A HUNDRED YEARS AGO it was hard to miss the centers of financial prominen=
ce.
Boston's Brahmins left their mansions on Beacon Hill to lunch at the Unio=
n
Club; Philadelphia's plutocrats had their Main Line; New Yorkers had Wall
Street plus Park Avenue South. These were the hubs of the industrial
economy--home to the railroads, the textile and banking trades, and to th=
e
robber barons who made America the financial powerhouse it still is. As t=
he
century turns again, the economy's new power centers are about as far awa=
y
from these yesteryear symbols of wealth and prestige as you can get. Woul=
d
you believe that there is more high finance happening along a toll road i=
n
northern Virginia than on Wall Street? Well, almost.
It's no surprise that today's financial strongholds center on technology'=
s
key regions--it's the sector of the economy, after all, that's producing =
the
most wealth and the most jobs the fastest. Here's a look at four off-Wall
Street financial hot spots: Seattle, Washington; northeast Virginia just
outside the D.C. Beltway; Menlo Park, California; and Austin, Texas. Thes=
e
financial centers have sprung up thanks to three factors: the wild succes=
s
of tech and telecom startups, a critical mass of smart people, and lots o=
f
capital. Then it usually takes only one home run company--like Microsoft =
in
Seattle or America Online in Dulles, Virginia--to spill talent and wealth
(thanks to employee stock options) into the local economy. Former employe=
es
start companies of their own or invest in others, and off we go.
The tech and telecom industries have matured enough to re-create this
phenomenon over and over, spawning as a by-product an off-Wall Street
destination for lawyers, investment bankers, and venture capitalists.
Consider the numbers: There are at least 550 public technology and teleco=
m
companies in these four locales; in 1980, there were fewer than 25--even
mighty Microsoft didn't hit the public market until 1986. Today, more tha=
n
500,000 people are employed by high tech companies alone in these regions=
,
almost 11% of the nation's total tech workforce. And nearly $6 billion in
venture capital poured into all four areas in 1998. That was 58% of the
year's total venture funding. "Silicon Valley continues to be the leading
incubator of innovation and opportunity," says Bill Reichert, president o=
f
garage.com, a Palo Alto, California-based company that has been described=
as
a cross between a venture capital firm and an investment bank. "But," he
adds, "northern Virginia, Austin, and Seattle are the emerging powerhouse=
s
in the new economy."
CARILLON POINT, SEATTLE, WASHINGTON
Carillon Point is tremendously...unexciting. But it's who resides at this
suburban Seattle address that counts. Carillon Point's tenants are cellul=
ar
phone billionaire Craig McCaw, Mike Larson (Bill Gates' investment advise=
r),
five venture capital firms, three outposts of prominent Silicon Valley-ba=
sed
law firms, and a recently installed branch of Silicon Valley Bank, the
California-based bank that has catered to tech startups for 16 years. The
enclave is as understated as Seattle, a city that refuses to be known as =
big
and overworked but is getting to be that way anyway. "Getting someone on =
the
phone on a Friday afternoon in this town four years ago was almost
impossible," says Janis Machala, managing partner of Paladin Partners, an
angel investor referral network. "But it's changed from that sleepy, 'Oh
yeah, we do technology, but we really like kayaking on Friday afternoon'
sort of place." Today more than 2,500 software, Internet, and digital med=
ia
companies are in Washington, the majority around Seattle. Only a few year=
s
ago, technology recruits to Seattle held signs saying "Microsoft or Bust.=
"
The software giant drew people for lifestyle reasons and for the opportun=
ity
to make buckets of dough on options. They stayed. Now Seattle's tech
workforce is 75,000 strong, and Microsofties have created many of the
region's startups. Former Microsoft Vice President Rob Glaser, for one,
created RealNetworks, a now-public Internet multimedia company. A former
Microsoft interactive-media head, Doug DeSantis, cofounded Point.com, a
phone service Web site; and Tony Audino, a former director of marketing a=
t
Microsoft, has launched Voyager Capital, a $40 million venture fund.
