Venture capitalist spreading funding to Middle America
Billionaire Steve Case says too much venture capitalist money goes to businesses on the coasts. So he's touring the middle of the country on a bus in search of the next big idea
For years, pundits have declared the United States has split into "two Americas". A nation divided by politics, geography and the economy. But one tech icon believes he can help even out the playing field.
Steve Case, the man who co-founded America Online and injected the jingle "You've got mail!" into the American lexicon is now trying to steer venture capitalists and their money to areas they've typically overlooked. Mostly, small towns and cities in the middle of the country. His vehicle to do that is a $150 million dollar investment fund and a 35-foot long, bright red bus.
We joined the billionaire on his bus for a recent road trip and soon found ourselves aiming for the edge of a wheat field in Tennessee.
Steve Case is here to meet a few entrepreneurs who say they've created a new technology that could revolutionize the way America farms. These robots are actually miniature tractors that are operated remotely.
"I believe in these entrepreneurs."
The entrepreneurs are looking for a cash infusion from case to jumpstart their business.
Case is looking for the next big idea and is knee-deep in his quest.
Sharyn Alfonsi: Typically how hard has it been for these guys out here to get the attention of capital?
Steve Case: Super hard. Super hard. Right now, 75 percent of venture capital goes to three states: California New York and Massachusetts… Most of the venture capital is on the coasts, not in the middle of the country and we just have to change that.
Tech behemoths like Amazon and Google have doubled down on big cities, but case believes the best opportunities are off the beaten path.
And that's where the bus comes in.
Case and his team are scouring the middle of the country looking for promising ideas overlooked by Silicon Valley. They've travelled to 38 cities, and 26 states. Thousands of miles. Often spending 12 hours a day on the road.
Sharyn Alfonsi: You're a successful guy. You've made a fortune. Why in the world do you wanna ride around on a bus in the middle of the country for 12 hours a day, day after day?
Steve Case: Because I believe in these entrepreneurs.
Sharyn Alfonsi: But you could believe in them from Washington, D.C., and send your people out. But you go there and you get on the bus and you drive around. So why are you on the bus?
Steve Case: I wanna get everybody on the bus. There are entrepreneurs like me all over the country. Most people are not paying attention to them. Most people in their communities don't believe in them. Most people on the coasts don't think there's anything interesting, innovative happening in the middle of the country.
So convinced there is money to be made in the middle of America, Case raised $150 million to create what he calls the "Rise of the Rest" fund. "The Rest," referring to entrepreneurs in cities like Indianapolis, Detroit and Birmingham. Areas usually overlooked by venture capitalists.
Steve Case: If you care about this city you have to invest in startups.
Today's stop: Memphis.
Dozens of entrepreneurs have gathered in a dusty church to pitch case and his team their ideas. Among the competitors, the inventor of a new headlight, the maker of a biodegradable medical device and a former musician who has come up with a better way for fellow musicians to get paid for their work.
Backstage, Case and his team quickly vote. The winner gets $100,000 to grow their business. Pocket change for Case, but a shot of adrenaline for the city's struggling economy.
The poverty rate in Memphis is almost two times the national average, crime is rampant and 30,000 people have left the city in the last decade.
"We have to kind of level the playing field so everybody everywhere really does feel like they have a shot at the American dream."
Memphis is a hard sell to investors and entrepreneurs have paid for it.
Steve Case: I realized it because I, you know, spent a lotta time traveling around the– the country. There– most people in this country wake up in the morning anxious, fearful about the future.
Sharyn Alfonsi: Fearful?
Steve Case: They're fearful.
Sharyn Alfonsi: Why?
Steve Case: Because the things they see happening, mostly on the coasts, are hurting their family, hurting their community. They see that these Silicon Valley companies bragging about disruption, sometimes that's code words for job destruction in their backyard. And that troubles them. They're losing jobs, not gaining jobs.
Sharyn Alfonsi: And do you feel that when you go there? Do you feel that they think, "We've kind of been forgotten here–"
Steve Case: Of course. They have been forgotten. It's not about a feeling about being left behind, they have been left behind. We have to kinda level the playing field so everybody everywhere really does feel like they have a shot at the American dream. Right now, they don't.
J.D. Vance agrees. It's the reason he became Case's partner in the Rise of the Rest fund. Vance, wrote the New York Times' best-seller "Hillbilly Elegy."
Sharyn Alfonsi: Do you still consider yourself a hillbilly?
J.D. Vance: (LAUGH) I certainly do. I certainly do, and it's the thing I'm proudest of.
Sharyn Alfonsi: A hillbilly in a blue blazer now? (LAUGHTER)
J.D. Vance: Yeah, well, my– my wife dressed me, so you can talk to her about that.
Vance's book details his upbringing in Appalachia, surrounded by heartbreaking poverty, drug addiction and instability.
After a stint in the Marines, then earning degrees from Ohio State and Yale Law School, Vance began a career as a high tech investor in Silicon Valley.
J.D. Vance: I definitely get a little bit skeptical when somebody's development a new app for parking, and they tell me they're changing the (LAUGHTER) world. So, I do think sometimes folks in San Francisco can drink a little bit too much of their own Kool-Aid.
Discouraged by so called "transformational technologies" that weren't, two years ago, Vance moved back to Ohio to help run the Rise of the Rest Fund.
He says many of his Silicon Valley friends had preconceived ideas about people from small towns.
Sharyn Alfonsi: Did you ever feel like you had to be defensive about where you were from?
J.D. Vance: Oh, sure, sure. I definitely had to defend this part of the world, d– had to defend some of the people who lived here.
