How Startups Beyond Silicon Valley Land Funding

A good venture capitalist can spot promising “under the radar” companies that need funding. With Silicon Valley and New York City saturated with well-funded startups, these venture capitalists have begun seeking opportunity in further-flung cities not traditionally regarded as “tech hubs.”

For example, venture-capital firm Revolution’s Rise of the Rest Seed Fund is finding and funding ventures in places such as Green Bay, WI, or Nashville, TN. “There are a lot of really great companies taking advantage of sector expertise or existing industries that are unique to locations outside of the coasts.” said David Hall, a partner with Revolution, which boasts former AOL CEO Steve Case and bestselling author J.D. Vance among its executives. “Industries like healthcare, agriculture and transportation do not generally have their foundation in Silicon Valley.”

Revolution prefers a “road show” approach, selecting five or six smaller cities and having executives travel there by bus to check out local prospects. “We are generally looking for cities with an emerging or growing startup hub that has a unique story or vision,” Hall said. “Sometimes, the cities lobby us.”

The team will spend the day touring the local tech scene, checking out accelerators and incubators in addition to local companies. At the end of the day, local companies get to make their pitches, much like the contestants on “Shark Tank.” About eight to ten companies, selected from a local pool about ten times that size, will compete to make the best pitch; the winner gets a $100,000 investment.

And the Funding Winner Is…

One such recipient is Rapport, a consulting firm offering analytical and tracking tools for small businesses eager to improve their sustainability. Based in Portland, ME, Rapport finds itself at the nexus of the tech industry and local sentiments that “place value on natural resources and the environment,” said Justin Jaffe, Rapport’s co-founder.

Back in 2015, Rapport competed against dozens of applicants for Revolution funding; it walked away with a $100,000 investment. That attracted subsequent investments totalling $500,000.

Rapport only has five employees in the US, Jaffe said. The company outsources web development work to another firm in Belarus. The CTO is in Washington, DC, while the chief scientist is in Hawaii, all working remotely.

Acrew is another success story. Located in New Orleans, the firm created a video-interview system that companies can use as a substitute for first-round phone interviews when hiring. Revolution’s visit coincided with New Orleans’ Entrepreneur Week 2015. Acrew won the business pitch competition, snaring the $100,000 check. Since then, company founder Crystal McDonald has raised another $750,000.

There are some differences between Rise of the Rest investments and typical venture clients. “Companies in ‘Rise of the Rest’ regions are often further along in their business model (because investment capital hasn’t been as accessible) and more capital-efficient (they aren’t paying NYC or SF rents),” Hall pointed out.

The firms that receive funding also tend to be small. “We’re only six people,” said Acrew’s Karns. The big fish in the New Orleans tech pond is General Electric, he added, so most tech hires go there. Acrew makes do with local outsourcing for its tech needs, having no engineers on its staff.

There is No Place Like Home

Acrew and Rapport have no desire to pull up stakes for greener tech pastures elsewhere. “I don’t feel we are limited being located here in Portland, Maine,” said Rapport’s Jaffe. “I feel Rapport belongs to Portland.”

Likewise, Acrew has no inclination to leave New Orleans, Karns added. There is a sense of wanting to stay and help the local economy grow.

Rise of the Rest’s approach to localities is varied. “Revolution has always believed that great companies really can start and scale anywhere.” Hall said. “Usually we have great on-the-ground networks that help us understand what is happening in the city and what companies are trending, and best represent the various dimensions of that particular region’s startup ecosystem.”

Rise of the Rest’s funding totals $150 million, and completed its sixth road show this past October (Central PA; Ann Arbor, MI; Indianapolis, IN; Columbus, OH; and Green Bay, WI), with a Spring 2018 tour in the offing.