Microsoft's millionaires-turned-entrepreneurs aren't the only ones
responsible for the area's new-business boom. Former employees at McCaw
Cellular (now AT&T Wireless), Visio, Aldus (now Adobe Systems), and biote=
ch
firm Immunex have also planted seedlings in Seattle. But the recent succe=
ss
of Amazon.com, and the debut of Internet offerings such as HomeGrocer.com
and Drugstore.com, are really lighting up the region. Since 1995, the num=
ber
of venture capital deals in the state of Washington has grown by 218% . T=
hat
compares to a 109% increase in Massachusetts, once considered the only ot=
her
tech stronghold outside Silicon Valley. The cash infusions are
characteristically out of sync with the old-line ways of Wall Street. For
one, more than 50 so-called angel investors are in the area. These are
mostly Microsoft multimillionaires who are willing to plunk down $100
million or more to seed a startup, says Kevin Cable of Cascadia Capital, =
a
merchant bank focusing on high tech startups in the Cascade region. He ad=
ds
that the average total angel investment round has leapt from $500,000 to
more than $1.5 million. Then there are people like Tom Alberg, formerly o=
f
McCaw Cellular. Alberg, 59, invested in Amazon.com in 1995 and made a $21
million killing. He started Madrona Investment Group in 1996, which has
funded HomeGrocer.com and LiveBid.com, an auction site that announced in
April it would be acquired by Amazon.com. This summer, garage.com opened =
its
first offices outside Silicon Valley: one at Carillon Point and another i=
n
Boston. "Seattle was not on our short list," says President Bill Reichert.
"But after studying what was going on there, we said, 'We have to jump on
this.'"
DULLES TOLL ROAD, NORTHERN VIRGINIA
The Dulles Toll Road--not exactly a location that conjures up images of h=
igh
rollers. But this is where WorldCom met and married MCI and UUNet, where =
AOL
swallowed up Netscape. In all, an estimated 2,500 technology and telecom
companies spatter this green stretch of road from Tyson's Corner, the
intersection of Routes 7 and 123 outside the D.C. Beltway, to Dulles, the
home of AOL's headquarters. For decades, the federal government--much lik=
e
Stanford University in Silicon Valley and MIT in Boston--acted as an
incubator for tech and telecom startups in the region. The skeleton of th=
e
Internet, thanks to the government, was built here. Internet traffic runn=
ers
such as PSINet and UUNet still handle 50% of the country's Net traffic as=
a
result of the area's history. But it wasn't until the Internet took off a=
s a
viable, readily accessible medium that the Dulles Toll Road came into its
own as a financial mecca. The best illustration of that is the building a=
t
11600 Sunrise Valley Drive in Reston. It has been dubbed the Morino Build=
ing
after its creator, Mario Morino, a local investor who in 1995 sold his
software company, Legent, to Computer Associates for $1.8 billion. When i=
t
opens in September, the 153,000-square-foot building will house nine tech
companies, five venture capital firms, and two banks. "I wanted to walk d=
own
the hall and get an answer to any question," says Morino. It's like a tec=
h
dormitory with a caf=C3=A9, gym, and billiards room. One of Morino's new =
tenants
is the Arlington, Virginia-based Friedman Billings Ramsey Group. It was t=
he
nation's seventh-largest IPO underwriter in 1998--that's saying something
for a firm that only began underwriting public offerings in 1992. As the
largest regional banker in the area, FBR has the home-field advantage, wh=
ich
helped it co-lead deals for local companies MicroStrategy, Proxicom, and
CareerBuilder. The tech workforce in northern Virginia now exceeds all
nonmilitary federal employees in the area. By 2010, the region's tech sec=
tor
will generate $24.5 billion in personal earnings, according to a George
Mason University study. And there is no end to the wealth creation in sig=
ht.
For one, AOL issued 7 million options to its employees in fiscal 1998. Af=
ter
two stock splits, that makes the average AOL employee $225,000 richer on
paper. As employees begin to leave the area's established tech and teleco=
m
companies to start their own firms locally, venture capital is following.
Since 1995, regional venture capital investment has grown a whopping 335%=
,
to $348 million. Reston's New Enterprise Associates pumped nearly $50
million just this year into Virginia and Maryland startups. In February,
Silicon Valley-based Draper Fisher Jurvetson debuted Draper Atlantic here=
,
with a $50 million fund. "It's surprisingly robust," says Tim Draper, a
longtime venture investor in Silicon Valley and principal of Draper Fishe=
r.
"Northern Virginia is headed for great success. It has all the right
elements."
