Seeking Startups in the Heartland

Des Moines, Iowa

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Connecting state and local government leaders

Venture capitalists look to encourage entrepreneurship in the “other” 47 states.

For officials attending the U.S. Conference of Mayors winter meeting in Washington, D.C. in late January, the topic of job creation was high on the agenda.

So it was that job creators speaking at the final plenary session on “The Future of Work” attracted much interest with their vision of jumpstarting entrepreneurial activity in cities that are are not on the coasts.

Stars of the session were AOL founder Steve Case, J.D. Vance, whose book, Hillbilly Elegy: A Memoir of Family and Culture in Crisis, spent months on the best-seller list, and Adam Neumann, co-founder and CEO of WeWork, a young, fast-growing company that provides shared office space in cities throughout the world.

On many a mayor’s agenda is encouraging young entrepreneurs to come together in downtown spaces as they work to create the companies of the future. New Orleans Mayor Mitch Landrieu, who currently chairs the Conference of Mayors, declared that the “Me” generation is being supplanted by the “We” generation and that this “huge movement” will “reinvent how people live and how they work.”

Addressing Geographical Disparities

Mayors in the audience seemed taken with the Case/Vance presentation about “The Rise of the Rest,” their effort to promote risk capital investment and startups in the American heartland—and with the news that they’ve just unveiled a $150 million fund backed by many prominent investors to provide seed capital for the effort.

The impetus comes in part from two stark statistics:

  • All net new job creation in the United States in recent years has come from startups, and none from the Fortune 500.
  • 75 percent of venture investment is made in three states: California, New York and Massachusetts.

Silicon Valley and Route 128 are famous for the innovations their communities have made over many decades, and New York City is likewise a hotbed of entrepreneurial activity. But this, of course, leaves only 25 percent for the other 47 states.

The Rise of the Rest initiative has revolved around twice-a-year bus tours of cities in the “other” 47 states. They bring together local entrepreneurs and other business people, university-based business professors, municipal economic development officials, sometimes mayors or even a Governor to display and discuss the state of startup efforts in the city, state or region. Toward the end of the day, a half dozen or so local entrepreneurs will pitch their startups to Case and a small panel of other judges. The winner is offered a $100,000 investment by Case. Publicity is an essential purpose of these gatherings--to shine a light on local entrepreneurial activity--and the media is always well represented.

The bus tours began in 2014, nearly 10 years after Case opened his Washington, D.C.-based venture firm, Revolution LLC. Revolution’s goal was not only to make money but also to find the bulk of its opportunities, in states and cities where investment capital and robust startup ecosystems were in short supply. Case learned a lot more about the topic after President Obama in 2011 appointed him as chair of the Startup America Partnership whose goal was to celebrate, inspire and accelerate high-growth entrepreneurship. He traveled widely for the Partnership, learning about obstacles and opportunities throughout the land.

About a year ago, in a column for Inc. magazine, Case wrote:

“Startups are responsible for nearly all of the net new job creation in the U.S., not to mention countless innovations that change the way we live and work. And yet, despite all the coverage of startups in the media and the never-ending techno-optimism of Silicon Valley, the hard truth is that entrepreneurship in America is on the decline. Indeed, it has been falling for decades. Between 1978 and 2012, the number of companies less than one-year-old declined as a share of all business by 44%. The consequences are enormous, as it impacts jobs, growth, and tax revenues. And the areas hardest hit are the places in the middle of the country, some of the very places where people feel left behind by globalization and digitization.”

Case went on to say that new business creation has shown signs of rebounding of late, and that “more regions are emerging with vibrant startup communities.”

Thirty-three Cities, 50 Investments

Since Case launched it in 2014, the Rise of the Rest tour has traveled 8,000 miles while visiting 33 states. Case has made about 50 investments in startups along the way.

In the West, the tour has visited Albuquerque; Denver; Phoenix; and in Utah, Provo and Salt Lake City.

In the Northeast, cities have included Baltimore; Buffalo; Detroit; Manchester, New Hampshire; Philadelphia; Pittsburgh; and Portland, Maine.

In the Southeast, Case has been to Atlanta; Charleston, South Carolina; Nashville; New Orleans; Raleigh-Durham, North Carolina; and Richmond, Virginia.

