The Rise Of The Rest

A number of years ago, Steve Case took a lesson from Ken Kesey and got himself a bus so that he could use it to discover America. In the mid-60s, with the money he’d made from One Flew Over the Cuckoo’s Nest, Kesey assembled a crew of people who turned a road trip into an inauguration of a new 60s culture. Case is trying to do much the same thing, but in a less performative way than Kesey’s Merry Pranksters. Over the past eight years, Case has been getting acquainted with America’s overlooked communities: 43 of them to be exact. Towns and entrepreneurs ignored by venture capitalists, that is. Case has been rediscovering an America forgotten by the citadels of venture capital: Silicon Valley, New York City, and Boston. (Three-quarters of all venture capital in the U.S. land in California, New York and Massachusetts.)

Case wants to nudge all of America—not just the urban centers enriched by our technological revolution—into what he calls the Third Wave of the Internet. To do that, he has formed a venture capital firm called Revolution. It’s a venture capital initiative with two $150 million funds, underwritten by the likes of Jeff Bezos and Ray Dalio. The First Wave was the Web and his own startup, America Online. The Second Wave was social media, a wave we’re still riding. The Third Wave will be driven by the “Internet of things” where devices and people and much of what human beings make will be networked. This vast interconnectedness can spawn thousands of new ideas for services and products, and Case hopes much of that innovation will come from the American communities left behind by the first two waves. What Case wants to do is nudge this tide of innovation into all those forgotten communities across America where small and mid-sized businesses used to thrive.

The entrepreneurial spirit he finds in smaller communities has been what he’s trying to document and nourish: he calls it The Rise of the Rest, the title of his new book about his quest and the way America is changing for the better. It’s where he and many others expect most of the new jobs and new opportunities to arise in the coming years. Mid-sized and smaller start-ups are what generate most of the job growth in America, and Case is one of the few visionaries who recognizes what that means. Unexpectedly, the pandemic provided fuel for the growth of entrepreneurship across the map. Kirkus Reviews summarizes the landscape Case describes in his new book:

“Case’s initiative was armed with a bucket of funds contributed by investors such as Jeff Bezos and Ray Dalio. The climax of each stop on their nationwide bus tour was a pitch competition with a $100,000 investment prize. In addition to the cash prize, Case’s group provided important advice and contacts. During the pandemic, many ambitious people left their jobs in San Francisco, New York, or Boston to return to their home cities, leading to revivals in places like Omaha, Chattanooga, and Green Bay. It seems that the pandemic provided a boost to the startup community nationwide, with 5.4 million new business applications filed in 2021.”

In a recent interview with Just Capital, Case described what he sees happening on the ground. He describes steady progress every year through 2019, as people migrated from large cities into smaller communities and sources of capital began to recognize the potential outside the Big Three regions for tech growth. “It was steady progress and then COVID has been a tipping point.” Many woke up to the fact that they could choose to live and work anywhere, now that the pandemic proved how remote work was effective. Suddenly “steady progress” became “acceleration.”

The fuel for some of this was a parallel awakening in the citadels of venture capital: “It’s also been helpful on the venture investing side. Investors intrigued with some of what’s happening in rising cities but not necessarily intrigued enough to jump on a plane could now jump on Zoom and talk to people in those cities. That led to a lot of pitch meetings on Zoom.”

This was an acceleration of a trend in place for a decade. Since around 2012, a surprising 1400 new venture capital firms have sprung up outside San Francisco, Boston and New York. These are outposts of needed seed money for home-grown ideas in towns no one would have considered part of a tech boom in the past. When someone in Green Bay has an idea, there’s now a better chance that the funding can come from his region, not from the coasts.

What I find most encouraging about all of this is that the Rise of the Rest does more than nourish innovation and economic growth in communities that lag in both. It is quietly ushering in a new vision of capitalism: stakeholder capitalism. These innovative visionaries recognize that they can’t survive if their companies don’t nourish the very society that provides their revenue. Case told Just Capital that most of these new firms embrace a vision of responsibility that extends beyond the bottom line. They are purpose-driven. They honor multiple stakeholders.

AppHarvest in Kentucky promotes sustainable agriculture but it is also focused on bringing opportunity to depressed coal mining communities in Appalachia. Jonathan Webb of AppHarvest made this part of the start-up’s mission. TemperPack in Richmond, Virginia offers sustainable packaging, easy to recycle. Case has focused on diversity in hiring for his own team and looks for the same priority in any venture his organization funds. “Right now the Rise of the Rest portfolio, which is about 200 companies, is 41-42% female founders or founders of color, which is still not what it should be, but a lot better than you see in most venture firms.”

Just Capital asked Case why corporate leaders in general should be keeping an eye on his Rise of the Rest.

His answer was simple. Because their success will depend to some degree on the vitality and change it embodies. Anyone who wants to anticipate the future will naturally be clocking what’s happening in small, innovative new start-ups. If for no other reason than to buy them. Even the largest companies need vibrant local economies spread out around their locations. A happy company is an assembly of happy individuals. You help keep your employees happy by giving them a delightful place to work, but also to live. When you’re living in a community with new, energic businesses desperate to please their customers, it can make life even better for those who work in the legacy firms.

A city that’s “interesting to live and work in . . . makes it easier for those big companies to attract and keep the people they want to take their companies to the next level.”

Can Steve Case’s mission help unite a country that seems so divided?

Case says, “My hope is that this book will lead everybody in America to maybe feel a little bit better about our country’s potential future. One of the big problems is the opportunity gap where some people in some places are doing really well, and a lot of people in a lot of places are struggling and feeling left behind because they have been. So the idea is that fertile startup ecosystems in more places brings more capital, which creates more jobs, which drives more economic growth, and which will then create more opportunity and more reasons for people to be more optimistic about the future. I think it’s critical that we do that if we are going to have a country that continues to lead the world. Now is the time to get it done.”

I couldn’t agree more. I think what Steve Case is discovering will hold true in the years to come. The “rise of the rest” will also be the “the rise of the best.” This new breed of entrepreneur will bring with it a new, inclusive vision of capitalism. Stakeholder capitalism, where leaders embrace the welfare of all stakeholders, including shareholders, in order to nurture a society where free enterprise thrives and offers an opportunity to everyone willing to work for it.

Steve Case reads my mind: “I believe in America! I believe in America, as long as we’re celebrating the next generation of entrepreneurs, how we’re doing it everywhere, not just in a few places.”