Ready or Not, Amazon’s HQ2 Is About to Redefine the D.C. Area’s Startup Economy.

An influx of new talent and increased hiring competition have become front-burner issues for local founders.

Washington

The Washington D.C. metropolitan region has long been a bustling hub for entrepreneurs. The federal government is a trusted customer for many, and the array of educational institutions serves as a capable incubator of startups and top talent. Yet these days, all anyone seems to want to talk about is Amazon.

After the e-commerce giant announced plans in November 2018 to build its massive second headquarters, or HQ2, in Northern Virginia’s Crystal City, entrepreneurs have been grappling with how to coexist with a new neighbor whose presence could both help generate new business and make everything from hiring to finding funding harder.

Indeed, once Amazon comes to town and potentially sucks up all the available talent and drives up real estate costs, it could be harder for entrepreneurs to make bold moves, says Dawn Myers, the city director of the D.C.-based Vinetta Project, a collective that connects investors with female founders. Myers is encouraging entrepreneurs to push ahead expansion plans and fundraising. “Right now is the time to build your network. It’s when you can more easily get facetime with the biggest names in D.C.’s ecosystem.”

While Amazon says it plans to build out a 2.1-million-square-foot development with two 22-story buildings and hire 25,000 workers in the area over the next 10 years, the ripple effects of its presence are expected to be far more vast, says Jeff Reid, the founding director of the Georgetown Entrepreneurship Initiative. “The announcement put D.C. on the map within the tech scene,” adds Reid, who expects Amazon will attract more tech companies to startup in the area. “It illustrated that the region is poised for growth and going to be a major hub.”

Business owners, as a result, may face heightened competition for workers–and that could push labor costs higher, suggests Tien Wong, founder of Connectpreneur, a Tysons Corner, Virginia-based community for founders, VCs, and CEOs. Founders might also need to get creative with their benefit offerings to better accommodate in-demand workers, he adds.

An even bigger shift facing startups is the likely cost-of-living surge bound for the area. The D.C. area is already starting to see an uptick in real estate prices. The typical home value is currently $628,914, an increase of $21,190 from October 2018, the month before Amazon made its announcement, according to Zillow. Home values in the area are expected to increase another $12,578 in the next year, Zillow predicts.

“That’s definitely a huge issue for early-stage founders who are trying to operate as leanly as possible,” says Myers, adding that, as affordable housing dwindles, installing telecommuting policies could be an enticement for prospective hires.

Of course, gaining such a prominent neighbor could also benefit local founders. Amazon’s arrival to the region may present more chances for founders to build strategic relationships and partnerships with the tech behemoth, says Reid. This could include landing Amazon as a client or even getting retail or restaurant space in the tech behemoth’s new campus.

What’s more, as the region’s reputation as a vibrant business hub grows, increased investment is likely, says Reid. Last year, D.C. area companies raised about $1.9 billion in venture capital funding, according to PitchBook. That’s a slight increase from the $1.7 billion raised in 2018. The area was also ranked No. 2 for high-growth company density and No. 11 for early-stage funding on Inc.‘s second annual list of the best places for starting a business. And with local educational institutions like Virginia Tech, the University of Maryland, and George Mason University all building innovation campuses nearby, a thriving talent pipeline is all but assured.

There’s also hope, adds Wong, that some Amazon employees will eventually leave to start their own local businesses. “You’re going to continue to see an increase in optimism and excitement with success stories that are giving us a positive shot in the arm.”

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