Homeworking Enables Small Town American Startups to Raise Funding

  • Remote working has fundamentally changed the geography of work and venture capital.
  • Venture capital firms are pursuing deals across the United States in mid-sized cities, outside of traditional tech hubs.
  • A dispersed workforce is good for businesses, workers, entrepreneurs and the economy.
  • Emil Skandul is an opinion writer on economic policy and founder of a digital innovation company, Capitol Foundry.
  • This is an opinion column. The thoughts expressed are those of the author.

With the pandemic still ongoing and employees reluctant to return to the office, remote working has had a huge impact on the location of startups and their employees. The digital workforce is everywhere: it’s time zone hoppers, part-time town planners and rural dwellers, nine-to-five beach cafes, and office devotees.

Not only has the location of employees changed due to our remote world, but the geography of venture capital investing has also been dispersed. While the coastal cities of the United States have led and captured the best part of economic growth and tech jobs over the past decades, small towns and midsize towns now have a better chance of capturing part of the knowledge economy and the capital that goes with it. . This growing geographic diversity will benefit businesses and their workers, while diversifying venture capital funding will increase access to capital and expand the presence of technology hubs to new locations in the United States.

The geography of labor and capital is changing

In a distant world, the internetization of the global economy makes time and place less relevant. Work takes place anywhere and communication takes place asynchronously.

While the migration of people over the past year to the outskirts of towns or to medium-sized towns has not been negligible, many workers have remained in place in second-tier towns as well as in areas suburban and rural. For businesses and venture capitalists, the market for investable workers and startups has expanded, transcending geographic boundaries.

-the transactions initiated allowed Central American startups to access capital that was much more difficult to obtain previously. More than a year after the remote venture capital deals began, investors seem to care less about a startup’s presence in Silicon Valley and where a team’s headquarters are located.

Meanwhile, companies continued to relegate the importance of hiring new workers based on an employee’s location. White-collar companies such as PricewaterhouseCoopers (PwC), which recently announced perpetual remote working for its 40,000 workers, have moved significantly in granting flexibility. The company’s internal survey in August showed that sentiment for permanent remote work remained unshakeable.

In a highly competitive job market that sees employees quitting or considering more benefits, why would a company impose limiting restrictions on workers and its own labor supply?

It follows, then, that the knowledge worker labor market may become much more leveled across locations over the long run – as opposed to centralized in a few cities. Many first-tier cities will continue to lead economically, but second-tier cities now have a better chance of retaining workers and attracting capital. For an entrepreneur in the heart of the country, the fall in the cost of doing business has always been offset by the geography of available capital. It is changing rapidly.

VC Gold Rush

More money than ever was invested in venture capital transactions last year, and venture capital activity is set to break all records this year with more than $ 150 billion in transactions at this time. day. However, venture capital investments have historically been concentrated, and these tech-titular capitals and the companies themselves have been located on the east and west coasts – in Silicon Valley, New York and Boston. In 2013, only half of all venture capital dollars in the United States were invested outside the Bay Area. Today, more than three-quarters of venture capital is invested outside this region, and secondary technology hubs are quickly catching the attention of investors.

Start-up funds such as Revolution’s Rise of the Rest Fund, Flyover Capital and Mercury Fund have made their investment philosophy to work with startups outside of traditional tech hubs. Venture capital here is in the “first sleeves,” Anna Mason, managing partner of Revolution’s Rise of the Rest, which manages $ 300 million to invest in startups outside of major hubs, told me. “Everyone’s still chasing diamonds in roughs they don’t understand.”

The “FOMO” factor within venture capital may be reaching a climax, but the competitive environment can be a blessing for startups throwing tricks outside of Silicon Valley. Investors are commuting across the country to “woo” the founders, and many of them are said to be making business by “sending private jets, limousines, extravagant giveaways, meals, Barry’s sponsored starter classes, and more, ”noted Deena Shakir of Lux Capital, a partner at the company. Over the past several months, New York-based Lux ​​Capital has conducted transactions in St. Louis, Austin, Texas, Emeryville, California, Salt Lake City and Boulder, Colorado. Other coastal businesses are following suit.

The gold rush in venture capital will continue to attract more investors to greener pastures and higher mountains.

Geographic diversity is good for businesses, workers and the economy

Promisingly, clusters of technology hubs are starting to sprout across the country. For example, California’s artificial intelligence sub-industry may be unmatched, but more than a dozen metropolitan areas are developing AI economies, according to the Brookings Institution. Additionally, mid-sized US cities are experiencing growth not only in technology, but also in knowledge-based jobs, and rural economic innovation to support even smaller cities is becoming a political priority as others. industries are retreating or transforming into knowledge industries. The American law on innovation and competition passed in the Senate in June, authorizing 10 billion dollars to be spent over 5 years for the creation of regional technology hubs.

Remote work could be the great equalizer for the economy. Geographic diversity would help reduce regional economic and cultural divides between the coasts and the interior of the United States. Over the past two decades, the winners of the tectonic shift to an increasingly technology and knowledge-based economy have been superstar cities – metropolises with legacy information industries, access to global markets and global research institutes. If the most successful companies in the knowledge economy depend on employees for a range of skills, experiences and perspectives, inevitably geographic diversity becomes good for business and leads to stronger ideas and innovation. solid.

For workers, remote work provides access to higher wages and a lower cost of living. A developer in Dallas will only make an average of $ 35,000 a year less than a developer in the Bay Area, but a home in Dallas will only cost a quarter of the cost of a single-family home in San Francisco.

“One advantage of not being in the Bay Area is that you don’t have a seamless view of everything,” noted Paul Powers, who founded Ohio-based 3D modeling company Physna. “We have more diversity of opinions.”

To succeed outside the Valley, VCs and startups must have regional partners on the ground to sustain the syndication of funding. In fact, it is this co-investment and this knowledge of the field that is necessary for larger investments. As regions continue to “build bridges and pathways to the valley and New York,” as Anna Mason noted, education about local ecosystems and the workforce will also need to intensify as as coastal venture capital firms find their way into uncharted territory. Powers, who has raised funds from Drive Capital, Sequoia Capital and Google Ventures, personally sensed this ignorance: “People looked at me like I was from Pyongyang, when I was from Ohio. Gradually, familiarity should be encouraged with new start-up markets.

If the rule of the Silicon Valley venture capitalist’s past was to invest only in startups within a reasonable distance, today they are geographically independent and explore mid-tier cities. Proximity and time zone are trivialized by the possibility of finding “oil well” startups.

The confluent changes in the geography of labor and capital as a result of the shift from labor to the cloud present an opportunity for a dispersed labor and venture capital market. This, in due course, will lead to a stronger US economy built on many borders.

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