In the Midwest, the tour has been to Ann Arbor, Michigan; Cincinnati; Columbus, Ohio; Des Moines, Iowa; Green Bay, Wisconsin; Harrisburg-Lancaster-York, Pennsylvania; Indianapolis; Kansas City, Missouri; Madison, Wisconsin; Minneapolis; Omaha, Nebraska; and St. Louis.

This year’s tour is planned for May 7-11. Cities are to be announced this week.

It’s fair to ask if the bus tours can have a lasting effect. An early stop, in Manchester, New Hampshire in October 2015, provides a look. That stop was coordinated by Jamie Coughlin, who got to know Case when he took on the job of representing New Hampshire for the Startup America Partnership. Coughlin, long active in the world of entrepreneurship, is now at Dartmouth College’s Office of Entrepreneurship and Technology Transfer, working as director of the Dartmouth entrepreneurial network.

In an interview, Coughlin recounted a full day of meetings with people interested in business development. Case and others went to visit Gov. Maggie Hassan in Concord, but most of the day’s activities were held at the Manchester headquarters of FIRST, the science and technology education nonprofit started by entrepreneur Dean Kamen, who invented the Segway. At the end of the day, the winner of the pitch competition was FreshAir Sensor, a company invented by a Dartmouth chemistry professor. Coughlin recalls that the company, already on the path to success, didn’t end up accepting Case’s offer to invest $100,000. But the publicity the event generated certainly helped the company gain recognition.

Asked about the Case visit’s longer-term effects, Coughlin said it had represented a “philosophical turning point,” a “catalyst” that has encouraged various groups in New Hampshire to “look at new ways of investing in these kinds of companies. How do we build state/private partnerships; how do we build up an angel investor community; how do we encourage women to become early-stage investors?” He added that “slowly but surely” the quality of startups is improving.

The New Hampshire experience was echoed in south-central Pennsylvania, where last fall’s tour visited York, Lancaster and Harrisburg, the state’s capital city. Gov. Tom Wolf went along for most of the day, speaking of the outsized economic impact of entrepreneurship.

Archna Sahay, Philadelphia’s former director of entrepreneurial investment, covered the tour for Philadelphia magazine, and she wrote: “More than the investment from Steve, the ROTR events are an opportunity for communities to come together and explore ways to invest in each other. As Steve noted, he and his team get on the bus at the end of the day and roll to the next stop. It is up to us to keep the momentum going and to make things happen in the communities we call home.” Case’s tour had come to Philadelphia in 2015, and, wrote Sahay, “we continue to benefit from the connections made” that day.

In 2016, Case’s tour met an enthusiastic reception in Phoenix. The case for a visit to Arizona’s largest city was made principally by #yesphx, a loose collective of entrepreneurs who help one another, founding member Jonathan Cottrell told the local newspaper. Cottrell said the tour was in line with #yesphx’s mission to “support a movement of entrepreneurs in Phoenix and across the country.” Several hundred people jammed the auditorium where eight startups made their pitches for an investment.

In Atlanta, the tour encountered some who didn’t readily see what it could add to what’s already a vigorous effort in the region to spawn startup technology-based companies. Though Boston, San Francisco and New York have an advantage with their large concentrations of venture capitalists and inventors, the Southeast “is making progress in enhancing our ecosystem,” said longtime venture capitalist Bernard Gray, president of Gray Ventures in Atlanta.

Atlanta, Gray said in an email exchange with Route Fifty, is known as the health care IT hub in the Southeast. The city also benefits, he noted, from Georgia Tech’s Tech Square, a 1.4 million square-foot development downtown that houses some 30 corporate innovation centers. The Advanced Technology Development Center, oldest incubator in the country, is in Atlanta. Tech Village, a shared workplace for entrepreneurs that’s home to some 200 startups, and similar shared work environments built by Adam Neumann’s WeWork, also contribute to the city’s tech innovation ecosystem.

Georgia Tech is only one of the region’s universities actively encouraging startups, said Gray, citing such others as Emory University, the University of North Carolina, Duke University, North Carolina State University, Wake Forest University, Vanderbilt University and the University of Alabama. And many cities in the region have developed various entrepreneurial specialties, he added, including Asheville, Charlotte, Durham, Greensboro, Research Triangle Park, and Winston-Salem in North Carolina; Louisville, Kentucky; Nashville, Tennessee; Birmingham and Huntsville in Alabama; Charleston and Greenville in South Carolina; Memphis, Tennessee; and multiple locations in Florida.

