The US is by far the world’s biggest venture capital (VC) market, with $136.6bn of capital deployed in US-based companies in 2019 alone. 

However, what looks like a huge pie for start-ups located in San Francisco, New York and Boston, is perceived differently anywhere else in the country. In fact, more than 85% of that VC investment lands in those three coastal areas alone, according to data from NCVA/Pitchbook, leaving ‘the rest’ scrambling for the remaining 15%. 

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Convinced there was talent as well as scaleable businesses outside those three main regions, US entrepreneur and investor Steve Case launched the Rise of the Rest initiative in 2014 as part of his investment holding, Revolution, to discover promising tech start-ups away from the eyes of mainstream VC investors. 

Hitting the road

Started up as a bus tour, the Rise of the Rest team has travelled to 45 cities over the years to find local talent and engage with the plurality of stakeholders that make up these regional start-up ecosystems. The team went on to raise two $150m seed funds that, to date, have made 135 investments in companies located in 70 cities across the US. 

“We really see opportunities through the lens of geography,” says Anna Mason, partner at the Rise of the Rest seed fund. “Our core belief is that transformative business has, can and will continue to be built in cities across the country.” 

After covering some 11,500 miles and meeting 3000-4000 people per bus tour – each tour called in five cities in five days – Ms Mason singles out two main takeaways of her experience with the Rise of the Rest so far. 

“First, start-up communities are not built by entrepreneurs and investors alone. There are another half dozen organisations that gel in different ways in different cities, but are actually important in forming an innovation entrepreneurial ecosystem,” she says. “They can be universities, economic development organisations, mayors’ or governors’ offices, start-ups support organisations, and even the local media, which have the storytelling imperative to help cities develop their brand of innovation and share the success.

“A second takeaway is that start-ups in rising cities tend to operate more capital-efficiently than their counterparts on the coast. In part it’s about necessity, as they have less access to capital – but it’s also about their mentality.” 

Time to invest

Although the crisis triggered by the Covid-19 pandemic has hit start-ups everywhere hard, Ms Mason believes “there is no better time for placing bets on entrepreneurs”. She points out the Rise of the Rest’s second seed fund that closed in November 2019 has already invested in about half a dozen companies since the outset of the pandemic. 

“It’s about industry and talent. Many of the industries that have already seen some meaningful evolution and innovation in the past 10 years will experience an acceleration of that evolution in the age of Covid, into companies whose legacy industries are in the backyard of many cities across the country,” she says. “One prominent example is healthcare, another is supply chains.

“With regards to talent, it’s possible start-ups in rising cities will benefit from people leaving urban areas and moving back home or to other places that offer life perks like affordable housing, strong education systems and less congested commutes,” she adds.

“But talent has long been an issue for Rise of the Rest companies and it won’t change overnight. Overall, companies between the coasts won’t be exempt from the challenges that all start-ups will face in this new climate. It will be harder to raise capital and there will be increased pressure to demonstrate profitability.”

This article first appeared in the August - September edition of fDi Magazine. View a digital edition of the magazine here.