Steve Case, the cofounder of America Online, the investment firm Revolution, and its offshoot seed-stage arm Rise of the Rest, has a new book out called Rise of the Rest: How Entrepreneurs in Surprising Places are Building the New American Dream. In it, Case argues that Covid was a “shake the globe” moment for entrepreneurship, and that power will never again reside as it once did in cities like San Francisco and New York and Boston.
We spoke earlier today with Case about the book; we also chatted with him about the mentality of coastal investors, whether he harbors any political aspirations, and the status of his relationship with Ohio Senate candidate J.D. Vance, who worked closely with Case at one point (they appeared together at our TechCrunch Disrupt event in 2018).
Case also talked up a number of his bets, which have, perhaps to the surprise of skeptics, taken off since he began investing across the country. He relatedly suggested that one major piece of advice that he tries to impart when speaking with founders is the art of storytelling itself. (A powerful narrative can go a long way, particularly when you’re out of the sightline of some of the most powerful investors in the country.)
More from our conversation follows. These excerpts have been edited for length and clarity. (You can hear the longer conversation here.)
TC: You’ve been on a mission dating back to 2014 to bring more attention to founders around the country, traveling something like 11,000 miles across 33 cities. With Covid fading away, are you back on the road now or have you bookended that chapter?
SC: It [that national tour] came out of some effort a little over 10 years ago; I was asked by President Obama to chair an initiative called Startup America Partnership. And that got me focused on regional entrepreneurship and this imbalance that we’ve talked about before in terms of how 75% of venture capital dollars [were] going to just three states. And the more we visited cities, the more cities we wanted to visit. We did obviously have to stop when the pandemic hit and we have not yet restarted in terms of physical tours. But we are spending a lot of time traveling around the country. The Rise of the Rest team, which is now about a dozen people, has visited dozens of cities over the last six months.
Chris Olsen of Drive Capital in Columbus, Ohio told us a few weeks ago that though his firm had laid the groundwork for more VCs to come to the area, the opposite happened post Covid, that they’ve retreated back to the coasts. Are you seeing the same thing?
[I think] while some may hunker down in a more difficult environment and focus more on their existing investments, I do believe we hit a tipping point during the pandemic, and that will result in an acceleration of more capital flowing to more cities and more entrepreneurs in those cities.
Most people in most parts of the country, if they wanted to be part of the innovation economy, they felt they had to leave where they were to go to the coast. That started slowing over the last five years and picked up in terms of people relocating during the pandemic, [which] ended up being kind of a shake-the-snow-globe moment for society, and also for a lot of families. They kind of reassessed how they want to live and work and where they want to live and work, and that likely will result in a permanent, dynamic.
Where has Rise of the Rest invested the most dollars?
We have through our rides made 200 investments in 100 different cities, so it’s fairly broad. And we’re seeing momentum in many, many cities. Indianapolis is an example of a city that most people don’t really know what’s happening there [and one of the reasons is a] tentpole company that’s there, ExactTarget. It was acquired [in 2013] by Salesforce for $2.5 billion and, at the time, had 1,000 employees. Now Salesforce has 2000 employees in Annapolis, and [it’s] the second-largest Salesforce office outside of San Francisco, and the founder of that company and many of the early employees of that company have gone on to start new companies.
We also have seen interest in places like Richmond, Virginia; we backed a company called TemperPack that focuses on sustainable packaging. They actually started in New York City but decided to move to Richmond to build out their manufacturing capabilities, and they’ve gone on to raise $140 million in a round led by Goldman Sachs. We backed [online farmland investment company] AcreTrader whose founder, Carter Malloy, was in San Francisco decided to move to Arkansas to get the close to where the farmers are. We invested in Chattanooga in a company called Freightwaves that’s focused on building a Bloomberg data platform for the trucking and logistics industry.
Have you had any exits?
One of our seed companies, [Kentucky-based] AppHarvest, went public about a year ago [via a SPAC]. About a year ago, another company based in the D.C. area, FiscalNote went public last [via SPAC]. There’s another company out of Kansas City called Backlotcars that was acquired with a pretty significant exit company.
I think we’ve seen [the portfolio] get to seven unicorns so far, so it really bodes well for what’s happening in these places.
How does one go into business with you?
For the Rise of the Rest fund, we’ve invested with over 300 different regional venture capitalists. They lead the rounds [and] they take the board seat, because of the velocity of investments we were making. We play more of a role of connecting these entrepreneurs and connecting these investors to build essentially a Rise of the Rest network.
Do you fund these venture firms as a limited partner?
We did some of that early on, but because we’ve co-invested now with over 300 of them, we were getting a lot of requests to be investors in those funds, and we decided to back off on that because we wanted to build the broadest possible network.
At the very same time that people are moving back to their home towns or other more affordable places, the political landscape is changing in dramatic ways that some are sure to find off-putting. Abortion bans are so divisive.
