Can a Venture Capital Road Trip Save America?
Mar 07, 2019
Steve Case is co-founder, CEO, and chairman of Revolution, an investment firm that partners with entrepreneurs to build "built-to-last" businesses. He also co-founded AOL.
Steve Case has been on a mission to get shrinking cities in America's "flyover states" to be part of the startup revolution. At Aspen Ideas, journalist Katie Couric asked Case if he noticed a common thread in the 38 cities he had visited. "I think there are some threads," Case responded, "A lot of people feel left behind, and I'd argue they have been."
A co-founder of AOL, Case is no stranger to startup culture or job creation. He started Rise of the Rest, with Hillbilly Elegy author J. D. Vance, in order to address a serious problem with American startup culture.
"All the net job creation in the country was coming from startups," says Case, "Not from small business and not from big business — just high growth startup businesses. Yet we’re only backing entrepreneurs in a few places. Seventy-five percent of venture capital (VC) went to three states: California, New York, and Massachusetts." California alone gets 50 percent of that, he adds. States like Ohio get less than 1 percent.
"Given [startups’] connection with job creation, it’s no surprise that people are fleeing these areas."
The massive transformation of the US and global economies, with industrial and agricultural markets making way for technology-driven economies, has left large swaths of the country without growth. But Case is optimistic about Americans' ability to adapt. "There is no question that technology will disrupt industries and destroy jobs. That has always has been the case and always will be. That’s not up for debate. What’s up for debate is, will we come up with new ideas and create new industries and do that in a more inclusive way."
He says he recognizes it may be different this time because of the pace of change. "However, I’m reminded when I started AOL in 1985, only three percent of people were online in the country, and those three percent were online only one hour a week."
His point resonates: change and progress are inevitable, even if the ideas behind that change are a long shot. "We’ve been through these transitions before. It’s worth remember that just 250 years ago America itself was a start up, it was just an idea, and frankly a pretty fragile idea."
Rise of the Rest goes on tour, stopping at American cities that have been overlooked by Silicon Valley venture capitalists. They stop at five cities in five days, hosting pitch competitions — which Case calls a “friendlier Shark Tank” — at each stop. "Usually 100 companies apply to pitch and we’ll pick 8 or 9 to be on stage. A local judging panel picks a winner and we invest in the winner."
They have done 70 of these tours, traveling over 10,000 miles by bus. The seed fund makes investments under $1 million and deliberately partners with regional venture capitalists to create more local, long-term investments and regional VC networks.
Case says the effort is not a social impact fund. The companies they invest in have gone on to be remarkably successful. "It is, however, mission driven. You can generate great returns while also having great impact," says Case.
A key part of the success of the companies lies with local expertise and insight, and their ability to "build upon the legacy of their cities."
He says Pittsburgh is a good example of a community that's good at making things. "It was the steel capital that powered the whole industrial revolution. Today there's innovation around robotics. St. Louis and Omaha are pretty good at farming things. They have some of the most interesting agricultural tech companies." He doubts those insights would come from an entrepreneur sitting in an office in Manhattan or Palo Alto.
Time is of the essence, Case warns. These communities are struggling and he believes we should do more to help revitalize them. "Fifty years ago if you wanted to lift up a community you got the artists to move in, like Soho in NY, but now the trick is to get the entrepreneurs to move in… Slow the brain drain. Create a reason to stay and a reason to come back."
Another focus for Rise of the Rest — increase diversity. The current picture for minority venture capital is troubling. Less than 10 percent of VC funding went to women, says Case. And less than one percent went to African Americans. Case aims to change that. Twenty-five percent of Rise of the Rest's pitch competitors are women and people of color, well above the national average.
"We’re a great entrepreneurial nation," says Case, "But the reality is, it does matter where you live and it does matter what you look like. We have to level this playing field and be more inclusive."
The views and opinions of the speakers in this article do not necessarily reflect those of the Aspen Institute.
Written by Hadley Stack, Public Programs intern at the Aspen Institute