Three hotspots for surprising startup activity, according to AOL co-founder Steve Case

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After eight road trips across the United States on his venture capital firm Revolution’s tour bus, AOL co-founder Steve Case found himself with a bit more time after the pandemic pulled the road bus.

Since 2014, the tour has stopped in cities outside of the major tech hubs of San Francisco, New York and Boston as part of Revolution’s “Rise of the Rest” initiative. Stopping by places like Harrisburg, Pennsylvania and Birmingham, Alabama, the company held startup launch contests and awarded investment grants to winners. Revolution has also raised two seed funds totaling $300 million with the philosophy of jump-starting tech innovation in these foreign cities by investing in new businesses from scratch. “It’s an important avenue to try to create more jobs, and also hope and opportunity in many places that have been left behind,” Case says.

Case’s initiative has now invested in some 200 companies in 100 cities. With a ninth road trip postponed twice, the billionaire has used some of the free time to turn his experiences into stories for a new book, titled Rise of the Rest: How Entrepreneurs in Surprising Places Are Building the New American Dream, to be published in September. “I think people will be surprised how, over the next decade, many iconic multi-billion dollar companies will emerge and grow in cities across the country,” he says.

Here are three surprising places Case highlights, with some lessons to be learned from their rise:

Chattanooga, TN

Chattanooga has become the “Silicon Valley of trucking,” Case says, due to the confluence of two supercharging factors: industry expertise and government policy. In previous decades, the city has become a stronghold of the freight and logistics industry, home to companies generating hundreds of millions of dollars in revenue like Kenco Group and Covenant Logistics. E-commerce, accelerated by the pandemic, has challenged the supply chain; Chattanooga’s expertise in the field has spawned a number of logistics software companies. Revolution invested in locally based FreightWaves after winning the pitch competition during a tour leg in 2017; the company, which provides freight market analytics, was last valued at $286 million after a venture capital and private equity round of funding last year, according to PitchBook.

The ability to develop modern technology solutions for an outdated industry was enhanced in Chattanooga by the 2010 deployment of high-speed broadband Internet. The city built the network, one of the fastest in the United States, through a city-owned telecommunications provider. “More and more mayors are recognizing that economic development shouldn’t be about getting big business to open an office, a call center or a factory, but rather about investing in things to attract the big business of tomorrow” , says Case.

Indianapolis, Indiana

Nearly a decade after Salesforce acquired local marketing software company ExactTarget for $2.5 billion, Indianapolis has begun to develop a tech ecosystem, Case said. The city has become one of the largest Salesforce outposts, with over 2,300 employees. As a result of this concentration of talent, several dozen new companies have sprung up, Case says; his fund has backed 120Water, which makes software for the water industry, and software manager Zylo. “The same dynamic happened with Austin because of Dell and with Seattle because of Microsoft,” Case says. “Success begets success, momentum begets momentum. Flagship companies are really an important factor.

Northwest Arkansas

Anchored by the investments of the Walton family, northwest Arkansas has become a regional economic center. The area is particularly focused on “place-making,” Case says, with concerted efforts to build amenities and restaurants. This has led to an influx of techies and executives, including Phil Libin, co-founder and CEO of virtual meeting software startup Mmhmm. But Case argues there’s more to the rise of northwest Arkansas than a general pandemic-induced migration of workers out of Silicon Valley.

Case’s Rise of the Rest fund has backed three startups in the region over the past year, including AcreTrader, a digital farmland investment marketplace, which launched in San Francisco before moving its headquarters in Fayetteville, Arkansas. The move, according to Case, reflects a rise of vertical software companies in non-traditional tech hubs that have strengths in older industries. As with logistics startups in Chattanooga, companies like AcreTrader are capitalizing on agriculture, the industry that generates the most revenue for the state. Unlike its original location in San Francisco, AcreTrader’s base in Arkansas allows it to gain “credibility and trust with farmers,” Case adds; last month, the startup raised a Series B at a $300 million valuation, according to PitchBook. Other cities that could benefit from the same effect, he thinks, include Baltimore and Cleveland for healthcare startups and Columbus for insurance technology.

“People tend to see it in a simplistic way — maybe these cities are more appealing because of the lower cost of living,” Case says. “There’s that aspect for sure, but there’s also a lot more strategic advantages for some of these companies to be in some of these cities.”

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