Walker Webcast: Entrepreneurial Revolution: A Chat with Steve Case


Steve Case is a businessman, investor, and philanthropist, best known for his work as CEO and Chairman of America Online (AOL). Today, he is the chairman and CEO of Revolution, a D.C.-based venture capital company. Among all of the aforementioned accolades Steve has, he is also a New York Times bestselling author. He has published several books, with the most recent one being, The Rise of the Rest: How Entrepreneurs in Surprising Places are Building the New American Dream. I had the pleasure of sitting down with Steve to talk about everything from his tenure at AOL to real estate and AI.

Promoting Innovation and Entrepreneurship

Although the United States have been the epicenter of innovation in recent decades, the focus of our investment dollars may force us to relinquish that title. Today, roughly 75% of all early-stage investments go to just three states: California, New York, and Massachusetts.

This is unfortunate, as there are countless intelligent, driven, and capable individuals across the country. The hyper-focus of investment dollars in these regions has led to a tremendous brain drain from underserved areas, which creates a huge wealth disparity within the country. To retain our position as the epicenter of innovation, Steve believes we need to take strategic initiatives to spread out our investments to other areas.

Steve’s AOL Tenure

Steve knows the challenges of getting funding as a startup outside of CA/NY/MA all too well. AOL was based in northern Virginia, far from the traditional epicenters of VC money and tech workers. This made getting funding for AOL very difficult, as none of the investors from their first round of funding were from the northern Virginia/DC metro area. Throughout his time at AOL, Steve saw the internet go from a niche, hobbyist thing, to something that made nationwide news when service was down.

Despite the difficulties the company faced in its early years, AOL slowly gained traction over the course of a decade or so, until it was taken public. Shortly after, its stock saw great returns as the Dot Com Bubble grew in size. This meteoric growth made AOL the best-performing stock of the decade.

The AI Movement

Steve, like many others, believes that AI is here to stay. However, it’s unclear how pivotal it will be going forward. In business, for every game-changing innovation, there are dozens of fads and buzzwords that simply come and go. It doesn’t seem that AI will be handled the same way the internet was handled. Initially, the internet was only available for use by the government and colleges. Companies like AOL had to lobby the government to let consumers and businesses use it. However, AI already has widespread use in society, and the government is proactively working to address potential problems that may arise. There have already been extensive hearings and testimonies from leaders in the space, like Sam Altman.

Post-Pandemic Entrepreneurship

Steve believes the key to supporting entrepreneurship post-pandemic is talent, capital, and collaboration. Building a strong entrepreneurial ecosystem across the entire country is how America can continue to be a global leader in innovation. Steve believes that the future of work is definitely hybrid. Entrepreneurs will need to build a culture that fits their physical reality. Some may choose to build a fully remote culture, but Steve believes that a lot of innovative thinking actually happens when people connect in a physical space. Innovation is often a serendipitous collision of ideas that morph into a truly innovative concept. Building a model that incorporates both the possibility of remote work and working together physically will likely be important for entrepreneurs going forward.

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Webcast transcript

Willy Walker: Welcome everyone to another Walker Webcast. It is a super big pleasure for me to have my friend and amazing entrepreneur Steve Case join me today. I'm going to do a quick bio of Steve, which really doesn't need to be read. It's brief. And then I want to run a quick video that I'm going to have Susan run and then we'll jump into our conversation.

Steve Case is an American businessman, investor, and philanthropist best known as the former chief executive officer and chairman of America Online (AOL). Case joined AOL's predecessor company, Quantum Computer Services, as a marketing vice-president in 1985, became CEO of the company (renamed AOL) in 1991, and, at the height of the dot-com bubble in 2000, orchestrated with Gerald Levin the merger that created AOL Time Warner. He is now chairman and CEO of Revolution LLC. Steve hails from Hawaii and is a graduate of Williams College.

So, Steve, given your place in my rankings of iconic American entrepreneurs, I asked Susan to pull up this old Apple ad, and I just want to run it because I think it kicks off our discussion really well. So, Susan, run the ad, please.

