups can use in exchange for a small membership fee, instead of having to buy their own.
Still, Arlington may need to give up some of its old ways of doing business if it hopes to be more nimble and competitive. Kate Bates, president and CEO of the Arlington Chamber of Commerce, says that cutting red tape will be key to developing new business opportunities. “That continues to be a struggle as the county balances having a great deal of citizen input and having the project moving along in a timely manner,” she says.
Arlington’s leaky bathtub problem isn’t completely fixed. Although tech startups often grow at hyper speed, it will take a lot of them to make up for the recent exodus of large employers like the U.S.
Patent and Trademark Office and Northrop Grumman. The new business coming in represents a trickle, compared with the gush that has left. And there’s still that fear that other large employers will leave.
“The first thing is, close that drain!” Hoskins says, noting that roughly 60 percent of his time is spent on retention.
“The jury is still out on whether it’s a good news story or not a good news story,” says GMU’s Mallon. But there is something to be said for Arlington’s workforce. As local startups get bought, the people are a big part of the value, he says, so buyers may be reluctant to leave Arlington if it means losing key staff.
Maybe Arlington can find a new sweet spot that merges the best of both worlds.
“We’ve evolved into a much more balanced business community,” Bates says. “Our government contractors are still a key part of the economy. [But] we’ve also turned into this hub of innovation.”
Evolent team members (from left): Jamal Blair, Michelle Talley, Sterling Neilson, Nicole Sud, Dave Thornton, Clare Hathaway, Anisha Singh and Amanda Zeitler. Portrait by Erick Gibson
Five years ago, Evolent Health set out—with just six employees—to change the way health care is delivered. Now the Ballston-based company has a workforce of 1,300. Its goal: to change the health care equation for more than 10 million patients by working with insurance plans to give patients better care at a lower cost.
Much of the company’s work is powered by proprietary algorithms designed by some of the 500 employees at its Arlington headquarters. Say a patient turns up in an outpatient clinic. Evolent’s technology will notice that he has high blood pressure and hasn’t been to see his doctor in ages. Now Evolent can flag him as needing a follow-up with his doctor and maybe some diet advice from a nutritionist. Which turns out to be cheaper than waiting until he has a stroke.
“Our mission is to change the health of the nation by changing the way care is delivered,” says Dave Thornton, a former AOL vice president who now serves as Evolent’s chief talent officer.
That sense of mission, he says, makes his job easier in recruiting talent. So does Arlington’s profusion of educated workers, and the synergies formed by having other technology, health and consulting companies nearby.
Evolent was founded in 2011 when several Advisory Board Company executives, including Evolent CEO Frank Williams and president Seth Blackley, noticed that many health plans were trying to figure out how to make the transition to “value-based” care. Health care costs were growing faster than inflation, and many employers (including the federal government) were looking for ways to reduce that rapid growth rate.
The Affordable Care Act, aka “Obamacare,” pushed the trend toward reimbursing doctors and other providers based on the quality of their care instead of just the volume of tests ordered and patients seen.
Value-based care could become a huge market, Thornton contends, and his company offers a range of services to make that happen—from consulting with health plans about how to make the switch, to partnering with them once they do, in areas such as benefits design, financial oversight, actuarial support and case management.
One of the firm’s first clients was MedStar Health, which partnered with Evolent to launch a health plan for its own employees. Evolent now has 1.4 million people in the plans it works with, and revenues this year are predicted to be $220 million. The company has been growing at 30 percent or more each year.
As the market for its services heats up, the company says it isn’t likely to leave Ballston anytime soon. It’s a “terrific hub for talent,” Thornton says, given the critical mass that’s forming with other nearby technology and health companies, and the ease of travel that comes with proximity to major airports.
Being across the river from the single biggest payer of health care bills—the U.S. government—doesn’t hurt either. Medicare and Medicaid both figure into the company’s growth plans, Thornton says.
Distil Networks CEO Rami Essaid. Portrait by Erick Gibson
Distil Neworks CEO Rami Essaid admits that he and his founding partners were “all nerds” early on. He met chief technology officer Engin Akyol when they skipped lunch in seventh grade to play chess in their hometown of Cary, North Carolina.
Essaid later dropped out of college to start a mobile phone retailer called Chit Chat Communications. After selling that venture, he tinkered with a few other startup ideas and worked for other firms before launching Distil Networks in 2011 with Akyol and another childhood friend, Andrew Stein. The three were spread out in three separate areas—North Carolina, California and the D.C. area—when they saw a need for a cyberterrorism firm that defends companies against automated attacks.
