Silicon Valley exodus amplified by pandemic, says Steve Case - Protocol — The people, power and politics of tech
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Steve Case says the pandemic has accelerated the Silicon Valley exodus — and that’s fine

The AOL founder says his friend John Chambers and others in the country's main tech hub shouldn't worry too much about tech rising elsewhere.

Steve Case says the pandemic has accelerated the Silicon Valley exodus — and that’s fine

Steve Case, AOL founder and now CEO of Revolution, trying out new technology at the University of Nebraska.

Photo: Revolution

Steve Case, founder of AOL, is a technology pioneer who opted not to run a major tech company from the industry's mecca, Silicon Valley.

The 62-year-old pioneer, who led the early internet service from Virginia, has long argued there's a need for new tech hubs beyond the Bay Area. He thinks Silicon Valley has drained away too much attention, investment and talent from other parts of the country. And he thinks that's not been healthy for the U.S. tech industry as a whole.

Case is CEO of Revolution, the Washington, D.C. venture firm whose Rise of the Rest fund has been reaching out to startups and entrepreneurs across the U.S., mostly cities outside the traditional tech centers in the Bay Area, New York City and Boston.

Case sees the future of tech outside those regions, especially at a time when Silicon Valley is reeling from what some have — perhaps hyperbolically — described as a mass exodus.

Over the past few months, Hewlett-Packard Enterprise and Oracle announced moves to Texas. Palantir changed its headquarters from Palo Alto to Colorado. Other companies have declared themselves virtual, with employees free to work from anywhere.

Among those who've been alarmed about the Silicon Valley exits is another prominent Silicon Valley figure, John Chambers, the former CEO of Cisco, who told Protocol, "We're in real trouble."

Case had read that interview with Chambers, who is a friend of his. "What John seems to be bemoaning I'm of course celebrating," Case said, laughing.

In an interview with Protocol, Case, whose investment firm has been actively connecting with entrepreneurs and startups in cities across the U.S., shared his own views on the state of Silicon Valley, the rise of new tech hubs in the country and his upbeat view of the future of Silicon Valley.

This interview has been edited for clarity and brevity.

Let's start with what you thought of John Chambers' warning about what's been called a Silicon Valley exodus.

I've been warning for a number of years that too much capital is focused on Silicon Valley, and not enough capital focused on the rest of the country. Even though Silicon Valley is obviously awesome, and will continue to be awesome and will continue to be the leader of the pack, it doesn't make sense that so much capital is focused on just that area. As a country, we've overweighted our investment in our innovation economy in a few places, particularly Silicon Valley. Spreading the capital out makes sense and spreading the talent out also makes sense.

The pandemic has sort of accelerated some of that, which I think is a good thing. I don't think there's going to be a mass exodus from Silicon Valley. I think that's a little overblown. But I think there are a lot of people that in the last few decades that felt like they had to be in Silicon Valley in order to participate in the startup sector and are starting to realize there are dozens of cities that are showing real momentum in terms of what's happening with startups in Denver and [Provo, Utah] and Austin and in Chicago and Atlanta. Overall, it gets a positive development and hopefully it will continue to accelerate.

That was already a trend before the pandemic. What were the biggest shifts since the crisis began? What were the changes that maybe even surprised you?

The main one, specifically related to the pandemic, is the flow of talent. We've been talking about this for a long time and predicted that the brain drain where most people in most parts of the country left those places because there wasn't much opportunity there — they wanted to participate in the tech sector, the startup sector, the innovation sector — that that brain drain would slow. And then eventually we'd see a boomerang and people returning.

As you said, there was a little bit of that pre-pandemic. You saw it in some cities. Pittsburgh, for example: A lot of Carnegie Mellon graduates that 10 years ago invariably left, more and more were staying.

I do think the pandemic will be sort of a silver lining of a difficult situation. More people have moved. They thought they were doing it temporarily to shelter [in place]. And some of them are deciding to stay. Most of those probably will still work for the current company that they were working for, just do it remotely. But some will end up joining companies in the area or maybe starting companies in the area that will result in those startup cities rising.

And that will result in more venture capital flowing to those cities. I think it's really kind of a game changer, sort of a shake-the-snow-globe moment. I think we might look back a decade from now to this time and say, "You know, this was the time when the dominance of Silicon Valley started diminishing and the rise of dozens of startup cities started accelerating."

Have you had a chance to discuss this with John Chambers?

Yeah, many times. We've talked about it over years and actually looked at a couple of different things we might co-invest in. As I recall, he had a particular interest in West Virginia, given his roots.

I think he's actually a big supporter of the idea of innovation dispersing around the country given the work he's doing in France [as their global ambassador for technology]. I think he just realizes that it likely will continue to result in a reduction of the dominance of Silicon Valley. I view that as a healthy thing. I think he views that as a healthy thing.


Revolution CEO and AOL founder Steve Case isn't concerned about the Silicon Valley exodus. Photo: Revolution


A key to Silicon Valley success has been the presence of two major universities, Stanford and University of California, Berkeley. And of course, there are the pioneering tech companies such as Hewlett Packard and Intel. How critical are these types of institutions in the rise of new tech hubs in other areas?