Apple’s Here's to the Crazy Ones 'Think Different' Ad (1997)

"Here’s to the crazy ones, the misfits, the rebels, the troublemakers, the round pegs in the square holes… the ones who see things differently — they’re not fond of rules and they have no respect for the status quo. You can quote them, disagree with them, glorify, or vilify them, but the only thing you can’t do is ignore them because they change things… They push the human race forward, and while some may see them as the crazy ones, we see genius, because the ones who are crazy enough to think that they can change the world, are the ones who do." Steve Jobs, 1997

Willy Walker: I want to dive into your book, The Rise of the Rest: How Entrepreneurs in Surprising Places Are Building the New American Dream and sort of what drove you to both create the bus tours and go find those entrepreneurs, many of which you and your partners invested in. At the beginning of the book, the premise of the book and the premise of what you did was your fear that the United States will lose its role as being the entrepreneurial capital of the world, that as other countries invest in technology and entrepreneurship, that the U.S. might lose that position. What makes you think that? And do you still hold that since you started The Rise of the Rest and all the work that you've done to promote entrepreneurship across the country?

Steve Case: Well, first of all, it's great to be with you, Willy. It's an amazing journey that I've had as an entrepreneur and now have the real honor of being able to back the next generation of entrepreneurs. And as you said, not just in the usual places like Silicon Valley, but all over the country.

It ties in with your question. I actually am optimistic that America can continue to lead and can continue to be the most innovative in the world. But I don't believe we could do that if we just continue to do business as usual. We have to lead in the future, and we have to be backing more people and also more places. For the last decade, if you look at venture capital, where about 75% of the money has gone to just three states: California, New York, and Massachusetts, which means that the other 47 states are fighting over the remaining 25%. So, a lot of great entrepreneurs out there with great ideas that could create some of the companies of the future, even some of the industries of the future. But we need to back them there. If we don't back them there, what happened and we've seen this a lot in the last couple of decades as sort of a brain drain of people leaving those places to go to places like Silicon Valley, because that's sort of the only land of opportunity. So, I think we just need to remember what got us to know that ties in with the video you ran as a tribute to Steve Jobs, that America is America because of the pioneering spirit. We started really as a startup 250 years ago, and most people around the world didn't think America would survive. But we were pioneering, we were entrepreneurial, and we led the way in the Agricultural Revolution and then led the way in the Industrial Revolution and more recently led the way in the Technology Revolution, and recently the digital revolution. That's why we're the leader of the pack. But we have seen, as you well know, the globalization of innovation, entrepreneurship, and venture capital. You know, three decades ago, where 90% of global venture capital was invested in the United States. Now it's well under half. So other countries have figured out that it's sort of the secret sauce that powered the American story is innovation and entrepreneurship. And so that's why writing the book was that we doubled down on innovation, we doubled down on entrepreneurship, and we do it in a much more inclusive way, not just a few people in a few places, mostly on the coasts, but everybody all across the country.

Willy Walker: In starting AOL, you and your partners did it in Northern Virginia, which isn't in one of those three VC hubs. Was there a little bit from your own experience of trying to find talent and trying to find capital of being a startup in Northern Virginia that also says to you, Hey, I know what it's like to be the sort of forgotten space and how hard it is to find capital and people and resources. And therefore, there's a little bit of this of AOL being somewhat of an outlier as it relates to where it was started and founded and being not only, well beyond a unicorn, but a unicorn on steroids is also one of the iconic technology companies that we've ever had in the United States. Was there something in all that as well?

Steve Case: I’m sure there is, no question. When we started in 1985, we started in Tysons Corner, Northern Virginia, outside of Washington, D.C. and it wasn’t a very entrepreneurial area. There was no startup ecosystem. There really was no venture capital. We raised in our first round $1 million. None of it came from the D.C., Virginia, Maryland area. It came from New York, Toronto, Chicago, San Francisco, Boston, none of it from the area. And so, I think it was harder to raise capital, and harder to be taken seriously. It was harder to attract talent because it was more of a traditional kind of government town, if you will. The government, contractors and so forth really kind of dominate the scene. So, I think that challenge, which struggle in those early days just to get started and just to have a shot, just get on the playing field informed my thinking on this.

