Three Hotspots For Surprising Startup Activity, According To AOL Cofounder Steve Case
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After eight road trips across the United States on the tour bus for his venture firm Revolution, AOL cofounder Steve Case found himself with a bit more time after the pandemic took the bus off the road.
Since 2014, the tour has made stops in cities outside of the premier tech hubs San Francisco, New York and Boston as part of Revolution’s “Rise of the Rest” initiative. Stopping in places like Harrisburg, Pennsylvania and Birmingham, Alabama, the firm hosted startup pitch competitions and awarded investment grants to winners. Revolution has also raised two seed funds totaling $300 million with a philosophy to jumpstart tech innovation in these outsider cities by investing in new companies from the ground up. “It’s an important path to try to create more jobs, and also hope and opportunity in a lot of places that have been left behind,” Case says.
Case’s initiative has now invested in some 200 companies across 100 cities. With a ninth road trip postponed twice, the billionaire has used some of the time on hand to turn his experiences into stories for a new book, titled Rise of the Rest: How Entrepreneurs in Surprising Places are Building the New American Dream, due out in September. “I think people will be surprised how, over the next decade, many iconic multi-billion-dollar companies are birthed and scaled in cities all across the country,” he says.
Here are three surprising spots Case is highlighting, with some lessons to learn from their rise:
Chattanooga has become the “Silicon Valley of trucking,” Case says, as a result of a confluence of two supercharging factors: industry expertise and government policy. In decades prior, the city became a stronghold for the freight and logistics industry, home to companies generating hundreds of millions of dollars in revenue like Kenco Group and Covenant Logistics. E-commerce, accelerated by the pandemic, has put a pinch on the supply chain; Chattanooga’s baked-in domain expertise has given rise to a number of logistics software companies. Revolution invested in locally-based FreightWaves after it won the pitch competition during a tour stop in 2017; the company, which provides freight market analytics, was last valued at $286 million after a round of venture capital and private equity financing last year, according to PitchBook.
The ability to develop modern tech solutions for an antiquated industry has been bolstered in Chattanooga by the 2010 rollout of high-speed broadband internet. The city built the network, one of the fastest in the United States, through a municipally-owned telecommunications provider. “More and more mayors are recognizing that economic development shouldn’t be about luring big companies to open an office or call center or factory—it should be investing in things to attract the big companies of tomorrow,” Case says.
Nearly a decade after Salesforce acquired local marketing software firm ExactTarget for $2.5 billion, Indianapolis has begun to sprout a tech ecosystem, Case says. The city has become one of Salesforce’s largest outposts, with more than 2,300 employees. As a result of that concentration of talent, several dozen new companies have cropped up, Case says; his fund has backed 120Water, which makes software for the water industry, and software manager Zylo. “The same dynamic happened with Austin because of Dell and with Seattle because of Microsoft,” Case says. “Success begets success, momentum begets momentum. Tentpole companies are really a big factor.”
Anchored by investment from the Walton family, Northwest Arkansas has emerged as a regional economic hub. The area is particularly focused on “placemaking,” Case says, with concerted efforts to build out amenities and restaurants. That’s led to an influx of tech workers and executives, including Phil Libin, cofounder and CEO of virtual meeting software startup Mmhmm. But Case contends that there’s more to Northwest Arkansas’ rise than a general pandemic-induced migration of workers out of Silicon Valley.
Case’s Rise of the Rest fund has backed three startups in the region in the past year including AcreTrader, a digital investment marketplace for farmland, which was launched in San Francisco before moving its headquarters to Fayetteville, Arkansas. That move, Case says, is reflective of a rise of vertical software companies in nontraditional tech hubs that have strengths in older industries. As with logistics startups in Chattanooga, companies like AcreTrader are capitalizing on agriculture, the industry which generates the most revenue for the state. Unlike in its original San Francisco location, AcreTrader’s Arkansas base allows it to gain “credibility and trust with farmers,” Case adds; last month, the startup raised a Series B at a $300 million valuation, according to PitchBook. Other cities that could benefit from the same effect, he muses, include Baltimore and Cleveland for healthcare startups and Columbus for insurance tech.
“People tend to look at this in a simplistic way—maybe these cities are more attractive because of lower cost of living,” Case says. “There is that aspect for sure, but there’s much more of a strategic benefit too for some of these companies to be in some of these cities.”
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