The U.S. remains the entrepreneurship capital of the world, but its hold on that distinction is in danger, according to Steve Case.
Case, the co-founder of America Online and CEO of venture capital firm Revolution, has some thoughts on how we can fix that–and it involves focusing less on the startup hubs of Silicon Valley, New York City, and Boston. Revolution’s Rise of the Rest fund invests exclusively in startups located outside those three places. Case discussed the topic during a Thursday panel at the Fast Company Innovation Festival that also featured Minnesota senator and 2020 presidential candidate Amy Klobuchar.
Case says the U.S. needs to expand venture capital, and the innovation that comes with it, beyond the small number of hubs where it’s currently concentrated. Last year, 78 percent of all U.S. venture capital went to companies based in California, New York, or Massachusetts. That number was up from 75 percent the previous year and 60 percent in 2008.
Other countries, Case said, have figured out that the “secret sauce” that has powered the American economy is entrepreneurship, which leads to innovation and job creation. And the best solution to help the U.S. keep its edge is to pour money into cities with up-and-coming startup communities.
“That will maximize the likelihood that we have more shots on goal, that the ideas and the companies of the future will be birthed and grown in the United States,” he said. “If we’re only relying on a small number of people in a small number of places, like Silicon Valley, it’s almost impossible to imagine we’ll win this next innovation battle.”
Case specifically mentioned cities like Nashville and Minneapolis, in Klobuchar’s home state, both of which have large and growing health care sectors. He pointed to health care as an industry that will lead the next wave of internet-based startups, many of which will affect our lives in ways more meaningful than the social media companies that dominated the last wave.
“We need to make sure capital is flowing to people with those ideas,” he said, “so they start there and scale there as opposed to feeling like they have to go someplace else.”
The rise of remote work has made that easier, Case added. Companies can maintain headquarters in the middle of the country and still have access to talent on both coasts. “Maybe we’re at a little bit of a tipping point,” he said. “Because of the pandemic, there will be some shifts in talent flows. The capital, I think, will follow that, and people will suddenly see that great companies–the Fortune 500 companies of tomorrow–can be in other places.”
For her part, Klobuchar has pushed to bring more funding to the heartland via the New Business Preservation Act, a bill she sponsored earlier this year. Under the proposed legislation, the federal government would set aside $2 billion in funds that would be used to match VC investments in startups. The allotment for each state would be based on its population, with the amounts for California, New York, and Massachusetts reduced to adjust for the disproportionate amount of VC money already in those locations.
Klobuchar said that while a state like Minnesota is home to huge corporations like Target and 3M, new startups and young entrepreneurs are keys to the future. Locations in the middle of the country, she added, can be attractive to young people because of the cheaper cost of living–so those places need to take advantage. “[We have] the ability to start spreading that wealth out,” she said.