I was asked probably 12 or 13 years ago to co-chair something called the National Advisory Council on Innovation and Entrepreneurship, and that led to a series of recommendations, including one that the White House, then President Obama took on, the launch of an initiative called Startup America, which I was asked to chair, and that started getting me traveling around the country and also opened my eyes two statistics that I didn't know. One was the issue I just mentioned around how much capital goes to a places like Silicon Valley and how little capital goes to most parts of the country. But the other, which was a surprise, was that the new company startups are essentially the big job creators in America. It's not a small business. It's not big business. It's a new business. That surprised me because I assumed the big companies, the Fortune 500 were the major job creators, but they're not. The reason for that is, even though they count for a lot of jobs, some of those Fortune 500 companies are growing but some of them are declining. For the sector, there's not a lot of net job creation. And similarly, on the small business side, it too, accounts for a lot of jobs, but not a lot of net new jobs, because what happens there for some small business, maybe it's a restaurant, it goes out of business that likely will be taken over by another restaurant that will about the same number of people. So as a sector, it's not really growing jobs.

So, we can only grow jobs as a nation if we're growing jobs with new companies. And we need to be backing those companies everywhere, not just in a few places, I should say. Not every company, obviously, that starts and wants or even needs to raise venture capital. Some are able to figure out some way to bootstrap their way to success.

But the overwhelming majority of the biggest companies that have been most successful: the Googles, the Teslas, the Apples, the Amazons, you name them, all did raise venture capital. And that's why figuring out ways to get venture capital to more of the entrepreneurs in places around the country is so important.

Willy Walker: As you think back on AOL, I remember distinctly in 1993 when I was a first-year student at Harvard Business School, and we had an AOL Beta, all of our computers. We actually loaded up AOL and we had our first email system in ‘93 and used AOL. That was the first time I'd ever been introduced to it. And I went back in getting ready for this, Steve, and looked at some of both your old commercials in like ‘94 and ‘95. Then there was a clip from The Today Show where Bryant Gumbel and Katie Couric are sitting there talking. Bryant Gumbel turns to Katie Couric and goes, “What is this Internet thing?” And they've got up on the screen, this @NBC.com, and they're like, “What's that @ sign all about?” It's just so funny to think back that obviously for the two of us, we lived it. And you lived it much more than I did. But there's such a huge portion of our population that thinks that “this thing” was always around and that the ability to do what we're doing right now was always there.

When did you know, Steve, that AOL was going to be successful? I'm assuming that there was this moment in time where it was kind of a struggling startup, and then all of a sudden you said, hold it, we've really got something here. Where was it in that timeframe that it kind of turned from a fledgling startup into, wow, this thing's really going to be big?

Steve Case: We're really a decade into it before we finally got a breakthrough. I used to joke that we were a decade in the making overnight sensation because we started in 1985 and nobody knew or cared about the Internet. 3% of people were online at the time. Those 3% were online an average of one hour a week. So, it's pretty fringy, kind of a limited to sort of a hobbyist market. And, even when we went public. We're the first Internet company to go public in 1992, at the time we had less than 200,000 customers seven, eight years at that point in time. And so, it's still relatively small. I would point out, given your audience, that when we went public, we raised $10 million in our IPO, and the value of the company that day was $70 million, which proves that nobody knew or cared what we were doing. Then thankfully seven years later it went from $70 million to $160 billion. It was actually the best performing stock of the decade. So, it acts as a great example of the first decade being a struggle. A couple of times we almost hit the wall, had to go through layoffs so it didn't look like the company was going to survive. And the second decade is when things really started taking off. The moment where I really knew that we had arrived was sort of a weird moment because it was sort of a good news bad news thing, and it probably in 1997 something like that. We shifted from essentially a subscription model where you got a certain number of hours each month for a certain price to raise the price and gave people unlimited access so they could use as much as they wanted.

