Every start-up hears this advice incessantly: If you're serious, move to Silicon Valley. That's where you find the most money, the best engineers and all the spillover benefits of breathing the same air that nourished Facebook, Google, etc. Lately, though, some savvy tech investors have begun drafting a new heat map, in which the Valley isn't quite as important and middle America wins new respect.
One well-known advocate of this new approach is America Online founder Steve Case. He's been visiting cities such as Baltimore, Philadelphia and Buffalo the past few years as part of his Rise of the Rest tour, in which he argues that tech's next cycle of innovation will be spread across the U.S. much more evenly. In a new book, The Third Wave, Case builds out that point of view by suggesting that entrepreneurs should look for ways to drive change by partnering with existing giants in industries such as education, healthcare and transportation.
Another convert: Paul Graham, the engineer/blogger who co-founded one of Silicon Valley's best-known start-up incubators, Y Combinator. He's now a big booster of Pittsburgh, partly because of its vibrant food culture and also for many other reasons spelled out in this post. In Graham's words: Pittsburgh used to be "a place young people left. Now it's a place that attracts them."
GrowthX, an ambitious new backer of seed-stage companies, is playing the geographic-diversity card in a big way, too. Its three founders -- Will Bunker, Sean Sheppard and Andrew Goldner -- all are based within a few miles of San Francisco. But only nine of their first 30 investments have been made in San Francisco Bay Area companies, Goldner calculates. Instead, GrowthX is targeting opportunities away from the beaten path, in places such as Phoenix, Nashville, Memphis and Jackson, Miss.
Chatting with Goldner this week, I expected him to run through all the usual reasons why the current tech boom has made it ruinously expensive to start a company in San Francisco or nearby. He's mindful of what happens when a one-bedroom apartment can cost $3,500 a month or more, and when even inexperienced software engineers expect to be offered pay packages that top $100,000. But as he tells it, a big reason to look beyond northern California involves the surprisingly high quality of investment opportunities in other parts of the U.S., beyond merely the cost differential of building a business.
Tennessee, in particular, is doing a great deal to expand opportunities, Goldner contends. He notes that Launch Tennessee, a public-private partnership, has set up nine regional accelerators that help young companies find capital, mentors and other resources. As Goldner sees it, Memphis (the home of FedEx) is a fine place to look for logistics start-ups, while Nashville (a healthcare hub) is an excellent breeding ground for health-tech ventures.
Most of GrowthX's focus is on business-to-business start-ups that are able to generate revenue early on. That has led its partners to look at areas ranging from freight, cargo and vital-signs health monitoring to social-media platforms for business. GrowthX generally prefers to be one of many investors in an seed-stage company, with the opportunity to make more investments later if the company is thriving. The firm's partners are developing an assortment of training, networking and consulting services as well, with the goal of helping companies on sales strategies and their "product-market fit."
Something's wrong when company founders outside California "feel they have to move to the most expensive market in the country, in order to be close to the capital they need," Goldner says. "That strikes us as odd. We want to solve that. We're aiming to rally local and government capital so that founders don't have to move to San Francisco if they don't want to."