Sharyn Alfonsi: Defend them from what?
J.D. Vance: I– I think defend them from the assumption that they're all stupid and that they don't know what they really want in the world. I think there is this– this presumption that the only people who live here are the people who are forced to live here. They can't get out, or they're too dumb to know that they should leave. And that's just not true. I think people are here because they care about their communities and they want to build something special here just as folks in San Francisco want to build something special there.
Kentucky native Jonathan Webb wants to build something special in his home state.
We met him in Pikeville, Kentucky. Once a thriving coal town in the heart of Appalachia, it's been hemorrhaging jobs and residents.
One in three people here make less than $12,000 a year, living below the poverty line.
Webb thinks it's the perfect place to build high tech greenhouses and here's why.
Most U.S. produce comes from the West and Mexico. Traveling thousands of miles to get to our plates. Webb says Kentucky's central location means he can save on fuel costs and get fresher products to stores faster.
Jonathan Webb: We can get to 70% of the US population in a one day drive.
Rise of the Rest has invested in Webb's idea.
Jonathan Webb: I want to be a high school student in Eastern Kentucky right now!
Now he's trying to convince the local high school students here there's a future in Eastern Kentucky.
STUDENT ONE: There's not anything here right now. And I hope and pray for our community that something does come back here, but as of now it's impossible for all of us to stay even though 90 percent of us want to, and be able to live the kind of lives where we could support ourselves and our family too.
STUDENT TWO: My whole family's here, they've been here. But there's just– there's nothing here. No job, nothing.
Sharyn Alfonsi: You worry about your parents?
STUDENT TWO: Yes. And, like, you worry how– how are you gonna make it? I mean, how– I mean, how can they live paycheck to paycheck? And you wanna help, but there's just no future for you.
Pikeville, like much of the region, has been gripped by the opioid epidemic.
STUDENT TWO: Our overdose rate is huge. So many people that's what they die from around here. Like, you– I mean, that's what it– that's what it is.
Jonathan Webb has contracts with local rehab centers to hire recovering addicts. Starting salaries will be $13 an hour, nearly double Kentucky's minimum wage.
Jonathan Webb: Folks need opportunity. And if they don't have opportunity we are going to continue in that cycle here.
This Walmart is the town's biggest employer and the hills here are scarred with ads for personal injury attorneys. We counted 15 of them in town. And Eastern Kentucky has one of the highest rates in the country for people who've stopped looking for work.
Sharyn Alfonsi: I'm gonna play devil's advocate.
J.D. Vance: Sure.
Sharyn Alfonsi: People who say, "This is an area that's been riddled with a drug problem. They don't really have the desire to work." What do you say to that? How do you answer that?
J.D. Vance: We shouldn't just accept that the story should be one of decline. And that's what I think– you know, at its core, what Rise of the Rest is about is refusing to see the worst in any place. We want to see the best.
J.D. Vance: I'm a venture capitalist, so I'm pretty comfortable with risk. If you look– even the best venture capitalists, a very large share of the companies that they invest in fail. And to me, what we ultimately want is– to recognize that just because a place is risky doesn't mean it can't ultimately be productive.
Sharyn Alfonsi: But it's not easy?
J.D. Vance: No, it's certainly not easy. And I don't think that five years from now we're gonna completely change the economy of Appalachia or any other part of the country. But I do think that what you're seeing is some real long-term momentum to bring more economic prosperity to broad parts of the country, not just a few cities on the coasts.
In the past year, the Rise of the Rest Fund has invested in over 100 companies in 63 cities.
Some of the biggest names in business are investors. Members of Walmart's Walton family, former Facebook president Sean Parker and Google's Eric Schmidt.
Not just offering cash, but advice to the entrepreneurs.
They've had some success. Watchmaker Shinola, who they discovered on their first bus tour through Detroit, now has more than 30 stores.
In Baltimore, a city that has long struggled with pockets of extreme poverty, they invested in Catalyte, a company that developed an artificial intelligence test to identify people with aptitude for software development, no experience or education required.
Pass the test and Catalyte will train you. Company president Jacob Hsu says about 90 percent of their trainees land six figure jobs as software developers.
Jacob Hsu: Our people come from all walks of life. We have fast food workers, we have teachers, musicians, artists, truck drivers– security guards. We have people who come from all over, right into these, into these positions.
Catalyte is rapidly expanding and plans to open in 20 cities in the next two years.
Jacob Hsu: This isn't kindergarten engineering; this is the real deal. We're not doing it just for a charity, we're doing it because we found a better way.
Back in Pikeville, J.D. Vance and Jonathan Webb are hunting for a second greenhouse site on top of an abandoned mine.
Sharyn Alfonsi: Do you think you're gonna make money? I mean, is this just something that feels good for the region, or– or is this a good investment?
J.D. Vance: We're doing this certainly because it feels good, but we think it'll work too.
The stakes are high. Not just for the entrepreneurs, but, Steve Case says, for the country.
Sharyn Alfonsi: For the skeptics who say this is just a vanity project for Steve Case?
Steve Case: They can say whatever they want. I think it's important…
Sharyn Alfonsi: And why is it important? Why does it matter? If it doesn't happen, then what?
Steve Case: I think we're gonna take– what's already a pretty big divide in this country, and it's gonna get a lot worse.
Sharyn Alfonsi: To get the attention of those venture capitalists, you have to be successful. You have to make money. So how much pressure is there to get this right?
Steve Case: We've gotta get this right. This, to me, really is about the future of America.
Produced by Katy Textor. Associate producer, Lucy Hatcher.