As expected, the usage really skyrocketed, but it skyrocketed even more than we had planned for. And as a result, our systems crashed, and AOL was down for 23 hours, and nobody could access their email or any of the things that started to count on. On one level, it was sort of like, Whoa, this is bad. We've really let people down. But the positive of it was that it was the lead article in most newspapers around the country and the lead story on the network news that AOL was down. And ten years later even five years later, before nobody would have known or cared if we'd been down, you know, we were kind of nonexistent. So that's when I realized the Internet had gone from sort of a fringy hobbyist niche kind of thing to more of a mainstream phenomenon. And it became something that really kind of people were starting to rely on. That was more than a decade after we started.

Willy Walker: And as your market cap went from $70 million to $160 billion, how do you stay disciplined to not chase the temptations in the sense that you had so much currency to be able to basically expand anywhere you wanted to. I'm sure you had offers to vertically integrate into cable companies, to go into PC manufacturing. I mean, all the various ancillary services and goods that you had to interface with at AOL. How did you keep the discipline on your core business during that explosive growth?

Steve Case: Well, we did do a lot of acquisitions. We did recognize we had valuable currency. We made 30 different acquisitions. Some were more niche products like MapQuest, one of the first mapping software companies from the larger companies like Netscape, created one of the first World Wide Web browsers, then later obviously merging with Time-Warner, which was, you know, the biggest merger ever. So, we definitely used our currency and recognized there was some value to that, that currency.

But we tried, to your point, also to make sure there's a strong focus on the core business, on the main business. So, we kind of organized the company with AOL, that core business at the center and managed some of these acquisitions off a little bit more on the side. But it was challenging for sure when we went public, as I mentioned, we had less than 200,000 customers and also had less than 200 employees. And then seven, eight years later, with 10,000 employees.

So, it really became after that slow decade, suddenly things were quite different. And I had to change obviously, a lot of things I was doing. Delegate even more because I just had so much going on, particularly not just in the United States, but at that point we started expanding around the world. So, a very, very challenging period. But I'd say some would say we didn't really have the discipline in terms of using our currency because we made a number of acquisitions, but we believed that was really essential to make sure we broadened our portfolio of businesses, broadened our platform. So, it wasn't just the AOL business, but we had a wide variety of other businesses as well.

Willy Walker: I remember distinctly taking my young boys to the Udvar-Hazy Air and Space Museum back in the early 2000s, and you had your holiday party at the Air and Space Museum the night before, just talking about the size and scale of AOL. I remember saying distinctly to one of my sons, can you imagine having a company that would fill this place with all of your employees? It was really quite something.

Steve Case: Five years before we were at a little restaurant. It was a crazy time.

Willy Walker: So, let's go to The Rise of the Rest. You rented a bus and did eight tours. You visited 43 cities. You put 11,000 miles on that bus. First of all, did you buy the bus, or did you rent the bus?

Steve Case: We just rented the bus. It was one of the bus companies that works with music tours and even for politicians. And they basically put your logo, whatever you want on the side of the bus. It looks like you own it. But we just would rent it for a week, a couple of times a year.

Willy Walker: So, a couple quick questions on the bus tour before we dive into the purpose of the bus tour. First thing, the most beautiful moment as it relates to was there a sunset, a rainstorm, a vista that you saw that you just said, wow, this is America?

Steve Case: It was actually a number of sunsets at the end of the day, and we'd have a long day, pretty busy and tired, but often go to the front of the bus and sit by the drivers on the steps and just watch the sun set. We had a down the road from one city onto the next city, and it was a remarkable opportunity to connect to people in places that otherwise wouldn't have had exposure to and every day, in part because I think I was exhausted, but also because it was just getting ready for this next journey, this next chapter, this next city. I would often sit at the front and watch the sun set, and they were just almost glorious. But it was just watching the sunset. It was watching the sun set as we were rolling down the highway, headed to our next stop.

