Steve Case: Let's invest in Middle America

If the 2016 election result teaches us one thing, it is that America cannot continue to be a country where a few areas — Silicon Valley, New York — prosper wildly, while much of the rest of the country is buffeted by economic uncertainty.

We cannot solve this division by turning the clock back to the 1950s: Globalization and technology are irreversible forces, and what made Detroit, Cleveland and Omaha great decades ago cannot be restored with the wave of a wand. As a nation, how do we heal the division between coastal economies that are enjoying larger and larger gains from economic change, and a large expanse of our country between the coasts that have nostalgic wishes for an unrecoverable economy of days gone by?

There is a third way: Invest in and nurture the innovation and entrepreneurial talent that exist outside of Silicon Valley and New York, to build great companies and more prosperous communities in the rest of the country. Over the past three years, I have traveled by bus to more than two dozen cities, covering nearly 6,000 miles to advance what I call the “Rise of the Rest,” an effort to shine a spotlight on entrepreneurial ecosystems throughout the heartland. I have met with scores of entrepreneurs, elected officials and civic leaders in places such as Charleston, Milwaukee and St. Louis to encourage start-up creation in cities once dependent on other industries. We’ve invested in more than 50 companies on these tours (and via related activities), not just because we want to support growth in these cities — although we do — but also because the men and women in our nation’s heartland are starting impressive businesses in places that provide unique culture, local expertise and supportive policies.

We invested in Shinola, for example, which has bet its future on new manufacturing in the Motor City and the abilities of hundreds of former autoworkers to craft watches, bicycles and other goods.

Despite our work, the odds remain stacked against entrepreneurs outside of Silicon Valley and New York. Most investors don’t share my view. They heavily concentrate their backing of companies in New York, Massachusetts and California — these three states get about 80% of venture capital investments. Overall, about 90% of venture capital in 2015 went to “blue” states and just 10% went to those states that voted for President-elect Donald Trump. This allocation of capital creates a cycle where a few places enjoy investment backing, partnerships and growth — and most of the rest of the country struggles to get ahead.

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Responsibility for changing this dynamic starts with Silicon Valley’s and New York’s technology leaders and venture capitalists. These giants must redeploy capital to the other 48 states. But if such efforts are just handouts from the prosperous growth centers to the areas left behind, then the disconnect between tech and the rest of America is likely to persist. The answer isn’t handouts from Silicon Valley, it’s collective efforts to further accelerate the innovation already happening in places such as Cincinnati, Omaha and Des Moines. What we need now is for industry — including, but not limited to, those in Silicon Valley — and government to bolster entrepreneurship across the country.

First, we need to increase access to capital for start-ups and speedups in the heartland. We should simplify rules for crowdfunding so that future generations of entrepreneurs have easier access to investors. Additionally, we should create tax breaks and other incentives to drive investment in growth-starved regions.

Second, real change will require more than a series of new regulations and tax incentives; it will necessitate a change in mind-set. Rise of the Rest cities are often too risk-averse and lack the fearlessness celebrated in places such as Silicon Valley. Cities need to deliberately nurture environments where both success — and failure — are embraced.

Third, the nascent entrepreneurial communities I have visited are often fragmented, lacking the network effect that is critical in creating innovation hotbeds. Finding ways for founders to be more connected with each other and more connected to local industry and officials is vitally important.

Finally, all cities need to create a more inclusive form of entrepreneurship where people from different backgrounds and expertise have the opportunity to pursue good ideas. Because, at the end of the day, the Rise of the Rest is primarily about stopping the flow of capital to the same people, in the same places, for the same ideas.

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It is not the American way to have a few wealthy cities, optimistic about the future — with a struggling majority wanting to turn back the clock. Technology has made our lives easier, healthier and safer. But innovation has not come without costs, something the tech industry is just now fully waking up to. The problem, however, is bigger than Silicon Valley myopia, so the solution must be go beyond asking it to do its fair share. Government, legacy companies and tech need to invest in unleashing America’s creativity to create more companies in more places.

The good news is that the building blocks for new hubs of innovation already exist in many cities across the country. If nurtured and supported, these emerging centers of technological progress can be engines of economic growth, job creation and municipal revitalization — helping cities rise from within. We must make this nationwide transformation a priority because America, Silicon Valley included, can never truly move forward while so many feel left behind.

Steve Case, a co-founder of America Online, is chairman and chief executive of Revolution and author ofThe Third Wave: An Entrepreneur’s Vision of the Future.

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