Collectively, these components support a formidable and growing power base in this new digital economy which is linked to the network bridge and critical mass of the Internet.

The Security Community

The encryption and security expertise created by the national security community-- the Central Intelligence Agency (CIA), National Security Agency (NSA), Defense Intelligence Agency (DIA) and others-- is at the very core of information discovery, retrieval, analysis and visualization for the entire world. This community continues to drive computer and network R&D and innovation.

Abundant Information Resources

This region enjoys proximity to and familiarity with the largest base of information resources in the world-- that of the federal government, health and bioscience organizations and the nonprofit sector headquartered here, including libraries, educational institutions, associations, public policy groups, arts & humanities organizations and scores of others. Such information and content is valuable by itself, and the ability of the people here to put it into context will increase not only the information value, but the market and financial value over time.

A Telecommunications Hub

Originally focused on the federal government’s needs, the region has blossomed into a prolific telecommunications center. In fact, it is arguably the telecommunications hub anchored by the traditional local exchange and long-distance carriers like MCI, Bell Atlantic/NYNEX, Cable & Wireless; federal suppliers from AT&T to Sprint; and pushed by new players on the block like LCI, MFS/UUNET and Global Telecom. Beyond the carriers, there is significant innovation in all aspects of communications as demonstrated by the presence of such firms as Orbital Sciences, Comsat, and Intelsat and new enterprises popping up in cellular, wireless, satellite and digital broadcast systems (DBS).

The enormous opportunity presented by the convergence of computers and communications was noted by Matthew Lawlor of Online Resources & Communications in the previous Forbes Magazine story. Responding to the question "Why is capitalism spreading now [in the region]?" he observed that "the greater Washington area is a place where computers, communications and government intersect .... This is the best area in the country to integrate software and telecommunications." Exemplifying this convergence are Lawlor’s own firm and emerging ones like WorldVoice, CrossMedia and others.

Industry Angels

One of the most revealing signs of entrepreneurial activity is illustrated by the recent emergence of "industry angels" who have been the social glue behind the success of Silicon Valley. Today, individuals like Jim Kimsey, Mark Warner, Rick Adams, Steve Case, David Thompson, Bill Melton and dozens more are creating a vibrant new force that will fund and propel innovation in this region. These are people who have been there, who have the money and knowledge to act, as well as the capacity to mentor and help. This is a regional dynamic that has undergone a quantum change in just the last five years.

An Incubator for Spin-Outs

The region has the entrepreneurial firms and infrastructures from which new spin-outs are being created-- America Online, MCI/Concert, the major system integrators and telcos, and, paradoxically, the federal government itself. That the movement is already well underway is demonstrated by spin-outs like LCI, Freeloader, Concept Five, Community Networks and more are on the way.

The Sweet Smell of Success

Nothing succeeds like success! People in this region smell the scent of success and wealth, and its tantalizing aroma is having a broad impact. This is a very real phenomenon, and nothing has hit this region with such impact since the late 1960s. An irresistible force is building and it is creating the spirit so vital to a vibrant entrepreneurial area.

Now bring all of these resources together in one place-- a robust Internet infrastructure, the security community’s legacy, the center of telecommunications, the world’s largest repository of information, a growing flock of industry angels, entrepreneurial spin-outs and the enticing scent of success. Is it a compelling picture? You bet it is!

But none of this would mean much without the entrepreneurial spirit and attitude. Where is it coming from? For one, the large population of researchers and developers-- many of whom are knowledgeable in communications, the Internet or content production. They no longer consider a traditional employer as a secure home for life. This economic uncertainty, coupled with the empowering aspects of the communications revolution, is rapidly changing the culture of this region. Link this with the potential for profit and growth and one can understand that something big is happening in the Potomac KnowledgeWay.