Willy Walker: And was there any personal habit that you either picked up or dropped while being on the bus rather than flying from point to point?

Steve Case: We were stopping every night. It was a bus that didn't have any sleeping accommodations. So, we basically would drive usually two, three or 4 hours each night and get in pretty late, sometimes close to midnight, then start the next morning early, typically six or 6:30, getting our next event. Got it going. So, some of it was just trying to make sure that I got as much sleep as I could when I was one of the on these trips and also packed pretty light. So, I would basically grab one shirt and kind of change clothes essentially to go up to the hotel room as opposed to packing-unpacking each time. I’m not sure I fully carried that forward in more recent years than I did back a little more likely than I did before I started doing these bus tours.

Willy Walker: So, as I mentioned, you did eight of them. You visited 43 cities. And after all of that, you made 200 investments in 200 companies in 100 cities. That struck me, Steve, as odd because I would have thought that you would have had more concentration of investments in specific cities or hubs where, as you point out in the book, in great detail. It actually reminded me of Michael Porter's Five Forces Analysis, you need clusters, You don't just need a great entrepreneur like yourself, you don't just need the capital. You also need universities. You need sort of incubators slash facilitators. You need local and regional, and in some instances, national government help to make all this come together. So, the fact that you invested in 200 companies in 100 cities, surprisingly, I thought it would have been 200 companies in 20 cities.

Steve Case: Well, it's a fair point. But we wanted to prove that there really are great entrepreneurs building companies in the cities that most people wouldn't take very seriously. I will just give you a couple of examples.

A couple weeks ago, I was in Chattanooga, Tennessee, and most people don't think of that as a startup city. If anything in the area, probably people would think maybe Nashville or Atlanta, but Chattanooga wouldn't make the cut if you're just making, say 20 hubs. But actually, they have a really strong startup culture there. For most of the past decade, they have had the highest speed broadband in the country, which is kind of interesting. They also are really building up their legacy and expertise around freight logistics. A lot of the big trucking companies in America are headquartered in Chattanooga. So, the company we backed there, FreightWaves, which is sort of a Bloomberg data platform for the trucking and logistics industry, is based there and having great success there.

Another example is in Fayetteville, Arkansas, also they wouldn’t have made the cut if we were only picking at twenty. The company way back there AcreTrader is sort of an investment platform where people want to invest in farmland, want to diversify their holdings by investing in farmland, which is easy if you're quite wealthy, but it's hard for most people. The process also gets capital to farmers so they can expand. And that founder actually was in San Francisco when he had the idea for AcreTrader and decided to move to Arkansas because it's a two-sided marketplace and it wouldn't be successful about getting the farmers on board to be more likely to build a rapport and trust and get more farmers to support what they're trying to do at AcreTrader if they weren’t in Arkansas.

Those are some of the examples of cities that wouldn't make the cut. But in fairness, of the 200 investments, there is some clustering. There are definitely some cities where we have a handful of investments, sometimes six or eight investments. So, it's not just one or two across 100 cities. There's often one investment in some of the smaller cities and then really a handful in some of the larger cities.

But the main point is that entrepreneurs can start and scale companies now anywhere even more so post-pandemic where there's more flexibility in terms of how people can live and work. And they're building on expertise in sectors where we're having that domain expertise, having that trust, and having relationships really helpful. FreightWaves in Chattanooga was able to do that. We've seen that in health tech, with cities like Baltimore, Maryland, because of Johns Hopkins also Under Armor being headquartered there. What's happening in Cleveland around the Cleveland Clinic for M.D. Anderson in Texas or Mayo Clinic in Minnesota, Some of these cities are not necessarily the cities that you were just saying. Instead of just focusing on San Francisco, New York, and Boston, let's pick 20 others. These wouldn't make the cut. But really interesting things are happening there.

So that to me is the main takeaway from the book. Most people I've been doing interviews say, okay, I get Silicon Valley, I get New York City's really growing. I get biotech in Boston. It is pretty strong. What are the next one or two cities that are going to thrive? And it's not one or two states. It's really several dozen cities. And our investment strategy is really trying to prove that out, that, yes, some clustering makes sense, but also building on domain expertise in specific cities also makes sense.