Historically, cities were competing to get companies to move. Now they’re competing to get people to move. And everybody will have a different set of criteria that they prioritize. Maybe they move for family reasons, or cost of living reasons, or because there’s industry expertise in an area that you want to build on, or [it could tie to] lifestyle choices like biking or skiing. With some states, taxes make it more attractive.
I do think people will factor in some of these social issues, including the recent Dobbs ruling, and take a step back, and I think people making these decisions– whether it be local and state leaders or others in the community, even the media — should be thinking about and being aware [of this issue]. I think we want to avoid hyper partisanship in the country. We have enough issues that divide the country; we want to avoid a sort of entrepreneurial culture war.
As someone who has run an international business and probably been under pressure yourself to be political, do you think companies should take a stance on social issues?
I think every CEO has to decide, and some [of that] depends on which issues they want to weigh in on and which issues they think are most important to their key constituents, whether it be their employees or their customers or others. But [some of why people move to certain places will tie] to what the mayors and governors and politicians do. But some of it also will be what the entrepreneurs and the CEOs of the big companies decide to do.
I’m curious about your relationship with JD Vance. He managed the Rise of the Rest fund at the outset. What is your current relationship with him and what do you think of some of the positions that he has taken?
JD joined us probably four or five years ago, right after he came out with the Hillbilly Elegy book. Part of the reason for that is his wife Usha was going to be working in the Supreme Court as a clerk there for a year in Washington, DC, and we’re headquartered in Washington, DC. So he really helped launch the first Rise of the Rest fund. But after they were in DC for a year, they decided to move to Ohio, and he continued in a role for another maybe six months or so but ultimately decided he wanted to launch his own fund, which he did in Cincinnati.
I have not talked to him since he announced last year that he was running for Senate and I’ve not supported that campaign. Frankly, I’ve been surprised by some of the things he has said, which are, by his own admission, inconsistent with some of the positions he took several years ago.
Do you have any ambitions to become a politician? You have that beloved CEO thing going for you
I appreciate you saying that, but part of the reason I think I’ve been successful on policy, including even a decade ago, working on the JOBS Act — the Jumpstart Our Business Startups Act — and more recently, some of the work around regional hubs is because I’m not political. When we’re traveling around, we invite Democrats and Republicans to join us on the bus and everything we’re doing is trying to make innovation, make entrepreneurship, make startups, and make job creation a nonpartisan issue.
Tesla more than tripled its Austin gigafactory workforce in 2022
Tesla’s 2,500-acre manufacturing hub in Austin, Texas tripled its workforce last year, according to the company’s annual compliance report filed with county officials. Bloomberg first reported on the news.
The report filed with Travis County’s Economic Development Program shows that Tesla increased its Austin workforce from just 3,523 contingent and permanent employees in 2021 to 12,277 by the end of 2022. Bloomberg reports that just over half of Tesla’s workers reside in the county, with the average full-time employee earning a salary of at least $47,147. Outside of Tesla’s factory, the average salary of an Austin worker is $68,060, according to data from ZipRecruiter.
TechCrunch was unable to acquire a copy of the report, so it’s not clear if those workers are all full-time. If they are, Tesla has hired a far cry more full-time employees than it is contracted to do. According to the agreement between Tesla and Travis County, the company is obligated to create 5,001 new full-time jobs over the next four years.
The contract also states that Tesla must invest about $1.1 billion in the county over the next five years. Tesla’s compliance report shows that the automaker last year invested $5.81 billion in Gigafactory Texas, which officially launched a year ago at a “Cyber Rodeo” event. In January, Tesla notified regulators that it plans to invest another $770 million into an expansion of the factory to include a battery cell testing site and cathode and drive unit manufacturing site. With that investment will come more jobs.
Tesla’s choice to move its headquarters to Texas and build a gigafactory there has helped the state lead the nation in job growth. The automaker builds its Model Y crossover there and plans to build its Cybertruck in Texas, as well. Giga Texas will also be a model for sustainable manufacturing, CEO Elon Musk has said. Last year, Tesla completed the first phase of what will become “the largest rooftop solar installation in the world,” according to the report, per Bloomberg. Tesla has begun on the second phase of installation, but already there are reports of being able to see the rooftop from space. The goal is to generate 27 megawatts of power.
Musk has also promised to turn the site into an “ecological paradise,” complete with a boardwalk and a hiking/biking trail that will open to the public. There haven’t been many updates on that front, and locals have been concerned that the site is actually more of an environmental nightmare that has led to noise and water pollution. The site, located at the intersection of State Highway 130 and Harold Green Road, east of Austin, is along the Colorado River and could create a climate catastrophe if the river overflows.
The site of Tesla’s gigafactory has also historically been the home of low-income households and has a large population of Spanish-speaking residents. It’s not clear if the jobs at the factory reflect the demographic population of the community in which it resides.