Arlington County turned out to be the common ground for their startup, which has since grown to 150 employees and raised $65 million in capital, with blue-chip customers such as Staples, eBay and StubHub.
What Distil offers is protection against “bots”—software programs that use automation to try out various password and user-name combinations to break into and steal from online accounts, scrape proprietary data from competitors or send spam.
When Essaid and his colleagues first began their quest for funding, skeptics couldn’t foresee the need for an entire company whose mission was to fight bots.
Now bots make up 46 percent of all web traffic, according to Distil, and fighting them is an entire market. “The problem is getting worse,” Essaid says. “We’re seeing more attacks and higher sophistication of attacks.”
Distil uses big data to stop attacks, sifting through hundreds of pieces of information about every computer accessing a client’s website—for instance, how many languages it has installed—to figure out a “fingerprint” for that computer. In instances where a computer is suspected of being run by a bot rather than a human, safeguards such as “CAPTCHA” images (wavy words or phrases that only humans can decipher) can be put in place to reduce the likelihood of a breach, Essaid explains.
Now, with hundreds of clients on its roster, Distil is expanding into protecting mobile devices, recognizing that hackers who are locked out of the front door of a company website will often try to sneak in the back window.
Sean Mallon, associate vice president for entrepreneurship and innovation at George Mason University, says Arlington is in a unique position to capitalize on its proximity to the Pentagon as the entire cyberterrorism sector expands. Distil, he says, could easily grow into a $1 billion company that spawns other growth.
Things haven’t always been smooth sailing for Distil, so-named for its mission of removing digital impurities. The company got off to a rocky start when Essaid was sued by a previous employer (who claimed the young entrepreneur had come up with the idea for Distil while working for them). But with that suit settled, Distil is poised to take off. Hackers are endlessly inventive, Essaid says, and keeping up with them is an ongoing evolution.
“If you’re trying to keep up with the bad guys, you need to change every day,” he says.
Although he and his partners do enjoy an occasional throwback to their roots. They just ordered a chess set for the office.
Kristina Anderson, Carolyn Parent and Shy Pahlevani of LiveSafe. Portrait by Erick Gibson
The impetus for Rosslyn-based LiveSafe grew from tragedy. A man held up at gunpoint while strangers passed by without helping. A woman lying under a desk in her French class at Virginia Tech, listening as a gunman methodically walked through, row by row, and bracing for her turn to be shot.
LiveSafe, like other applications, sends emergency notifications to users’ smartphones. But it also leverages the power of crowdsourcing to help prevent tragedies and injuries. Shy Pahlevani, the robbery victim, and Kristina Anderson, a survivor of the 2007 Virginia Tech massacre, wanted to make it easy for students on campus to report anything dangerous or suspicious, or call for help.
Virginia Tech shooter Seung-Hui Cho killed 32 people before killing himself as police closed in (Anderson lay bleeding nearby from shots to her back and foot). An investigation afterward showed missed red flags about his behavior.
Carolyn Parent, a former entrepreneur who became president and CEO of LiveSafe a year ago, summarizes the central question that prompted Pahlevani and Anderson to found LiveSafe in 2012:
“How do we prevent these things from happening by enabling people, through their mobile phones, to be able to take action and share information about something safety related?”
Schools—and now businesses, sports teams, shopping malls and other entities—can set up their own LiveSafe system, tailored to their needs. Students, employees or customers then download the app, through which they can report suspicious activity, ask for help and send their location to first responders in the event of a crisis. They can even have a friend or security officer virtually walk them home by watching their GPS signal on a map. Information from the app can be routed to police, security guards, human resources or maintenance offices. Here are some hypotheticals:
• Someone like Anderson who is hiding from a shooter silently texts her location and cry for help to police. Police warn anyone else in the area to shelter in place or stay away.
• A student is making threats on social media and 15 acquaintances send screen shots of those posts to campus police. (Parent cites a case in which this actually happened and officials were able to track down the person making the threats to intervene.)
• A nurse needs to walk home or to her car after a midnight shift. She sends her destination to hospital security, or to friends in her contact list. They can watch her GPS location live, or get a message if she doesn’t arrive in the expected time.
• A student spots a broken door lock on campus and sends a photo to alert campus maintenance to fix it.
• An employee notices an ice slick in the parking lot on his way in to work. A few taps on his phone lets officials know about it before someone falls and breaks a leg.
“You can prevent incidents from happening or prevent them from escalating,” Parent says. The app eliminates barriers such as not knowing who to call, wanting to remain anonymous, or—like many young people—not being accustomed to talking on the phone. Only one-tenth of 1 percent of tips are false positives, she says.