SAND HILL ROAD, MENLO PARK, CALIFORNIA
Subtle, low-slung brown buildings nestled among trees and richly landscap=
ed
gardens make Sand Hill Road look like a retirement community. But this is
far from a retiring strip of road. This is the original nerve center of t=
he
technology economy, the granddaddy of them all. And, after 30 years, it's
still going strong as a financial powerhouse. Sand Hill Road is more
legendary than our other centers, for good reason. More than 40 venture
capital firms, nine law firms, four investment banks, three accounting
firms, six consulting firms, five executive search firms, and seven
investment advisory firms are within a half-mile radius on this road. And
most of California's $5 billion in venture capital is sitting here. It's
such a high-powered locale that the management of 3000 Sand Hill Road, th=
e
first complex of offices built here, sometimes finds tourists at the door=
,
wondering if this really could be where all the high finance is taking
place. In 1968, Sand Hill was little more than a grassy field adjacent t=
o
some Stanford University land. Publisher Addison-Wesley was one of the fe=
w
businesses there. But real estate developer Tom Ford saw something more: =
a
chance to turn a 26-acre mound of dirt into pay dirt. Ford, who died in
1998, built 3000 Sand Hill Road in 1970. He lured venture capitalist firm
Kleiner Perkins from San Francisco's financial district and persuaded
Sequoia Capital--backers of such companies as Sun Microsystems, Yahoo, an=
d
Cisco Systems--to take up residence.
The rest is history. Today's financial bigwigs literally beg for space he=
re.
Gary Wimmer, managing partner at Ford Land Company, a commercial real est=
ate
firm, receives three calls a day from people wanting to get in. Office re=
nts
on Sand Hill Road are among the highest in the country--reportedly $66 to
$72 per square foot. That's about 65% above the national average. But
underneath this laid-back setting, competition for business is as cutthro=
at
as on Wall Street--and maybe more so. Investment bank Goldman Sachs moved
into a new 48,000-square-foot office here in February, just paces away fr=
om
Morgan Stanley Dean Witter's Sand Hill Road outpost. Goldman keeps its
shades drawn and the windows dark so Morgan's team can't see who Goldman =
is
doing business with. "We call that The Dark Side," jokes Matt L'Heureux,
head of Morgan's Silicon Valley tech M&A group.
LOOP 360 TO THE ARBORETUM, AUSTIN, TEXAS
Austin has long been the "other" Silicon Valley--home to Dell Computer,
National Instruments, and Texas Instruments, and the manufacturing base f=
or
the big chipmakers Samsung, Motorola, and AMD. Lately, Austin has shed so=
me
of this second-class citizen status thanks to (you guessed it) a surge in
high finance for high tech. Credit Dell, the world's most successful
computer maker and the area's richest company. The PC maker, based in Aus=
tin
suburb Round Rock, has dropped $5 billion into the region and created 50,=
000
jobs. More important, it has created the "Dellionaires," those employees =
who
have become millionaires and even billionaires from Dell options. "The
conversion of Dell stock means a lot of money in play," says Doug Mangum,=
a
senior vice president of Silicon Valley Bank, which has had a branch in
Austin since 1996. Like the big-company graduates in the other areas, Del=
l's
monied entrepreneurs have their own startups. "Austin's market is hot," s=
ays
Mangum. "There are a lot of early-stage companies." Austin Ventures, the
town's oldest venture capital firm, invested $150 million in 26 Austin-ba=
sed
companies--in just two years. Included in that list are winners like
Pervasive Software and Vignette. Owing to the activity in Austin, the sta=
te
of Texas last year was the third busiest in venture finance (behind
California and Massachusetts), with $557 million invested, according to
PricewaterhouseCoopers. Austin's powerful are located along Loop 360 and =
the
so-called Arboretum, the intersection of Loop 360 and Loop 1 with U.S.
Highway 183. The Arboretum is full of tech-related corporations and cente=
rs,
including several company headquarters, technology research consortium MC=
C,
and the University of Texas' Austin Technology Incubator. Loop 360 is the
preferred address for venture capitalists and high tech service providers=
,
such as the California-based law firm Wilson Sonsini Goodrich & Rosati an=
d
Silicon Valley Bank. SSM Ventures has long been a resident of the roadway=
,
and Dallas-based Sevin Rosen Funds and Arch Venture Partners are slated t=
o
move to the area as well. Surprisingly, Austin did not produce a single t=
ech
IPO in 1998. But this year things are cooking. Companies that have gone
public since January include drkoop.com, pcOrder.com, and Vignette. And f=
our
more should debut on the public market by the end of the year. "Things ar=
e
scalding hot," says Paul Tobias, a managing partner with Wilson Sonsini.
"Watching stocks is true sport in the Bay Area, but lately it's become re=
al
popular in Austin as well."
Tushar J. Mehta
email: [email protected]
voicemail: (206) 405-2335