When FreightWaves won the Rise of the Rest Chattanooga pitch competition in 2018, it resulted in an investment in the company by one of the biggest names in technology. But, as much as the startup competition meant for FreightWaves and the other Chattanooga-area companies in terms of exposure, it might have meant more to Steve Case and the Rise of the Rest seed fund backers.
“We’re just hoping to be a catalyst and shine a spotlight on cities that are rising, do what we can to drive more collaboration in those cities, and create a culture around more risk taking and possibility in those cities,” Case, the co-founder of AOL and now CEO and chairman of Revolution LLC, told FreightWaves founder and CEO Craig Fuller during the keynote address kicking off FreightWaves’ FreightTech Venture Summit on Wednesday morning.
Case told Fuller that Revolution and the Rise of the Rest fund are hoping to stop the exodus of top talent from smaller communities and ultimately show that successful startups can come from anywhere.
Watch: Steve Case talks venture capital
“We want to slow that ‘brain drain’ and get people staying [in their communities] when they grow up or graduate from universities,” Case said.
Revolution LLC has three parts — Revolution Growth that invests in growth-stage companies; Revolution Ventures that focuses on Series A and Series B investments; and Rise of the Rest that is a seed fund.
Revolution grew out of a desire to showcase emerging startups around the country and prove that Silicon Valley is not the only location that can nurture businesses.
“Most venture capital is in Silicon Valley and there are great things happening in Silicon Valley obviously, but because there is so much capital there and just a small number of entrepreneurs and a small number of companies, a classic supply and demand [develops] and the valuation of those companies tends to be on the high side,” Case said. “And the evaluation of that same company [if it were] to be in Chattanooga or one of these other rising cities, would be lower.”
Case said he believes there are great entrepreneurs away from the coasts just looking for a chance.
“They’re great companies that are being built all over the country, yet most of the venture capital focus is on the coasts,” he said. “If you look at the data, last year, 75% of venture capital went to just three states — California, New York and Massachusetts.”
The bus tour
Rise of the Rest created a bus tour in 2018 and to date has made eight bus trips, visiting 44 cities, and made investments in over 150 companies in over 70 cities, Case said.
“[We really want] to give entrepreneurs that have this idea like you did the opportunity,” Case told Fuller.
In 2017, Case published “The Third Wave: An Entrepreneur’s Vision of the Future.” The New York Times best-seller offered Case’s vision of the technological future. Fuller asked him about the book and how, in 2020, he thought his vision was playing out.
Citing his own experience building AOL, Case explained how companies need to adapt to policymakers and that partnerships are becoming a bigger part of a business’s success. He noted that in the book, he touched on a broader question of whether Big Tech companies needed to more proactively engage with policymakers as questions around their motives were sure to arise.
“I had written about that as well that over time there would be a backlash against Big Tech and Silicon Valley needed to do a better job of engaging with policymakers proactively,” he said, noting that more companies are recognizing the role of regulations, such as in the health care and food sectors.
“There’s a natural alignment there and sometimes it’s frustrating for entrepreneurs frankly because regulations slow you down, but the reality is as a society, we are going to insist the drugs we’re taking and the medical devices we’re [using] are safe and effective, so there is going to be a regulatory component,” he said.
The second theme of the book was the importance of relationships.
“If you really want to innovate, take health care for example, it’s not so much about the software — of course that’s important, but that’s almost like table stakes — the real action is how you create alliances,” Case said. “How you get doctors and nurses to use it, hospitals to integrate it, health plans to pay for it, and regulators to allow it.” That’s going to be the difference between success and failure.
“Because of this growing importance of partnerships to really scale these ideas, we think there is an opportunity in these rising cities that didn’t exist in the second wave of the internet,” he added.
Build from within
Case suggested city leaders spent more time looking at investing in startups.
“You have to plant some seeds — that’s why it’s called seed capital — into some of those companies, and some of those will grow up to be the big companies of tomorrow,” Case said. “There’s way too much focus, particularly around mayors and governors trying to lure big companies to open an office, a factory or maybe in the case of Amazon, a second headquarters … and I understand why people in those roles need to do that, but focusing more on trying to unleash the startups that can be the next Amazon is where the leverage is.”
The Rise of the Rest fund is helping to do that. Case noted that women make up roughly 50% of the nation’s population yet receive less than 10% of the venture capital. The situation is even more stark for Black founders. Despite Black Americans making up 14% of the population, Black founders get less than 1% of the venture capital.
To combat this, Rise of the Rest is conducting a virtual tour for Black founders in early December. Case said that “hundreds have already applied” and more than 100 venture capitalists have agreed to be part of the program. Each applicant will meet with a venture capitalist, and the ones with the best ideas will get to pitch their ideas for a chance to win a $1 million investment. Two runners-up will receive $500,000 each.
“It does matter where you live, it does matter what you look like, and it does matter who you know, and we’re trying to change that dynamic as well and level the playing field there as well,” Case said. “And that’s what led us to launch this virtual tour.
“It’s not just about those particular companies, it’s about how do you create a broader network extending what we built with Rise of the Rest so it’s not just focused on place [but] in this case, it’s also focused on race,” he added.
Ultimately, Revolution hopes to help founders build successful businesses and show that Silicon Valley is not the only place for bright ideas. The result is positive for communities, Case noted, citing Dell’s rise in Austin, Texas, and Microsoft’s growth in Seattle as examples.
“Nothing beats success,” Case said.