LiveSafe has raised more than $15 million and is currently quadrupling its revenues annually, as hundreds of campuses have signed up. Now the 4-year-old firm is chasing after private-sector clients, from shopping malls to the New York Mets and the San Francisco 49ers.
The company expects to grow from 32 employees to 45 this year. It plans to stay in Arlington because of the ease of commuting for employees, the talent pool and the local lifestyle. “We’re hiring like crazy,” Parent says.
Anthony Bruce of Applied Predictive Technologies. Portrait by Erick Gibson
Applied Predictive Technologies
One of every five U.S. retail transactions runs through the computers of a Ballston-based firm that helps companies decide everything from how to price their sandwiches to how many different colors of sweaters to sell.
As the millennium dawned, Applied Predictive Technologies was drawn to this area by its easy access to airports, its plethora of young talent and the technology culture spawned by MCI and AOL.
“If I said we envisioned the burst of technology infrastructure, capital and engineering technology that has emerged in the subsequent 15 years, I’d be overstating it,” says CEO Anthony Bruce.
From the roughly 20 employees who opened APT’s Ballston headquarters in 2000, the company has grown to more than 250 people with offices around the globe. In 2015 it was purchased by MasterCard for $600 million. The next expansion, which the company announced in August, will keep its headquarters in Arlington and create 368 new jobs.
Even more than APT’s headcount, the amount of data that companies use has exploded in recent years. “Data is very hard for us as organizations, as people, to turn into information and decisions,” says Bruce, a former investment banker with Morgan Stanley and former McKinsey & Co. consultant. “Before making a significant business decision—an investment in capital, a change in price—you should try it first. What works, where and how?”
APT’s proprietary data analytics software allows client companies like Coca-Cola, Walmart and Starbucks to do just that: to test a change and analyze whether customers like it and whether it works better for certain geographic regions or demographic types.
Subway, for instance, wanted to know whether dropping the price of its foot-long sandwiches would drive enough new business to
make up for the lower profit. (So you can thank APT if the $5-foot-long ad jingle is stuck in your head.)
Before big data firms like APT, companies relied on focus groups. But customers are bad at predicting their own behavior, Bruce says. Consumers might, for instance, say that they want 20 colors of sweaters to choose from, but sales figures will later show that their top choices were limited to five colors. With data analytics, a company can offer those 20 choices in a small percentage of catalogues and find out earlier (rather than later) that no one really is going to buy mauve or goldenrod.
Bruce sees Arlington County as a great location for hiring and attracting the young workers who are so key to the tech industry. Arlington has the highest percentage of millennials in the country, according to Arlington Economic Development, and APT has won various awards as a great place to work, particularly for millennials. The company also uses its people and its problem-solving skills to give back, performing “data dives” that help local nonprofits like Goodwill improve their operations.
County officials see data analytics as a key sector for the future and have, along with the state, offered APT $3.25 million in incentives and performance-based grants to stay in the area. After all, there’s still another 80 percent of the economy that APT has yet to capture as clients.
More startups to watch
Basket’s smart-shopping app allows consumers to price-compare groceries and everyday goods across multiple local stores. Its founder, Neil Kataria, previously created NewBrand (acquired by Sprinklr last year), a software platform that turns customer comments from social-media sites into business intelligence.
Founded in 2010 by lawyer-entrepreneur Tiffany Hosey Brown, the Ballston LaunchPad Challenge winner uses technology to make construction projects more efficient. Its cloud-based CTBIM software tracks inventory, subcontractor activity and costs in real time, allowing key decision makers to stay on top of what’s happening on the job site. ctbim.com
Brazen’s chat-based B2B engagement software is used by clients ranging from Raytheon and Deloitte to major university alumni associations. The Courthouse-based company, founded in 2010 by angel investor Edward Barrientos, raised $4.7 million in new venture funding last year. www.brazen.com
Founded in 1999, the Ballston company helps customers find and select the right software for their businesses. Capterra was recently acquired by the Connecticut-based IT consultancy Gartner for an undisclosed sum, but says it plans to stay in Arlington.
The Arlington startup co-founded by former Vocus execs You Mon Tsang and Mark Heys uses data to improve customer engagement for subscription-based business models. Tsang’s startup track record also includes the business intelligence firm Brio Technology, which was ultimately acquired by Oracle. Churnzero.net
The company that began in a Falls Church attic in 2002 now boasts clients ranging from Johnson & Johnson to the USDA. Founded by John and Daniel Saaty, the Ballston firm uses cloud-based software analytics for capital planning and budget optimization. Decisionlens.com
DivvyCloud’s cloud-management platform allows corporate IT pros to track and control both onsite and off-premise computer systems through a centralized dashboard. Founded in 2013, the Rosslyn-based startup recently became a technology partner with Amazon Web Services. Divvycloud.com
Launched in 2008, the Clarendon-based cybersecurity company has raised $99 million in equity funding in recent years. In March, it was named to the JMP Securities “Fast 50” list of hottest privately held security and networking companies.