They're very important. But some of the best universities are in other places. [University of Michigan in] Ann Arbor, for example. A lot of great folks have come out of other universities. What's happened in the past few decades is people going to these great universities, got these great education, but then left, typically going to Silicon Valley. What's starting to happen is that more of them are staying.

Yes, it's important to have institutions like that. It's also important, as you say, to have an anchor company. Seattle wasn't a tech hub until Microsoft became successful. Jeff Bezos has said the reason he started Amazon in Seattle was because Microsoft was there and he figured you can pick off some engineers. It was a deliberate decision to leave New York City, drive across the country and set up shop in Seattle to be close to a big company there.

In the D.C. area where I am now, the success of AOL would be another example.

So no question that the cities rise faster if you have a great university and can keep your talent. And they rise faster if you have a big iconic success that creates visibility and also creates wealth. Some of those people end up being angel investors in the next generation companies, or start their own companies. You get that kind of increasing returns network effect. Again, we just think that's gonna happen in dozens of cities over the next decade.

Can you go back to your own decision with AOL to start it in Northern Virginia?

Some of it was we just had to be here. Going back 35 years, the internet really was birthed in the D.C. area. [Defense Advanced Research Projects Agency] did the initial funding to create the internet. And there were a lot of communications companies in the D.C. area — MCI and many others — and a lot of government contractors that actually built the core technologies that created the internet. So it was an interesting place to birth the company. It also was super helpful in retrospect, because policy regulations were key in that in that first wave of the internet. Policy was critical.

There have also been major changes in the political sphere. We just went through a pretty difficult period, highlighted by the Jan. 6 riot in Washington. How do you think that will impact what you're trying to achieve in terms of creating new tech hubs, especially in areas where tech, particularly Big Tech, is not viewed favorably?

There's a backlash against Big Tech and against Silicon Valley. I'm not surprised by it. But that doesn't mean that people in different parts of the country aren't looking to companies to innovate and certainly want companies in their backyard. Part of the divide you're talking about is a lot of people have felt left out of the innovation economy. Disruption to them means jobs are being taken from their community, not being created in their community. That's because the overwhelming capital infusions have gone to companies and a few places like San Francisco, New York, etc.

So getting more capital, investing in more companies in more places, some of which will rise up to be the Fortune 500 companies tomorrow and create thousands of jobs, is critically important if we're gonna have any sense of unity in the country.

What is your own assessment of the way the Biden administration is approaching technology in terms of policy and investments in startups?

I'm encouraged. The president's Build Back Better plan did include a lot of points around a more inclusive innovation economy, including backing more entrepreneurs and more places. It was good to see some of his first moves. I should say, Ron Klain, who is his chief of staff, used to work for me here at Revolution. He certainly understands the importance of startups. So I'm encouraged by the initial decisions

What are the cities or areas that are most exciting for you as an emerging non-Silicon Valley hub for tech?

I resist that because we have invested in more than 70 cities. It's kind of like asking who your favorite child is. We are trying to be supportive of as many cities as we can. It's not just two or three. It's dozens where we're seeing real momentum. Each has their own story, their own dynamic. Dozens of cities are rising and we want to basically be evangelists on behalf of all of them, as opposed to just kind of cherry-picking and showcasing a few of them.

You have had a storied career. What was, in your view, your biggest blunder at AOL? And how did that influence what you're doing now?

I made a lot of blunders at different stages of the company's development beyond the early days. We almost didn't even survive because we were running out of money. As we scaled from dozens to hundreds to thousands of people, I think, in retrospect, because we were hiring so quickly, we didn't get the culture quite right. There are some folks who, probably in retrospect, we shouldn't have hired and we did hire. So that was one area of regret.

In terms of the merger with Time Warner, obviously, it was a disappointment in terms of the execution of it. But I think still, strategically, what we were talking about 20 years ago, in terms of convergence of media and technology, the arrival of broadband, the eventuality that streaming would become a bigger deal, digital music would become a bigger deal, etc. — those things have all happened. So the frustration there is we had a pretty good sense of where things were going. But we were unable to get organized as a company to capitalize on it. And that was obviously a disappointment.

In this push to create new tech hubs, what are you most worried about? What could go wrong?

That we don't seize this moment, and we don't recognize that this is an opportunity over the next decade to change the nature of the United States' kind of innovation economy, and we go back to normal. Normal actually wasn't working for a lot of people pre-pandemic. There are a lot of people in a lot of places that were struggling, in part because of a lack of opportunity, a lack of jobs and a lack of startups.

So how do we seize the opportunity? How do we keep people in the cities where they are? How do we get people to boomerang back? How do we get more capital off the sidelines in these cities and get more coastal venture capital investing in these cities? How do we create stronger, more vibrant, entrepreneurial cultures in a lot of these cities so they're less likely to be cautious and skeptical and risk averse, and more likely to be like Silicon Valley?

And what do you think will happen to Silicon Valley?

They'll continue to be great. I'm not at all anti-Silicon Valley. I love Silicon Valley. It continues to be the pride of America, the envy of the world. That will continue to be the leader of the pack by far. So it's more trying to make sure there are other places that have an opportunity to participate in the innovation economy. Silicon Valley is strong and will continue to be strong.

Benjamin Pimentel

Benjamin Pimentel ( @benpimentel) covers fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at bpimentel@szjqgzf.com or via Signal at (510)731-8429.

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