Willy Walker: So, you point out Chattanooga, one of the things you highlight in the book is that Chattanooga took TARP funds and not only created one of the best fiber optic networks in the country, which you just mentioned, but also a smart grid. I would have thought, Steve, that as you traveled across the country, there would have been more companies that were leveraging off of the physicality, if you will. So, a greenhouse operator who's in Denver, Colorado, because there are 300 days of sunlight in Colorado. A big user of water on the Saint Lawrence Seaway, because you've got access to lots of fresh water and an abundance of water rather than starting the company in Phoenix, Arizona. But it seemed like from having read up on all the investments you made that it wasn't really the physical infrastructure, or access to natural resources, or trucking lanes, for that matter. It was more a combination of the people, the capital, the incubators, and the local universities, like you just talked about Johns Hopkins in Baltimore, for instance, that actually are what drove the entrepreneurial success less than the actual physical locations. Am I stating that right? Did you see any that actually did leverage off of the physical location, as it relates to access to the natural environment?

Steve Case: Absolutely we did. And even some of the companies I mentioned, like FreightWaves, are building on what's unique about that particular city. It's not necessarily natural resources, but it is a core competency known as sort of the freight alley. A lot of trucks go through the Chattanooga area.

But another example I think is more specific to your point is a company called AppHarvest that we backed in eastern Kentucky, which built what's now, I think, “the largest indoor greenhouse in America.” And they did it in part because their location outside of Lexington, Kentucky, about 70% of the U.S. population is within a 24-hour drive. And they also designed it to use 90% less water. And we're starting to see real challenges with water, including just this week, kind of a deal in terms of how some of the water from the Colorado River is shared around Arizona, California, some of these other states, there's a real battle over water and agriculture as a key part of that. Farmers need to figure out ways to grow more food but use less water. And AppHarvest is an example of taking advantage of their unique location.

The other interesting thing about AppHarvest is that area where they are is known as Appalachian, coal country which for decades really has been in decline. So, seeing companies start and scale there and that AppHarvest now has, I think about 1000 employees, gives people in those areas a little bit more sense of hope and possibility, which also I think is important.

It goes back to your early, first question: How does America continue to lead the way, be the most innovative entrepreneurial nation in the world? We talked about some of that. The other thing we need to do is to do it in a way that's more inclusive, so people don't feel left out and left behind. A lot of people and you see this play out in our politics. A lot of people in this country do feel left out and left behind. That's not all about economics and jobs, but that's part of what it's about. And creating more new companies in these cities that can grow and create jobs in these cities is important. The final point is, it's not just the jobs these new companies are creating. The data basically says for every job in a new company, there's five other jobs in the community. And I saw this when AOL was growing. And so, they were adding thousands of people. Suddenly, homebuilders in the northern Virginia area were booming and restaurants were opening, and schools were opening, and roads were being built, there's a broader ripple effect across the community.

Conversely, when you're not doing that and this is the story of Detroit, which 100 years ago sort of was Silicon Valley, it sort of was the most innovative city in America, was the fifth largest city in America, one of the fastest growing cities in America, because everybody wanted to be part of the car revolution and then over a half a century lost 60% of its population. And the year before we rolled in with our bus, the city of Detroit, went bankrupt. So that gives you a sense of what happens when you lose that new job creation from a new company. Now, the final point on Detroit, the good news there is that we’ve now backed a handful of companies, including Shinola and StockX, both that have created more than a thousand jobs in Detroit and are quite successful companies. So, they're turning the corner because they're doubling down again on new companies, on startups, on entrepreneurs.

Willy Walker: Yeah, I was going to mention StockX as it relates to first of all, you talk extensively in the book about how important Dan (Gilbert) has been to the revitalization of Detroit and what Quicken Loans have done to that community. And Dan Gilbert's personal investment, not only in the company but in real estate and then attracting investors like yourself to come into Detroit and back companies like Shinola, like StocX, etc.