The Clarendon consulting firm headed by Zach Wahl specializes in information management and application development consulting for clients ranging from Sodexo to the World Bank. enterprise-knowledge.com
The education software company isn’t exactly new (it’s been around since 1974) but its scope is significant. Hobsons products are used by some 12,000 institutions in 105 countries, reaching 13.5 million students. That includes the public school systems in Arlington, Fairfax and D.C., as well as Northern Virginia Community College and GMU. Hobsons is headquartered in Ohio, but its largest office is in Clarendon, with 270 employees. www.hobsons.com
Co-founded by Aneesh Chopra, the nation’s first Chief Technology Officer (appointed by President Barack Obama in 2009), Hunch harnesses big data to help people make better health care and education decisions. Its offices are in Rosslyn. Hunchanalytics.com
The Ballston-based company founded by CEO Jere Simpson (currently ranked #4570 on the Inc. 5000 and #21 on the Virginia Chamber of Commerce “Fantastic 50”) has been developing mobile device management software for clients ranging from Samsung to the Oval Office since 2007.
MomentSnap’s employee engagement programs reward retail, hospitality and restaurant employees for excellence based on positive online customer feedback. With offices in Virginia Square, the startup was launched by co-founders Kam Desai and Ashish Gambhir in 2015.
Kitewire founder Jere Simpson’s latest venture, Netpure—which he launched earlier this year with fellow Arlington dad and D A Labs president Jared Agnew—allows parents to create a safe and secure home Wi-Fi network for kids via a simple device that plugs into the router.
Launched at the start of 2016 by Pat Kinsel and Adam Pase, Notarize is the first on-demand remote, electronic notary public service valid in all 50 states and the District of Columbia. The company has raised more than $10 million in equity funding and is housed in the 1776 tech incubator in Crystal City. notarize.com
Founded in 2007 by Daniel Yates and Alex Laskey, the Courthouse-based power player has transformed the way utilities engage with their customers by tracking individual energy usage and offering ways to conserve energy and money. Its software has been deployed to more than 95 utility partners worldwide and reaches more than 60 million households and businesses. Opower went public in 2014 and was bought by Oracle in June for $532 million. In 2015, it was included on Fortune’s “Change the World” list of 50 companies that have had a major impact on social or environmental problems.
The Rosslyn startup, launched in 2013 by Ben Hastings and Jon Malpass, makes employee progress reports automated, ongoing, transparent and reciprocal—so workers don’t have to wait for the dreaded annual performance review for feedback. performyard.com
Founded in 2001, Phacil is enjoying its fourth year on the Virginia Chamber of Commerce “Fantastic 50” list of the fastest growing companies in the state. Headquartered in Ballston, Phacil has more than 900 employees nationwide and provides IT solutions to the federal government.
Phone2Action’s civic engagement software helps organizations build grassroots support for their causes with tools that make it easier for people to contact their elected officials. Co-founded in 2012 by Ximena Hartstock, the company recently raised $4.7 million in funding and moved its offices from D.C. to Rosslyn, where it expects to create more than 100 new tech jobs.
In 2014, the Ballston-based health care technology firm received $400 million in expansion funding from an investor group led by a Goldman Sachs affiliate. Last year, The New York Times named it among “50 Companies That May Be the Next Start-up Unicorns” (meaning startups valued at $1 billion or more by their investors). priviahealth.com
Shift uses big data to create a peer-to-peer online marketplace for used-car buying and selling. The company was founded in 2014 and has raised nearly $74 million in funding. Its recently opened East Coast office, housed in the 1776 tech incubator space in Crystal City, is expected to create 100 local jobs.
Snagajob’s online recruiting technology matches hourly workers with hourly employers such as 7-Eleven, FedEx, Wendy’s and Home Depot. Founded by CEO Shawn Boyer in 2000, the company opened its Ballston office in 2015. It now claims more than 70 million registered users and recently acquired PeopleMatter, an HR software business. snagajob.com
The cybersecurity company in Virginia Square has raised $22 million in equity funding since its founding in 2011. Its clients include Fortune 500 companies and government agencies. threatconnect.com
Tamara Lytle lives in Northern Virginia, where she relies on her husband and 10-year-old twins for tech support. She wrote about Arlington’s office vacancy problems for the May/June 2016 issue.