To Steve Case, the former CEO of America Online, venture capital should be doing much more than merely supporting startups that create jobs and innovations. To him, that's the least of it. He actually thinks venture capital can bring together a divided country. Case made his remarks at the Concordia Annual Summit, where I interviewed him onstage.
Helping to heal the country sounds like a tall order for an industry that is famously coastal and pours its money into startups led by young white males, often to the exclusion of women and people of color. Some 79 percent of venture capital goes to just three states: California, New York, and Massachusetts. Eighty-three percent of it goes to all-male teams; about one percent goes to African-Americans.
Case's reasoning hinges on job creation, and goes like this: On the whole, he says, large companies don't create jobs. Small companies don't either. If a restaurant in town goes out of business, he says, another restaurant will probably move in, and probably employ about the same number of people.
Instead, jobs are created by the in-between companies that are growing quickly. If you're not focusing on those companies, "You're not going to be creating jobs in your community," said Case.
What supports these fast-growth companies? Among other things, venture capital, which he looked at in light of the 2016 presidential election. "If you look at all the states that President Trump won, it's about 30 states," said Case. "If you add up all the venture capital in all those states, it was 15 percent" of the total. That includes plenty of states that get less than one percent -- Case named Pennsylvania, Ohio, and Michigan in particular. So it shouldn't surprise us, he said, that plenty of people in those states are feeling disaffected. They see tech disruption and jobs being created, but not for them. "It's not really helping them, not really helping their families, not really helping their communities," he said.
Case, of course, runs three venture funds specifically to invest in companies not located in California, New York, or Boston. The most recent of these funds, the third under the name Revolution Ventures, launched just this month with $215 million. To identify and promote entrepreneurial ventures and startup ecosystems in parts of the country that don't typically get much attention from venture capitalists, Case has embarked on a series of bus tours. These tours, called Rise of the Rest, have visited 43 cities since 2014. Each day on tour typically ends with a pitch competition, and the winner receives $100,000 in seed funding.
"We hope more VCs on the coast spend more time in the middle of the country," Case continued. "We know they'll find great companies. But we also think that's a way to unify a country that is being split apart."
Reviving startup cities.
Case focused on three components of a healthy startup ecosystem. One, which his funds are tackling, is access to capital. A second, he said, is talent. And the third is "a subtler point around culture," he said. "That is one of the great things about Silicon Valley. You hear an idea and think wow, that could change the world, and how big it could be. Most people in many parts of the country focus on what could go wrong, not on what could be right."
The key ingredient in building these ecosystems, said Case, is collaboration. That means getting universities to pay more attention to budding entrepreneurs among their students, and connecting campuses to other resources in those communities. It's equally important, he said, to get the largest companies to understand why startups are key to local economies.
Case called out two examples of cities he believes have made substantial progress. In Cincinnati, he says, Procter & Gamble and other large companies got together to create an accelerator for startups, and created a fund of funds to invest in those companies. "That was an example of big companies coming together and saying these things are important," he said.
He was also impressed by what has happened recently in Detroit. At one time, he said, Detroit "essentially was Silicon Valley. It was the most innovative city in the country, probably in the world, and the car was the hot technology of the day." In the last five or six years, he said, Detroit has "really fought its way back." He credited entrepreneur Dan Gilbert, the Detroit-born founder of Quicken Loans, as well as "a strong mayor, a strong governor, and foundations like Kresge... Detroit, that for a decade was on the decline, is now on the rise again." Case said his own Rise of the Rest fund has invested in half a dozen companies in Detroit, as well as Ann Arbor and Travers City.
Case isn't bothered by the fact that, despite his efforts, the so-called Heartland of the country still gets a tiny slice of venture capital dollars. He's reminded of the time, 34 years ago, when he and others started America Online. Three percent of people were online, and on average, they were online for an hour a week. Most people didn't think the internet was a good idea. Case would go to conferences and explain what he was trying to do with America Online, only to get a reaction that he describes as: "That's stupid, and you're not going to be successful," he recalled. "It took a decade before people paid attention and another decade to get America online."
"When we talk about the Rise of the Rest, we know some people are skeptical," he said. "We have a lot of work to do."