At one time, Detroit was the Silicon Valley of the United States. The growth of the auto industry propelled the city forward, allowing it to quickly grow to the fourth-largest city in the country. However, as auto manufacturing began moving overseas, Detroit saw its once-thriving metropolis collapse, declining from a population of almost two million in 1950 to less than 700,000 in the summer of 2013.
Steve Case, former CEO of America Online, sees parallels between Detroit and Silicon Valley, home to the vast majority of tech companies on the market today. As founder of investment firm Revolution LLC, he is currently making a concerted effort to go after the other 47 states, a project he calls The Rise of the Rest. It is in these other 47 states where he believes there are innovations just waiting to be discovered.
The Third Wave
Revolution is focusing its efforts not only on the 47 states that have been underrepresented, but also on industries that have been underrepresented. Areas like education, healthcare, transportation, energy, and government services will likely undergo quite a bit of disruption in the next ten to fifteen years. This group is considered “the third wave” of Internet innovation.
Although Revolution celebrates the innovation in Silicon Valley like other investors, the company’s strategy is to invest in areas that haven’t gotten as much attention. In the past year in the U.S., 85 percent of venture capital went to three states: California, New York, and Massachusetts. By focusing on the other 47 states, Revolution is uncovering talent that might have otherwise gone unnoticed.
In recent years, Case has noticed a shift in startups, as innovators have indulged the desire to go back to their roots. Entrepreneurs, after achieving success, will often move away from Silicon Valley, where they’ll start their own company with a core team hired locally. The cost of living is often significantly lower, as well, allowing them to do more with the funding they’ve raised.
“Where you’ve started your company has had a huge difference in terms of your ability to raise capital historically,” Case says. “But once you’re successful, nobody cares where you are. Nobody knows that Under Armor is in Baltimore or Chipotle is in Denver or Groupon is in Chicago. But that is changing.”
The Danger of Geographic Limitations
Historically, people have been expected to move to a specific geographic location to pursue their dreams. Case points to the movie industry, long concentrated in Hollywood, and the financial industry, which was once limited to New York City. When a population relies too heavily on one geographic location, it becomes endangered if that community should become complacent.
“If we want to continue to remain the most innovative nation in the world, we’re going to have to make sure we’re constantly reinventing ourselves and constantly doing whatever we can to celebrate and support entrepreneurs,” Case says. “But not just in a few places like Silicon Valley. The reality is, this next wave of entrepreneurship is going to be more widespread.”
A Good Pitch
When describing what Revolution seeks in a pitch, he describes three things:
- Idea—“You have to be captivated with the idea. You have to believe it’s a battle worth fighting.”
- Team—“We believe entrepreneurship is a team sport, so it needs somebody to be the captain or the quarterback, but it also needs to have a good team. If it’s really early, the team’s not going to be fully developed, but some sense of how that team is coming together I think is very important.”
- Strategy—“What is the plan to break into the market and create some momentum? We believe strategic partnerships are going to become more important, so if there’s been some success in getting some traction with some partners that can really accelerate the growth, that would be helpful.”
Steve Case and his investment firm Revolution LLC might just be on to the next wave of innovation. What do you think? Will entrepreneurs move outside of the ‘traditional’ hubs of California, Massachusetts, and New York?