Richard Feloni/Business Insider
JD Vance, second from left, and Steve Case, third from left, ride the Rise of the Rest bus with their colleagues and guests in Chattanooga, Tennessee.
- AOL cofounder Steve Case runs the DC-based venture capital firm Revolution and has "Hillbilly Elegy" author JD Vance run his $150 million Rise of the Rest Seed Fund.
- Case is convinced the future of American startups is outside of Silicon Valley.
- For the past four years, Case and his team have gone on seven bus tours, across 38 cities in 26 states.
- This article is part of Business Insider's ongoing series on Better Capitalism.
Silicon Valley has thrived as the hub for tech startups because of the access to capital, talent, and other resources that have developed over years. New York City and Boston, along with neighboring Cambridge, have developed their own strong startups communities for the same reason.
This distribution of entrepreneurial talent and money has worked well for the first couple generations of online businesses, but the tides are already shifting, argues Steve Case, the billionaire cofounder and former CEO of AOL.
It's why four years ago he launched the Rise of the Rest initiative through Revolution, his Washington, DC-based venture capital firm. It started as a bus tour around "rising" cities with emerging startup scenes, where, at the end of each day, Case would give $100,000 of his personal wealth to the winner of a pitch contest. Happy with the results, Case launched a $150 million seed fund last year to expand upon the idea, and recruited limited partners (they invest money but don't share counsel) like Amazon CEO Jeff Bezos and Bridgewater Associates founder Ray Dalio.
"We want great returns for the fund but we also want to showcase the companies to others," Case told me, explaining he and his team want the companies they invest in to symbolize the unique opportunities in that specific region.
Case hired "Hillbilly Elegy" author JD Vance from Peter Thiel's VC firm and put him in charge of the fund. The fund will be used for about 20 investments every year: the winners of the pitch contests, plus more startups in the Rise of the Rest communities.
In May, the Rise of the Rest team wrapped the seventh tour, bringing its total to 38 cities across 26 states.
Here's where most of the VC money goes in the US, according to CB Insights:
Shayanne Gal/Business Insider
And here's where Case and his team invest their money:
Shayanne Gal/Business Insider
As he explains in his 2016 book "The Third Wave," Case believes that the so-called "Internet of Things" is about to become the "Internet of Everything." Case argues that the companies that will thrive in the Third Wave will not benefit from being in a tech ecosystem, despite using cutting-edge technology. These companies will be in industries that are often highly regulated, like healthcare and agriculture, and will not be scrappy startups setting out to disrupt industries from the outside; rather, they will succeed through partnerships with established leaders and institutions.
And the reason the US should want to see these communities succeed is because he believes they will drive job growth that benefits entire cities. Case cites a 2014 Kauffman Foundation report that says startups account for a full half of all new job creation in the US.
Vance told an audience in Chattanooga, Tennessee that he and his team want to see cities embrace their strengths rather than overly compensate for weaknesses. "I see what's going on in the next wave of innovation, the next wave of technological change, as really depending on things that places like Chattanooga are good at, as opposed to the things that Silicon Valley is good at.
"These are national scale, maybe even global scale companies," Case told me, referring to highlights of the last tour, even beyond those companies in the competitions. "They just happen to be in Louisville, they happen to be in Chattanooga, so they shouldn't just have regional ambitions. They can go the distance."