Of course, investing in startups is risky, and Case has said it’s too early to tell if his choices will earn him a decent return. One early investment, in Cincinnati-based company Framieri, appears to be a loser. The company, whose customers could use the same set of lenses in multiple frames told customers last month that it was closing its doors.

Accelerating the Program

On Dec. 5, Case’s firm announced a substantial acceleration of the effort to encourage startups in the “rest” of the country—a $150 million venture fund capitalized with contributions from what it called a “dream team” of three dozen investors.

The list includes legendary venture capitalist John Doerr, Carlyle Group principal David Rubenstein, members of the Koch, Walton and Pritzker families, famed New York capitalist Henry Kravis, Amazon’s Jeff Bezos, Google’s Eric Schmidt, former HP CEO Meg Whitman and former junk bond king, ex-convict and now-philanthropist Michael Milken.

Revolution plans on investing the $150 million over three to four years in amounts ranging from $100,000 to $1 million. It hopes to back more than 100 startups, all in partnership with local investors, promising to “disrupt major industries like food, healthcare, transportation, and agriculture— industries that have long established ties to regions between the coasts,” its announcements say while also “taking on some of society’s biggest challenges” in such other sectors as education, energy, financial services, food and government services.

The fund will be managed by Vance, with a small dedicated staff. Last year, he moved from San Francisco, where he was working with another investment firm, to Columbus, Ohio. He grew up in the state and he’s thought to be eying a run for political office down the road.  

Will It Work?

In early January, the National Venture Capital Association, together with leading venture capital data analysis firm Pitchbook, declared that in 2017 the VC industry had invested $84 billion, the largest sum since the dot-com era. The money was spread across 8,035 companies. This represented a decline in the number of deals; thus more of them were large investments in so-called “unicorns,” companies valued at $1 billion or more.

At the request of Route Fifty, Pitchbook analysts provided a regional breakdown of the numbers, which confirmed the dominance of the coasts. Leading the pack was the West Coast region, followed by the Mid-Atlantic (which includes New York) and then by New England. Here are the numbers.


$$ Invested (in millions)

Number of deals

West Coast $45,000,000





New England






Great Lakes


Rocky Mountains





Pacific Northwest





Can a $150 million fund make much of a dent in what’s already an $84 billion business? Case addressed that question in a recent interview with Business Insider:

"So $150 million in the great scheme of things is not a huge fund—we get that. But if we, in fact, are on average doing 10% of rounds, we're really helping catalyze, mobilize, more like $1.5 billion of capital. And then if we have this group of investors who are well positioned to write $50 million checks down the road, hopefully it ends up being many billions of capital that gets unleashed here." He added that his backers believe that investments to help rising American communities have a moral component without being an act of charity. They may harbor “guilt for income inequality,” as one venture capitalist put it.

Mayors attending the conference were clearly interested in the Case/Vance venture, some asking them how they could get on the schedule for future tours.

And mayors in recent times have been working to attract entrepreneurs and encourage startups. At the conference there was talk about the growing movement among younger workers to return from the big cities to the smaller places where they’d grown up. This “boomerang” effect was described in a recent Axios article as follows:

Rust Belt cities have suffered severe "brain drain" the past three or so decades, the result of a decline of manufacturing jobs. Many young graduates left their hometowns to find job opportunities in larger cities like San Francisco, New York and Chicago. But as the cost of living in such bigger cities soars, some of these young professionals are looking for ways to return to their roots. And local employers are seizing the chance to get them back.

Among cities hoping to lure young entrepreneurs back to their roots is New Bedford, Massachusetts. There, Mayor Jon Mitchell has been actively working to make his city’s historic downtown into a magnet for young workers, Route Fifty reported last year.

A leading California venture capitalist, Arthur C. Patterson of Accel Partners LLC, explained why it’s difficult to change the patterns that have given Silicon Valley, Boston and New York their commanding lead in creating technology startups. “Ideas good enough to start companies around don’t come from a vacuum,” he said by email. “They need a fertile environment with lots of interactivity with others on leading edge.” Patterson added that he and other Silicon Valley investors look for ideas to back in locations all over the country, “but can only find ones who have already gotten somewhere” in developing their businesses.

Case and Vance, and countless mayors, would like to see a different, more competitive future in the “other” 47.

Editor's Note: This article has been updated to correct the gender of Archna Sahay, Philadelphia’s former director of entrepreneurial investment.

Timothy B. Clark is Editor at Large at Government Executive’s Route Fifty.

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