For the first time in a decade, less than 30 percent of total U.S. venture capital has gone to Silicon Valley…
Maturing regional/local ecosystems supported by new sources of funding/innovation support, migration, and open relationship-building are creating beds of talent, capital, and emerging technology that make finding, funding, and scaling companies away from the Coasts even more attractive.
In recent years, entrepreneurship has spread outside of hotbeds like the Bay Area, with vibrant startups emerging in unlikely cities such as St. Louis, Atlanta, and Chattanooga.
Still, Steve Case, the former CEO of AOL, insists that Silicon Valley remains the most powerful player in the startup world.
“It is the leader of the pack and will continue to be the leader of the pack, the most vibrant startup ecosystem really in the world that will continue,” Case recently told Yahoo Finance. “We’re not talking about the fall of Silicon Valley, we’re talking about the rise of dozens of other cities to create this more dispersed innovation economy.”
The startup scene in Silicon Valley dates back the 40s, when Frederick Terman, the dean of the Stanford University School of Engineering, began encouraging faculty and alumni to start companies. In 1951, he created the Stanford Industrial Park, which served as the headquarters of companies like Hewlett-Packard (HP) and Varian Associates.
The late 50s saw further innovation when eight of Nobel Prize Winner William Shockley’s top researchers resigned from his lab and founded Fairchild Semiconductor. The company would go on to build the first integrated circuit, a key a key component of modern electronic devices that helped establish the Bay Area as the tech innovation hub.
By the early 70s, large amounts of venture capital money began flowing into Silicon Valley with the founding of firms like Kleiner Perkins and Sequoia Capital.
“Silicon Valley rose up, a number of things kind of came together. Certainly, great universities like Stanford, a sense of a possibility. A lot of people moved to California because it was sort of a pioneering spirit, even the Gold Rush and that, that mentality to help inspire, you know, people,” Case said. “But also, that’s kind of where venture capital really was based. It a little bit started in New York, but the center of gravity really was in San Francisco. And then you created this increasing returns dynamic where there more and more of the money was there.”
Despite Silicon Valley’s rich history of business innovation, 2021 has seen an increase in venture capital funding outside of the Bay Area. For the first time in a decade, less than 30 percent of total U.S. venture capital has gone to Silicon Valley, according to a report produced by Rise of the Rest Seed Fund and PitchBook.
For the last decade, Case, who co-founded AOL in 1985, has toured the United States by bus in search of promising entrepreneurs and startups outside of the Valley. His Washington, D.C. venture capital firm, Revolution LLC, has invested in nearly 200 companies in more than 100 cities. He argues that companies outside of traditional startup hubs should garner more attention from investors.
“I think it’s shifted from a something where people thought it was a little on the fringe to now recognizing some really significant companies that are being built in different parts of the country,” Case said. “And it makes sense to be broadening your aperture beyond where you happen to be, whether it be San Francisco or New York or Boston and look for the opportunities in other places.”
In his book “The Rise of the Rest: How Entrepreneurs in Surprising Places are Building the New American Dream,” which was released in September, Case profiles 30 innovative new companies from unexpected places. For instance, he writes about Catalyte, a software company based in Baltimore that uses AI to find and train software engineers. He also spotlights Appharvest, a sustainable food company in Kentucky that offers a more efficient alternative to traditional agriculture companies.
“It really is remarkable what’s bubbling out there. And I really do believe over the next decade, it will accelerate,” Case said. “And, 10 years from now, we will recognize Silicon Valley is still the leader, but will have a much more diverse innovation. economy, much more inclusive innovation economy, which I think will be good for those communities and frankly good for the country.”