This week took me to the Rise of the Rest conference in Washington, DC. ROTR is Steve Case’s bold effort to address startup formation outside the three metropolitan regions that garner 75% of venture capital – San Francisco, Boston and New York City. The rest of us are relegated to “fly over” status, even though in Atlanta most every airline passenger has to change planes and “fly through.”
Of the 150 or so participants at this event, a common theme among the many who presented or with whom I spoke directly was the notion of building something. Our own company has long used the slogan “build something from nothing” in the context to turning fledgling technologies into thriving ventures. There were many impressive builders at ROTR providing skills, inspiration, capital, networks, partners, physical spaces, markets, and, well, hope. Some, but not all, were focused on underrepresented segments of the population, recognizing that African American founders received only 1% of US VC funding in 2017 and all-female founding teams about 2%. The term “ecosystem” is too commonly used, but that is in fact the institution many of these leaders are creating wherever they are deploying their energies around the country.
Indianapolis stands out as a shining example of the benefits to a flyover city that result from a major local success story. Scott Dorsey led ExactTarget through its IPO and ultimate acquisition by Sales Force. The local employment resulting from that numbers in the thousands, and, more important, I suspect the number of careers launched over the run of that company is even greater. No doubt there are many startups attributable to talent developed at that venture. A big win of that nature creates a broad spray across a tech community. There was a similar effect in Atlanta from MSA. As recently as the early 1990’s, the vast majority of the local software industry had some connection to MSA. We sold Peachtree Software to them and became part of the bloodline ourselves. All my experience with Indianapolis has been attending about a half dozen Indy 500 and Formula 1 races, and I enjoying talking racing with Mr. Dorsey. He’s clearly a pillar of that city and one of the poster executives of ROTR.
Similarly, Steve Case and Ted Leonsis anchored the non-government tech industry in the DC area through their achievements with AOL, and Steve has broadened his vision to have an impact on the entire nation. We heard example after example of geographic areas where there are many favorable factors for startups: affordable housing and offices, quality universities doing substantial research, available tech talent at far below coastal salaries, and customers, lots of customers. What’s been missing has been the capital, the knowhow, and the confidence that merit-worthy startups are possible. We’re talking more than just incubator facilities; they’ve already spread beyond the burbs to small-town America. (A knowledgeable friend has speculated that there will soon be more incubators than startups in the US; he’s probably not far off in that prediction.)
The most successful of the many fine presenters at this event were entities I viewed as givers, not takers. Yes, those entrusted with funds have to generate returns to sustain their models, but these givers have added extra layers of effort to create opportunities in the less obvious locales and demographic segments. Some have been clever about turning meager market-rate 2% management fees into scalable organizations by profiting from teaching and delivering innovation techniques to far-flung corporate offices. One $20M fund has 60 employees using that model. They could hoard their service earnings and have a nice business, but they have chosen to redistribute them into target markets to establish the knowhow and confidence mentioned above. They’re being rewarded with performing investments as a result, and I’m sure coastal mega-funds will be follow-on investors as needed. They’ve built something that gives to communities a vision they might otherwise never have seen. And, they’re doing it not as philanthropists but as astute investors. What they’re building is a sustainable legacy.
Another gentleman explained to me how he has turned a section of west Baltimore into a tax-advantaged area with both housing and workspaces and is assembling resources to teach people there how to raise up their entrepreneurial ideas and pursue them where the costs at eminently affordable. He told me about decent $2500 houses, not $2500/month, $2500 for 100% ownership. Throw in the necessary intellectual and motivational support, and you can go a long way with such a favorable cost advantage. He too is one who has decided to be a giver in pursuit of community success.
I could go on with many more examples, from Couer D’Alene, Idaho, to Des Moines, to Madison, to Detroit. All these givers are acting according to good business principles. They’ve just decided to stay out of the unicorn hunting in the Valley and look for more green field opportunities where they can raise smaller funds, do good where it’s genuinely appreciated, and still generate investor returns in the higher percentiles. Time will tell, but it’s important for the country that individuals have taken on the challenge of redistributing startup opportunities more broadly across the 50 states and all socioeconomic classes.
What message is in this for you as a founder? Should you load up and move your team to Indianapolis? The answers to those questions are different from company to company. What type of support do you need? Where are your natural connections that might result in investment dollars? What family constraints determine where you can live? Where are your potential customers? If you’re developing an ag machine, do you locate near a top mechanical engineering school or get closer to the farms in Des Moines? Where can you find the talent that fits your business model? What kinds of special economic incentives are available to you in one city versus another? What leisure pursuits are key to your enjoyment of life? Where do you fit in terms of age, culture, skills, and interests?
Rise of the Rest allows you at least to ask some of those questions. If it continues on its current trajectory, you may feel less compelled to go the Valley with a software idea, to New York with a financial or marketing concept, or to Boston with your life sciences breakthrough. Your decision sets will be more diverse and more interesting. If you want to stay close to your family, you might have that option without jeopardizing your company. Or, if you want to get farther away, the same applies. However, wherever you go, keep in mind the fundamental principle that it’s who knows you, not who you know, when you want people to join your team as colleagues, investors, advisors, or customers. Where you live is one decision; how you engage with that destination requires considerable introspection and justifies another essay. It takes some time to create a support system wherever you locate and no matter what sort of startup programs are already in place. You’re just another newbie on Day One. How many days must pass before you have earned your way into the fabric of your chosen home?
I will close with four pieces of advice:
- hold to your vision of building something
- decide to associate with other builders
- learn to differentiate the givers from the takers when you plant your flag with “the rest”
- become known yourself as a giver in your community of choice