A Sector Map to the Region’s Opportunities

One of the challenges facing investors, analysts and even entrepreneurs is the need to understand that the Internet is neither a market nor an industry. It is a mosaic of many diverse sectors. We must take a sector view of the region’s activity and how it aligns with our core strengths. Such an analysis will help us understand those areas of sustainable power versus those in which we have only limited involvement. Here is a preliminary and somewhat anecdotal view of the Potomac KnowledgeWay sectors in which there is real and sustainable potential:

Telecommunications

• Local Exchange and Long Distance
• Cellular and Wireless Satellite and DBS Services
• Converging Communication Applications and Services
• Communications Equipment and Adapters

Internet service and presence providers

World Wide Web-development businesses

• Intranet/Extranet Developers
• The systems integrators and new players like Concept Five, Proxicom
• Marketing Networks and Interactive Advertising Creative firms like Potomac Interactive, Graffito/Active8, Proxicom, Image Communications and Magnet Interactive

Internet/Web Development and Middleware Software IBM InfoMarket, CNRI, Concept Five, Proxicom, Visix, Relay Technologies, Freeloader, Excalibur, PLS and a growing base of product technologies.

Health Information and Telemedicine Services The many organizations that stretch along a corridor from Johns Hopkins University in Baltimore, through NIH, and down to the University of Virginia.

Biomatics Related to, and yet distinct from healthcare, the biotech community is anchored by NIH, Johns Hopkins University and groups like American Type Culture Collection (ATCC) from which an entire information industry will emerge.

Electronic Commerce The region already enjoys a concentration of financial transaction services with firms like Transaction Network Services, Inc. (TNSI), Intelidata, CyberCash, GE Information Systems and Visa, as well as a transitioning base with the Electronic Funds Transfer Association (EFTA), NIST, and federal activity in Electronic Data Interchange (EDI).

Geographic, Geospacial and Global Positioning Systems (GPS) Ranging from GPS surveyors, to location and mapping services, to intelligent highways and transportation systems.

Electronic Publishing and Media Products Including the tremendous resources of the Washington Post, USA Today, Reuters and the prestigious Freedom Forum Newseum now being developed, as well as the emerging communities of Internet businesses: Digital Commerce Corporation, Woman’s Connection Online, Hearthstone and the firms now operating on AOL.

Government, Arts, Humanities, Scientific and Historic Content Products

The above list, while certainly not exhaustive, identifies the sectors in which we expect significant innovation, entrepreneurial activity and growth in the years ahead.

Why the Movement Will Grow to a Force

This movement is still gaining strength. There are several reasons why it is evolving into an economic engine for this region and the world.

Knowledge Foundation

The region benefits from a strong underpinning of knowledge which is its sustaining strength. One can argue that our intellectual capital and reputation as a "learning region" may be the attributes that most allow it to succeed as we undergo the paradigm shift to a digital economy where knowledge is the product.

Second Wave

The region will experience a "second wave" of innovation and entrepreneurial activity over the next 3-10 years. The region’s vast content storehouses will be "mined" by businesses and individuals capitalizing on their knowledge and proximity. This mining will be driven by the build-up of market expectations and the demand for content-based products.

Magnet Center

The region’s growing concentration around digital networks is making it a magnet. Not only are new companies starting here, but established ones like Microstrategies, PSI, Associated Communications and Nextel are among those being drawn here by the workforce, the opportunities and the quality of life. IBM is building up its Internet presence in the region after downsizing in almost all other areas. There is good reason why. For example, the December 3, 1996 Fortune Magazine rated the greater Washington region as one of the top ten in the country for living and opportunity-- important factors to the young people of talent who are developing the new ideas, products and businesses.

Federal Government

The Federal government will continue to be a major player in R&D, as a consumer and as an innovator. Government entities created this digital network space and will continue to significantly influence its evolution and outcome.

The Attitude

The fever has caught. People are thinking "new business" and, better yet, they are thinking product businesses. Innovators are thinking new start-ups. Angels are thinking investments. Workers at all levels are once again thinking stock options. It is a cultural change for this region.

Funding

Money moves to opportunity and the in-flow of capital is growing. Venture financing and technology businesses in the region have developed rapidly over the past several years, with an 80% compound annual growth in venture capital invested from 1991-1994. Despite the opportunities, we are still relatively under-served. As competition for deals escalates, Boston and Silicon Valley venture funds increasingly will look to the deal flow and opportunity in our backyard.

