J.D. Vance, author of “Hillbilly Elegy,” sees an opportunity to level the playing field between overlooked communities and elite tech hubs.
In his best-selling memoir, Vance describes the cycle of poverty he saw growing up in Ohio and from his family in Kentucky, as well as the economic conditions and culture that he believes enabled it. Now, he will be a partner at Revolution LLC, a venture-capital firm led by AOL co-founder Steve Case, and will work with the firm to invest in companies outside of Silicon Valley, New York and Boston.
Revolution has a “Rise of the Rest” initiative that looks to put funding into what Case calls “the next 30” cities, such as Cincinnati, Ohio, Detroit or Madison, Wisconsin. Vance will be looking for seed stage investment opportunities across all sectors in these types of urban areas.
Vance recently moved to Columbus, Ohio, from Silicon Valley, where he worked as a partner at Mithril Capital Management, a fund co-founded by Peter Thiel. He will still remain “engaged” with that firm in addition to his role at Revolution.
Vance and Case spoke with MarketWatch on Tuesday about why investors would choose to invest in smaller cities and how that affects surrounding communities.
MarketWatch: In your New York Times Opinion piece, you talked about a brain drain happening in small towns across the U.S. Do you think putting venture money into these communities will help combat that?
J.D. Vance: The question of whether people are moving from one town to another isn’t quite as important to me as whether people are able to access opportunities close to home, whether that means moving 15 minutes away, an hour away or so forth. I do think that venture capital can be and is in many places a solution to the problem of why we have, in some of these regions of the country, so few economic opportunities. Part of the answer is because we have very few high-growth startup companies.
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Will investing in these larger cities trickle down to helping the white-working class in nearby communities, which you describe as being plagued by heroin addiction and a loss of factory jobs?
Vance: I think it definitely does have a positive downstream effect. When these urban economic centers do well, it’s not just good for the people who live in those cities, it’s very often good for those people who live nearby and benefit not just from the jobs that are provided but also the indirect jobs; the families who benefit from a wage earner and a stable paycheck. Now do I think it’s the only solution to the problem? I don’t think that this is an entirely economic issue. But I do think that really driving some of the high-growth businesses that venture capitalists tend to fund into these areas will certainly be a critical part of the solution.
But do you think that the startup boom in Silicon Valley helped the surrounding communities?
Steve Case: It helps in some respects and obviously it creates some challenges in other respects. The rent has gotten up to being pretty unsustainable and that forced a lot of people to move out of the cities or in some cases move to a different part of the country. But I think there’s also generally a dynamic in the country more broadly, where fundings in a few places like Silicon Valley are creating disruptive technologies that have in many cases destroyed jobs in the rest of the country. And we’re offsetting that by backing the entrepreneurs in the other parts of the country that are trying to create new kinds of jobs in their community.
Do these communities have enough resources to support and sustain a tech community?
Vance: I think that cities that are the focus of the “Rise of the Rest” initiatives really do have the infrastructure and the employees to unlock a lot of startup growth. These are places typically that are relatively large urban centers, they have great educational infrastructure, they have a lot of energy and a lot of talent. What they don’t necessarily have access to is a lot of startup capital.
I also think that a lot of these startup ecosystems have institutional legacy businesses that can provide a lot of help and potential partnerships. If you’re in Pittsburgh, you benefit a lot from the robotics and medical device innovation that’s happening across Carnegie Mellon [University]. If you’re in Cincinnati, you benefit a lot from the marketing and branding expertise that exists at Proctor and Gamble
Why would investors choose to invest in a city outside of Silicon Valley or New York?
Vance: We don’t just think of this as good humanity and good morals, we also think this is a good business opportunity. We expect that investors can make a lot of money by investing in these areas, and we know that the valuations are lower in some of these regions than they are in Silicon Valley. We know that the cost of living is lower. So I think that there is a real business case for investing in some of these areas. Whether the companies come from people who spent some time in Silicon Valley or not, I expect we’ll be able to find good businesses.