Seventy years ago, Detroit was the technology capital of the US. Seventy years earlier, at the height of steel’s golden age, it was Pittsburgh.
During both periods, Steve Case points out, the stretch of California running from San Jose to San Francisco — what we now know as Silicon Valley — was mostly farmland. It’s signature export wasn’t computer chips or mobile apps. It was prunes.
In other words, the country’s innovation landscape shifts over time. Question is, which unlikely city will emerge as the next technology hub? It could very well be anywhere. Or better yet, Case says, it could be everywhere.
“Most of the attention and most of the capital still finds its way to places like Silicon Valley and Boston and New York City, but there are great companies and thriving start-up communities being built all across the country,” said Case, an AOL founder and now the top executive at Revolution Ventures, a talent spotter that invests in early-stage tech companies. “The story of American entrepreneurship in other parts of the country, and in sectors other than technology, just isn’t being told, and that has to change.”
Case has spent much of the past year mounting a grass-roots campaign to highlight and accelerate the growth of start-up communities in pockets of the country not generally known — at least, not anymore — for producing tomorrow’s next big company. Dubbing it the Rise of the Rest tour, Case and a small team have zigzagged across Middle America, holding business pitch competitions in nine cities and leaving behind more than $1 million in funding.
“There are interesting things happening in these cities,” he said, “and by visiting, we just wanted to throw a little kerosene on the fire and take things to the next level.”
During his travels as part of President Barack Obama’s jobs council and a public-private partnership he led called Startup America, he began to realise that the types of businesses you might expect to find in the back yard of Google or Facebook — or only on the coasts — were setting up shop in places such as Iowa and Tennessee.
The ideas were rich and exciting. The money, however, wasn’t moving inland with them. Last year, three-quarters of all venture capital investments went to companies in three states: California, Massachusetts and New York. Leaving behind so many other entrepreneurs is bad business for America — or “putting all our eggs in two or three baskets,” as Case put it.
“I don’t think we’ll remain the most innovative and entrepreneurial nation unless we’re building and investing in entrepreneurial communities across the country, not just in a few areas,” he added.
The rate at which Americans are starting new businesses has dipped in the past decade, data shows, while the pace at which companies are failing has accelerated. A steep challenge facing emerging entrepreneurs has long been access to capital, and that’s particularly true for those outside the traditional start-up hotbeds, Case said.
In order to shed light on those places and the start-ups that call them home, Case climbed on a bus last summer for a four-cities-in-four-days tour through the Rust Belt — Detroit, Pittsburgh and Cincinnati — and ending in Nashville. As is now the routine, Case held a pitch competition in each city, featuring a panel of judges composed of local investors and successful entrepreneurs. And at each stop, the winning company received a $100,000 investment from Case.
He saw promise in Pittsburgh’s SolePower, which makes shoe insoles that turn energy from walking into electricity to charge your cell phone. In Detroit, the check went to Stik, which runs an online review site for professional-services companies. In Nashville, Case invested $100,000 in two companies: Chekd.in, a data-driven marketing platform, and Artiphon, which makes a musical instrument that connects to smartphones.
“The publicity and the doors that have opened as a result have been incredible,” said Matt Stanton, a SolePower founder. His company used the money to finish its prototype and plans to start shipping its first products this year.
Stanton feels lucky to have broken out of the pack. “There are some amazing companies here that could be extremely successful, but they might not get there, simply because they don’t have the chance to get in front of the right people,” Stanton said. “In my mind, that’s terrible. They could be the next billion-dollar exit, but they’re not in the right city.”
Stanton’s team and the four other first-tour winners were later invited to Washington, where Case’s investment company is based, to meet with mentors and investors from the Mid-Atlantic region. A month later, Case was back on the road, this time traversing America’s heartland. He started in Madison, Wisconsin, moved through Minneapolis, Des Moines and Kansas City, Missouri, and wrapped up in St. Louis.
After awarding another $100,000 to the winner in each city, Case upped the ante by holding a follow-up competition at Austin’s South by Southwest festival in March. All five of those city winners were invited to pitch to another panel of investors in Austin, and the winner, Iowa’s Pear Deck, which provides interactive software tools to teachers, scored an additional $150,000 check from Case.
“The spotlight has been incredibly helpful,” said Riley Eynon-Lynch, one of Pear Deck’s founders. One month after winning the Des Moines competition, the company closed a $500,000 round of seed funding. Pear Deck officially launched its software this year and now has more than 100,000 students and teachers using its products across the country.
The company is now raising a larger round of funding — and that’s where the exposure really comes in handy. “It’s certainly harder to raise money in Iowa,” Eynon-Lynch said. “There’s some capital, but it’s more like, ‘Win $25,000,’ and less ‘Come raise $5 million.’“
Case isn’t finished. At the event in Austin, Case announced that a third Rise of the Rest tour would kick off in May. He and his team will head to the Southeast, making stops in Richmond; Durham, North Carolina; Charleston, South Carolina.; Atlanta; and New Orleans. He has pencilled off dates on his calendar for a possible fourth tour this fall.
“Our companies are already getting excited,” said Adam Klein, chief strategist at American Underground, the tech hub and start-up incubator that will host Case’s visit to Durham. “There’s a lot of energy and electricity that follows Steve Case, and we’re excited he’s bringing that here.”
That energy, Klein said, is vital for an emerging start-up hub such as the Raleigh-Durham corridor in North Carolina. While the area has top universities and a low cost of living, which make talent an abundant and relatively inexpensive resource, capital is still hard to come by.
“We’re at a point where companies here can effectively raise a small seed round or even a Series A round,” Klein said. “But when you start talking about anything larger, the $6 million or $10 million rounds, then you’re spending a lot of time on planes to New York or California.”
Case says that one of the most interesting developments from his tours has been the way winners tend to represent their city’s identity or strengths. For example, in St. Louis, the country’s beer capital, the $100,000 went to Synek, a home beer-tap system (think a Keurig for beer). And in Cincinnati, home to some of the world’s largest consumer products companies, the winner was Frameri, which makes interchangeable eyeglass lenses that fit an array of frames.
“That’s an important point,” Case said. “It shows that this next wave of innovation — in areas like health care, energy, transportation, food — is naturally going to happen all across the country, because many of those different sectors are centred in different regions.”
In part, the roadshows are meant to demonstrate to investors the quality of the start-up opportunities in their back yards. At the same time, Case hopes to draw attention from investors in places such as Silicon Valley — and it appears to be working.
Google, which has partnered with Case to sponsor the Rise of the Rest tour, held its own competition, featuring a dozen start-ups from outside California pitching to an auditorium packed with some of the most active angel investors and venture capitalists on the West Coast.
“Most of (those investors) would not have got on a plane to go visit Detroit or Kansas City or Cincinnati,” Case said. “But because Google has that convening power and took the time to bring them all together, it was intriguing enough for them to come listen.”
Pitching at a high-profile event such as Google’s Demo Day can go a long way, not only for the company but also for its hometown — something Klein has witnessed first-hand. One of American Underground’s resident start-ups, online marketing software provider Windsor Circle, took home the top prize last April, while another Durham venture was among the nine runners-up that each received a surprise $100,000 investment from Case.
“Suddenly, investors in Silicon Valley or New York see that a company here won a competition held by Google, or they read that Steve Case invested in one of our start-ups,” Klein said. “Now they’re interested, they’re paying attention. It’s up to us to capitalise on that interest and that momentum.”
— Washington Post
