Good morning. Steve Case, a co-founder of AOL, has traveled across the country challenging the idea that innovation can happen only in certain coastal cities. In today's newsletter, DealBook speaks with Mr. Case about how politics may be affecting states' battle for talent, how the '90s tech bust compares with today's tech slump and more. |
 | | Steve Case, a co-founder of AOL, during his "Rise of the Rest" tour in Columbus, Ohio, in 2017.Maddie McGarvey for The New York Times |
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Steve Case has long said tech ecosystems can — and should — expand beyond major coastal cities. |
But the landscapes of both the United States and business are shifting rapidly. The pandemic has given white-collar workers in states like California, New York and Massachusetts, which have received 75 percent of venture capital dollars in the past decade, an opportunity to work from wherever they want. Politicians in states like Florida and Texas — where many companies with left-leaning social stances set up shop over the last few years — have introduced abortion bans. Florida revoked Disney World's designation as a special tax district after the company opposed a law prohibiting discussion about sexual orientation and gender identity in schools. |
As companies try to lure workers back to their desks, in a tumultuous political environment, during a year that has looked particularly grim for tech stocks, can entrepreneurial ecosystems outside major tech hubs thrive? |
Ahead of the release of his new book, "The Rise of the Rest," which will be available on Tuesday, DealBook spoke with Mr. Case about how politics are having an impact on tech hubs, how the current tech slump compares with the '90s tech bust and more. |
The interview has been edited and condensed for clarity. |
What do you think of the argument that building a handful of big tech ecosystems is much more efficient and productive — creating more innovation — than 10 or 20 scattered ones? |
I wouldn't agree with that. Diversification is a healthy thing. Particularly in this next wave of innovation, when you're disrupting health care and food and agriculture and sectors like that, some of the domain expertise that exists in other parts of the country, and partnerships that could be formed in other parts of the country, are helpful. |
I would agree that there's some value in clustering. And there is value, even in a world where more people are working remotely, to be able to come together. Our view is that instead of just having it be a few cities, particularly San Francisco, New York or Boston, let's have it be a few dozen cities and create a robust ecosystem there around particular sectors that play to the advantage of particular cities. |
 | | "The Rise of the Rest," by Mr. Case, will be released on Tuesday.Revolution |
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During the pandemic, we saw major companies open facilities in different cities, often moving from blue to red states. But now we've seen legislation in some of the red states that appears to be at odds with the policies of those companies. What do you expect happens to these companies and people who relocated to places like Texas and Florida? |
While it's too early to tell how much of an impact state laws and sentiment around certain social issues will have on people's decisions to move — or not move — to certain places, I do think there is not enough attention being paid to the topic. The pandemic led many to rethink where and how they want to live and work, and accelerated a dispersion of talent to places that have long fought to be viewed as emerging tech hubs. Communities now recognize they are competing to attract people to move to their cities. |
People will consider many factors in making these relocation decisions, but for some, the decisions states make on key social issues may prove to be pivotal. The way local and state leaders — on both sides of the political spectrum — approach hot-button issues and the way local media cover, and influencers discuss, these sensitive issues could send powerful signals to those thinking of moving to, or investing in, rising start-up cities. |
We have many things that divide us in this country, and supporting entrepreneurs is one of the few things that has historically united us. I hope we can avoid an entrepreneurial culture war, so we can continue to advance our efforts to create jobs and hope for the people and places that have been left behind. |
I believe we've hit peak Silicon Valley. It's not that the area won't continue to attract innovators, but it won't have the lead it has held for the last decade. |
Have you heard concerns from companies that people are reluctant to move to a state because of its politics? |
I've heard some concern, particularly when the Supreme Court decision [overturning Roe vs. Wade] was made. But I have not heard of any specific people who were going to move and decided not to, or had moved and decided to leave. |
You lived through a tech bust. Are there similarities to what's happening now? |
In the first decade of AOL, nobody knew or cared about the internet, nor cared about AOL. In the second decade, suddenly everybody wanted to get online, and AOL ended up being the on-ramp. And when that was happening, you saw our stock price soar. Others said, "Wow, this internet thing is really interesting." |
And suddenly there were hundreds of other dot-com companies, many of which were concept stocks that went public quite early. And then in 2000, obviously, it turned. Today, it's fair to say that we've seen a 13-year bull market, with valuations holding for most companies, especially at historic levels for fast-growing tech firms. Recently, policy changes around things like interest rates have resulted in some of the air coming out of that balloon. |
What's different is that most of the companies that have gone public in the last five years are more fully developed. And so what's happening now is a reset in their valuation. But the vast majority of the companies will still be around years from now, as opposed to what we saw in 2000. |
How could rising rates mess with tech investing? What kind of companies do you think are most vulnerable right now to missing out on investment at a 3 percent or 4 percent benchmark rate? |
What we've seen so far is more of a reset in the later-stage growth rounds, including by some of the very active crossover funds — Tiger and others — that are pulling back from investing in public companies. In the earlier stages, when you're investing, call it a million dollars, and the valuation might be $10 million, there's going to be less of a reset than when companies are worth hundreds of millions or even billions. |
Your co-founder at Revolution, Ron Klein, is now the chief of staff for President Biden. There is a perception among some in the business community that the president doesn't interact with businesses as much as he should. How do you square that with what you know about Ron? |
I think he does bring up a perspective around entrepreneurship and even an understanding around regional entrepreneurship that is helpful. |
I was pleased to see recent legislation — the CHIPS Act, as well as the Inflation Reduction Act — that funded some tech priorities, including regional hubs. And the president was in Columbus, Ohio, a couple of weeks ago for the beginning of construction on an Intel chip plant. So I think there's been progress on some of those fronts. But maybe some of the bigger companies, the Fortune 500 kind of companies, maybe they feel like there's been less engagement with the president than they'd like. That's not really where I've been focused. I've been more focused on driving entrepreneurship all across the country. |
| | | Andrew Ross Sorkin, Founder/Editor-at-Large, New York @andrewrsorkin | | Bernhard Warner, Senior Editor, Rome @BernhardWarner | | Vivian Giang, Deputy Editor, New York @vivian_giang | | Sarah Kessler, Deputy Editor, Chicago @sarahfkessler | | Stephen Gandel, News Editor, New York @stephengandel | | Michael J. de la Merced, Reporter, London @m_delamerced | | Lauren Hirsch, Reporter, New York @LaurenSHirsch | | Ephrat Livni, Reporter, Washington D.C. @el72champs | |
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