Launch startup Stoke Space rolls out software tool for complex hardware development
Stoke Space, a company that’s developing a fully reusable rocket, has unveiled a new tool to let hardware companies track the design, testing and integration of parts. The new tool, Fusion, is targeting an unsexy but essential aspect of the hardware workflow.
It’s a solution born out of “ubiquitous pain in the industry,” Stoke CEO Andy Lapsa said in a recent interview. The current parts tracking status quo is marked by cumbersome, balkanized solutions built on piles of paperwork and spreadsheets. Many of the existing tools are not optimized “for boots on the ground,” but for finance or procurement teams, or even the C-suite, Lapsa explained.
In contrast, Fusion is designed to optimize simple inventory transactions and parts organization, and it will continue to track parts through their lifespan: as they are built into larger assemblies and go through testing. In an extreme example, such as hardware failures, Fusion will help teams connect anomalous data to the exact serial numbers of the parts involved.
“If you think about aerospace in general, there’s a need and a desire to be able to understand the part pedigree of every single part number and serial number that’s in an assembly,” Lapsa said. “So not only do you understand the configuration, you understand the history of all of those parts dating back to forever.”
While Lapsa clarified that Fusion is the result of an organic in-house need for better parts management – designing a fully reusable rocket is complicated, after all – turning it into a sell-able product was a decision that the Stoke team made early on. It’s a notable example of a rocket startup generating pathways for revenue while their vehicle is still under development.
Fusion offers particular relevance to startups. Many existing tools are designed for production runs – not the fast-moving research and development environment that many hardware startups find themselves, Lapsa added. In these environments, speed and accuracy are paramount.
Brent Bradbury, Stoke’s head of software, echoed these comments.
“The parts are changing, the people are changing, the processes are changing,” he said. “This lets us capture all that as it happens without a whole lot of extra work.”
Amid a boom in AI accelerators, a UC Berkeley-focused outfit, House Fund, swings open its doors
Companies at the forefront of AI would naturally like to stay at the forefront, so it’s no surprise they want to stay close to smaller startups that are putting some of their newest advancements to work.
Last month, for example, Neo, a startup accelerator founded by Silicon Valley investor Ali Partovi, announced that OpenAI and Microsoft have offered to provide free software and advice to companies in a new track focused on artificial intelligence.
Now, another Bay Area outfit — House Fund, which invests in startups with ties to UC Berkeley — says it is launching an AI accelerator and that, similarly, OpenAI, Microsoft, Databricks, and Google’s Gradient Ventures are offering participating startups free and early access to tech from their companies, along with mentorship from top AI founders and executives at these companies.
We talked with House Fund founder Jeremy Fiance over the weekend to get a bit more color about the program, which will replace a broader-based accelerator program House Fund has run and whose alums include an additive manufacturing software company, Dyndrite, and the managed app development platform Chowbotics, whose most recent round in January brought the company’s total funding to more than $60 million.
For founders interested in learning more, the new AI accelerator program runs for two months, kicking off in early July and ending in early September. Six or so companies will be accepted, with the early application deadline coming up next week on April 13th. (The final application deadline is on June 1.) As for the time commitment involved across those two months, every startup could have a different experience, says Fiance. “We’re there when you need us, and we’re good at staying out of the way.”
There will be the requisite kickoff retreat to spark the program and founders to get to know one another. Candidates who are accepted will also have access to some of UC Berkeley’s renowned AI professors, including Michael Jordan, Ion Stoica, and Trevor Darrell. And they can opt into dinners and events in collaboration with these various constituents.
As for some of the financial dynamics, every startup that goes through the program will receive a $1 million investment on a $10 million post-money SAFE note. Importantly, too, as with the House Fund’s venture dollars, its AI accelerator is seeking startups that have at least one Berkeley-affiliated founder on the co-founding team. That includes alumni, faculty, PhDs, postdocs, staff, students, dropouts, and other affiliates.
There is no demo day. Instead, says Fiance, founders will receive “directed, personal introductions” to the VCs who best fit with their startups.
Given the buzz over AI, the new program could supercharge House Fund, the venture organization, which is already growing fast. Fiance launched it in 2016 with just $6 million and it now manages $300 million in assets, including on behalf of Berkeley Endowment Management Company and the University of California.
At the same time, the competition out there is fierce and growing more so by the day.
Though OpenAI has offered to partner with House Fund, for example, the San Francisco-based company announced its own accelerator back in November. Called Converge, the cohort was to be made up of 10 or so founders who received $1 million each and admission to five weeks of office hours, workshops and other events that ended and that received their funding from the OpenAI Startup Fund.
Y Combinator, the biggest accelerator in the world, is also oozing with AI startups right now, all of them part of a winter class that will be talking directly with investors this week via demo days that are taking place tomorrow, April 5th, and on Thursday.
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