Maybe you’ve noticed it, too: Seemingly every other week, another D.C. metro area data analytics company emerges on the scene, most with some sort of venture funding backing them up.
Newcomer Baltimore startup Yet Analytics raked in a $1 million round in mid-January led by Grotech Ventures. Bethesda-based social media analytics startup Tracx brought in a $12 million Series D round in early January. Leesburg, Va.-based Gravy Analytics closed a $7 million round in late December. Just to name a few.
Seemingly overnight, D.C. became a hot spot for data analytics companies. Tech executives point to the area’s deep talent pool of students who are graduating with a strong understanding of machine learning and artificial intelligence, and also to the proximity to customers who are hungry for data—including the intelligence community and government agencies. And investors are taking notice. Big-name firms have recently funded large rounds—as high as $80 million—in local data analytics startups.
Of the 314 deals that happened in the Washington, D.C. area in 2014, data analytics companies accounted for roughly 26 percent of them. In 2015, of the 239 total deals, data analytics made up 29 percent. In 2016, they made up 34 percent of the total 209 VC deals.
And it’s not just about the sheer percentage of deals. It’s about who is backing these companies, too. In the past 10 years, firms like Kleiner Perkins Caufield & Byers, Greycroft Partners, Revolution Growth and Bessemer Venture Partners can be seen either as lead investors or heavy contributors in various D.C. area data analytics companies venture rounds.
You could argue that companies like MicroStrategy and Clarabridge have paved the way for newer data startups in the D.C. metro area. They’re the data titans, the ones who clear the way so to speak. And if you made that assumption, you wouldn’t be completely wrong. Clarabridge is a titan in its own right, with close to $120 million in funding to support it.
But for most founders it comes down to proximity; proximity to potential clients, to the right talent pool and to interested investors.
‘A lot of talent around here’
Take Clarabridge for instance. Clarabridge CEO and president Mark Bishof told DC Inno he’s always admired the talent pool in the DMV. The people are smart, talented and fast. Its presence in the area also makes sense, he says, when you look at the number of universities and colleges training the incoming pool of data scientists and mathematicians in the region.
“It’s about machine learning algorithms, it’s about predictive analytics. We like the fact that there is a lot of talent around here and has been here for a long time,” he said. “The Williams and Marys, the Virginia Techs, there are a whole lot of schools in the areas where we can get top talent.”
Bishof and the rest of Clarabridge would know. The Reston, Va. company is on-track to possibly IPO and since launching in 2006, they’ve raised $118.94 million, including a $13 million round in September. The startup has been considering an IPO or an acquisition by the right partner for a little bit now, and in the past, we’ve reported that they’re waiting until they hit $100 million in revenue before they fully consider a possible IPO roadshow.
‘The volcano that creates the rich soil’
Gravy Analytics found themselves in the D.C. metro area purely by coincidence. Founder Jeff White studied at Virginia Tech for both his undergraduate and advanced degrees, and then he just stuck around the Virginia area upon graduation. That’s when he met some of his core team members: former AOL employees.
“It’s sort of the volcano that creates the rich soil,” White said of AOL’s impact on the D.C. metro area. “In our world, it’s around the technical people in technology.”
And he credits the fact that the federal government is in D.C. as a reason why data companies thrive in D.C.
“It probably helps that the government is here, and it doesn’t hurt that we’re sitting on some data nodes here, too,” he said. “All of those things help create fertile soils for these companies.”
Gravy Analytics started in June 2011, and to date, it has raised $21.7 million in funding, including a $7.7 million round in late December. White says they not only benefit from an experienced talent pool and proximity to customers, but also from the moment the data industry as a whole is having.
“If you don’t have a data strategy as a part of your company, you don’t have a strategy,” White said.
TrackMaven CEO Allen Gannett landed in D.C. for his undergrad degree at The George Washington University. He was always a politics geek, so, he says, it made sense that he would land in D.C. for college.
He stayed because of the dual-small town, big city feel. He can walk around D.C. and run into people he knows, people can live a car-free lifestyle if they want and the buildings aren’t too tall. So he stayed in the District for personal reasons, and eventually found it was ripe for entrepreneurship, too.
“You have the most educated population in the country, and there’s a lot of really great technical data talent because of the federal government here,” Gannett said. “People come out of data consulting or the intelligence community. People have really strong backgrounds in data, so even before big data was a thing, the intelligence community and federal contractors had been doing it for years.”
‘It is a rising tide in the market’
Steve Fredrick, a general partner at Grotech Ventures, isn’t surprised by the explosion of data analytics companies in the D.C. metro area.
“Data science and machine learning are two of the hottest trends in tech today. A lot of that is driven by the massive data pools that we’re gathering today,” he said in an interview with DC Inno. “Whenever there’s a big trend, guys like me try to fire on these opportunities. It is a rising tide in the market.”
Talent is one of the biggest drivers in Grotech’s investments. It takes smart people to run a data analytics company, Fredrick said, and the talent pool is in D.C. “These are really hard problems that require really highly educated mathematicians and data scientists and they’re really hard to find,” he said.
Along with the deep talent pool, data analytics companies have another big advantage in D.C.: customer proximity. The intelligence community and government agencies like the Department of Defense’s Defense Advanced Research Projects Agency (DARPA) are the ideal customers for data companies.
“Historically, DARPA and the intelligence community are both huge funding sources and active engineering customers in the data science arena,” Fredrick said. “A lot of people who are used to doing this kind of work have worked in this region for a long long time.”
Washington, D.C.’s tech sector marry the two perfectly. “I really do think that there’s something to this government customer segment and talent pool and our region is somewhat unique in that regard,” he said. “We are always looking to companies that are looking to sell to both of those customer segments, and companies in this area know how to do that well.”
‘This is the future in technology.’
But for all that’s in the D.C. metro area, founders still feels there’s something missing. Gannet points out that while they, too, benefit from top-notch engineering and data talent, having that pool is a double-edge sword.
“D.C. has a strong amount of talent, but because a lot of the startups here have been successful and grown, there isn’t a lot of talent moving around,” he said. “It’s harder to find more senior talent—think your C-level executives—than it is in other cities.”
We have a strong customer base called the government. We have universities watching us. We have the data center footprint.
As others in the DMV are quick to point out, the metro area is lacking in venture capital funding, as well. White said the area is ripe to take advantage of local funding, but it’s a matter of getting investors to open their eyes.
“This area is uniquely positioned to take advantaged of those things,” White said. “We have a strong customer base called the government. We have universities watching us. We have the data center footprint.”
Yet Clarabridge’s new CEO points out that venture capital is a virtual world now: “Everybody knows everybody. There’s plenty of access to capital. There’s plenty of recognition,” he said.
When Bishoff looks around the D.C. metro area, he doesn’t see much else that it needs—at least to build a successful data company. For Bishof, who was appointed CEO of the company in December, he’s not sure if there isn’t even a correlation between location and the rise of the local data industry.
“I don’t know if it has anything to deal with the physical location,” he said. “This is the future in technology. Understanding and bringing society’s business needs into the future here is all about big data. It’s about machine learning, it’s about artificial intelligence. You’re going to find them here, you’re going to find them in Silicon Valley, you’re going to find them in Boulder.”
Image used via CC0 Public Domain — credit StockSnap
Clarification: A previous version of this article implied that an IPO is the only exit strategy Clarabridge is considering. The company is also considering an acquisition to the right partner. The story has been updated to reflect these changes.