Steve Case knows that many great ideas come from outside of Silicon Valley.
We all know that entrepreneurs are flocking to Silicon Valley, New York and Massachusetts to capitalize on the potential for serious financing. While the streets of Manhattan aren’t necessarily paved with gold, startups don’t typically thrive outside of these special coastal areas. As a result, many potential entrepreneurs leave their hometowns for lack of opportunities.
For years, Steve Case’s investment firm Revolution has been trying to correct this imbalance. The company travels the United States looking for entrepreneurs outside of established technology hubs. They organize pitch competitions, support founders in fine-tuning pitches and finance the most exciting ideas.
Case recently sat down with Katie to talk about Revolution’s mission: transforming communities by providing the kind of real Funding that creates jobs. In his new book, he also shares some pretty inspiring startup stories The Rise of the Rest: How Entrepreneurs in Surprising Places are Building the New American Dream.
Katie Couric: For people who may not know your national road trip, what was it and what did you want to do?
Steve Fall: We called it Rise of the Rest. We started with a bus tour. It’s designed to showcase great entrepreneurs building game-changing businesses in cities that don’t get much attention. Most of the media focuses on tech entrepreneurs in places like Silicon Valley, and we really wanted to know what’s happening in cities across the country.
As we did more of these tours and visited more cities I was so impressed with the stories. I said, “I have to write a book to share these stories with other people because I find them remarkable.”
75 percent of venture capital funds go to these so-called technology hubs: Silicon Valley, Massachusetts and New York. This leaves the rest of the country fighting for the remaining 25 percent of funding. How problematic is this for entrepreneurs who do not live in these regions or states?
It’s very hard. That’s why we started – we’re trying to create a level playing field so that entrepreneurs everywhere have a chance to start a business. Here’s an encouraging thing: In the ten years since we started, 1,400 new regional venture capital firms have formed. For entrepreneurs in Ohio, Iowa or Minnesota, getting some of this local capital to get started is extremely important.
The country is divided for many reasons, but one reason is a gap in opportunity. Some people are doing really well in some places and jobs are being created. But many places have problems that make people feel excluded and left behind. We’re trying to counteract that and encourage entrepreneurs and investors to look beyond places like California, New York and Massachusetts.
What were some of the most interesting and exciting ideas you heard about and were able to fund?
The book introduces over 40 of them. There was a mother in suburban Indianapolis, Megan Glover, who was concerned about water quality. That was after the water crisis in Flint. She was concerned that her children were drinking water that might be unhealthy. So she called the water company and said, “I want to get my water tested.” They said, “We don’t really do this for people.” She called another company, and they said, “We do, but it will do you.” Cost thousands of dollars.” So she founded a company in Indianapolis called 120WaterAudit that made water testing convenient and inexpensive. It’s about $50 for anyone who wants to do that.
Another example is in eastern Kentucky, just outside of Lexington. An entrepreneur, Jonathan Webb, started a company called App Harvest. It focuses on healthier farming. They built the largest indoor farm in the country. 70 percent of the US population is a 24-hour drive from where they are based, so getting fruits and vegetables to market is easy. They use 90 percent less water, which is better for the climate. He’s created 500 jobs in an area — coal land in Appalachia — that’s kind of been left behind.
There is also an example of two women – Lori Coulter and Reshma Chattaram Chamberlin – who worked in the fashion industry in New York. Both moved to St. Louis and eventually met each other. They decided to start a swimsuit company as many women struggle to find a swimsuit that fits. So they started a company in St. Louis called Summersalt that focused on e-commerce. They made $100 million in sales just about five years after launch.
Eric Lefkofsky founded Tempus when his wife Liz was diagnosed with breast cancer. Eric was shocked by how much the treatment recommendations varied, so he started this company. Now they have over a thousand employees, a headquarters in Chicago and have expanded from cancer to other diseases. He’s revolutionizing healthcare. He did it because he saw a problem in his own family and said, “I’m going to do something about it.”
Have you seen how these companies and entrepreneurs have transformed cities and communities across the country?
In many places, people assume there is nothing they can do about losing manufacturing jobs. They get frustrated and some of the younger people decide to leave because they need to go where opportunity is. That leads a lot of young people to go to places like Silicon Valley; the grass is greener there. But when they see a company like App Harvest, they might say, “Maybe we can flip that and change the narrative. Maybe we can start new companies that can create new jobs.”
It’s not just about startups or entrepreneurs. It’s about renewing these communities and creating a sense of hope and possibility. If we do this in enough communities, I believe we can change the way America innovates. We must create a level playing field and give everyone the opportunity to achieve the American Dream.
You made some kind of mini shark tank in many of these cities where you invited people to come in and share their ideas. How important is it for these companies to receive a cash injection?
When we go to a city, our team spends six months in advance trying to understand what’s happening there. We reach out and say, “We’re coming to town and part of it is a pitch contest.” Generally, in each city, about 100 companies compete to pitch. We select the top ten and then invest in at least one idea. We coach these companies with their pitches. Regardless of whether they end up winning or not, they have more visibility in their community which leads to other opportunities or other funding and also gives them more confidence.
When we launched the seed fund, we reached out to some of the country’s most prominent people associated with innovation. We spoke to entrepreneurs like Sarah Blakely, Tory Burch, Jeff Bezos and Howard Schultz. We spoke to investors like Henry Kravis, David Rubenstein and Jim Breyer. We said, “You are a great group of people. Join us on this mission.”
We are grateful that so many people have chosen to join us in this effort. When we go to these cities, it’s not just me that shows up and says, ‘I’m going to invest in your company.’ It’s some of the country’s most respected entrepreneurs and investors who say, ‘We believe in you. We believe in your city.”
Less than 10 percent of venture capital funds go to female founders and less than 1 percent to black founders.
That’s right. The issue of leveling the pitch is not just about location. Women make up 50 percent of the population, but female founders get less than 10 percent of that money. Black Americans make up 13 percent of our population, but they receive less than 1 percent of venture capital. I’m proud that this is a great entrepreneurial nation, but that’s how it is does no matter where you live and what you look like. We focus on that every time we go to a city. We take great care to have a diverse mix of pitching founders. More than 40 percent of the companies we have supported so far – out of a total of 200 companies – were either founded by women or have founders of color. It’s still not what it should be, but it’s a lot better than other venture firms.