Capital Formation Dynamics

How significant is the growth in venture financing in the region? No one knows for sure, but it is clearly accelerating. Consider this anecdotal evidence:

IPOs
The increasing number of IPOs is beginning to catch the attention of global investors. It started with AOL, was paced by such offerings as UUNET, CyberCash, Digex, Intelidata, University Online and Allin Communications and now more are being teed up.

Big Plays
Clearly, there have been some big plays like AT&T Venture Fund II locating here, as well as some sizable private placements including a Soros Group investment in Global Telecom.

Movement
We have seen important shifts, including a greater regional focus by early Internet player New Enterprise Associates (NEA) and the positioning of Friedman, Billings, Ramsey (FBR) as an investment banker with its string of new Internet-related offerings. We also see the formation of new venture funds such as Fairfax Partners, Novak-Biddle, Embryon Capital, Bluewater, Nepa Valley, Spacevest, CEO Venture Fund and, most recently, FBR’s Pegasus Fund. Certainly more are on the way. We are even seeing very early stage funding with the Private Investors Network and a new group called SPIN, as well as the facilitation of efforts by Bill Washecka of Ernst & Young, the Mid-Atlantic Venture Association (MAVA) and others.

Outcomes
There is increased deal flow. It’s that basic. Dominion Income backs Community of Science, General Atlantic invests in Proxicom, Updata funds NetStart, private investors help NetImpact, Zero Stage helps Intelligent Interactions and the list goes on.

A Catalyst For Growth

Leaders in the greater Washington area increasingly are coming together to participate in and support the Potomac KnowledgeWay Project. The Project’s mission is to establish this region as a hub of innovation in the digital economy and a global center in the knowledge industries of the 21st century. The effort, underway for over a year, is based on three strategies with the key being a program to cultivate the entrepreneurs who are working around digital networks. They are a new type of entrepreneur-- what we call "netpreneurs." The Netpreneur Program is creating a place-- virtually and physically-- where the netpreneur community can come together and exchange expertise as they thresh out the new rules of an embryonic marketplace. The Program is creating the needed support network to meet the unique needs of netpreneurs and to match them with other netpreneurs, funders, advisors, the media and partners. The Program’s mission is to connect, inform and promote, and we would welcome the opportunity to involve you in the effort.

Why this focus? Consider this recent quote from "Making Money on the Net," in the September 23, 1996 issue of Business Week:

While corporate giants have been thrashing around noisily in cyberspace, showing how not to make money on the Net, scores of entrepreneurs have been quietly tinkering-- creating new business models for retailing, marketing, publishing, and advertising that work for them and could perhaps point the way to an Internet payoff.

Peter Drucker once defined the entrepreneur as "someone who does something new and gets it done." The action and knowledge is with those "on the cutting edge" in this digital age, the entrepreneurs like those at America Online, Yahoo, Netscape, and UUNET. There is a growing, vibrant community of netpreneurs in this region-- innovators who are getting new things done around the Internet.

How Real is All This?

Let me paraphrase a discussion a close friend of mine had with a Boston-based investment fund manager who manages $3 billion for U.S. and international clients. Here was his assessment of our region: "I travel around the world, to deal with clients, to prospect for clients, to monitor projects, and to find new things to invest in. I believe the North Carolina to Boston corridor has the best current and prospective business potential in the world and that the greater Washington area is the best spot within the best corridor."

Last evening I participated in the second annual National Information Infrastructure (NII) Awards program and spoke this morning at its first Digital Footprints conference in New York City. The NII Awards recognize today’s excellence in innovative, networked applications and services. One element that confirms our vision is the geographic distribution of the 56 winners and finalists: nine were from San Francisco/Silicon Valley, eight from greater Washington, six from the Boston/Cambridge area, four from New York and New Jersey and the remainder came from the rest of the country.

As people learn more about the breadth, diversity, innovation and entrepreneurial successes that are transforming this region, they will recognize it as one of the best spots in the world for investment in this new digital age. Things are, indeed, happening in the Potomac KnowledgeWay.