I thought it was interesting, Steve, in the book where you talked about the Rust Belt and when you pointed out the fact that talking about cities that are in the Rust Belt, particularly Pittsburgh is really kind of a derogatory term to use for them because it’s basically saying you're rusty and you're never going to have a future. And universities like Carnegie Mellon have done so much to invest in that community.

I guess that loops back to those seven spokes that you talk about in the flywheel to creating an entrepreneurial culture of whether it's universities, the incubators, the government, access to capital. Is there one, Steve, that as you travel to all these cities that if you didn't have “it”, you didn't have the “others?”

I'm sure you went to places that had an entrepreneurial culture access to capital, but that the government's kind of holding it back or somewhere else where the government's kind of all in but it doesn't have the other component parts - is there one that you say if you don't have that from either local leadership or whatever, you just can't get the ecosystem going?

Steve Case: Well, I would say if you tried to narrow it down to what are the most essential ingredients, I'd say it's talent and capital. Because university obviously is going to help a great deal. Government has a role that can help a great deal, start up support organizations can help a great deal, all the things that you mentioned. But they have to build on the core of talent, people with ideas and the ability for those ideas to take flight by having access to that early-stage angel seed capital to get going.

That probably goes back to what we talked about before. Because in many parts of the country, there isn't that capital that has led for decades to this brain drain where a lot of people do leave where they grew up or went to school because they don't think the opportunity is there. They feel like they have to leave to go somewhere else, often the coast, often Silicon Valley, because that's really where the capital is, because that's where the capital is that's where the other people who want to be part of the innovation economy have tended to congregate. So, slowing the brain drain of people leaving and actually creating a boomerang of people returning is really quite critical. And we've been talking about that for a decade.

One of the things that was helpful with the pandemic, and I mentioned this before was that did lead to more of that boomerang. Some people did decide to leave some of those coastal cities and go back to where they grew up or go back to maybe the city where they went to school. They thought that maybe they had more flexibility to work remotely. And because of this, you know, kind of the birth of more hybrid organization, in some cases even remote only kind of organizations, that's created a dynamic where the talent flows, I think, are moving in a much more positive direction, reversing what's been a several decade brain drain.

And the capital piece - we're also seeing progress. There’s still work to be done. But in the last decade, about 1,400 new venture capital firms have started. In these cities outside of the big hubs San Francisco, New York, and Boston, 1,400. They tended to start pretty small in terms of being state funds or angel funds or early-stage venture funds. But obviously when they're successful, they can expand and become larger funds. And having more capital in these cities that are close to where these entrepreneurs are, I think will catalyze more startups. And then what will happen, we started seeing this already is the coastal bonds will start paying attention once the companies have scaled that are moving into the venture, particularly the growth stage. So, I think those two things are critically important.

The last thing I'd say, which is why we talk about in the book the Ecosystem Wheel. The other critical ingredient is actually collaboration. It's not just thinking about what's possible in each part of this ecosystem, but how things can work together in a much more collaborative way. One of the surprises in terms and disappointments, frankly, in visiting so many cities is how fragmented, siloed so many cities are. Where interesting things are happening but people often in those cities don't really know about it, and they're not working together very effectively to really collaborate. And that's one of the great things about Silicon Valley, what we call network density. There's a density of people working together to build a company. We need to create more of that network density in these cities, and we also need to create more of that network density across these cities, which is why in Revolution with our Rise of the Rest initiative, we host a lot of summits. Just about three or four weeks ago we hosted a summit in Washington, DC called Beyond Silicon Valley, where 170 regional venture capital firms joined us for a couple of days. A couple of months ago, we hosted an entrepreneur forum board for about 200 CEOs in Phoenix, Arizona. We're really trying to really create an environment in any city we visit to drive more collaboration and also create a broader network across the country.

Willy Walker: As I read the book, Steve, I was sort of having this a little bit of a struggle, if you will, in the sense that you point out so clearly the need for collaboration, the communication. You talk about experiences on the bus, off the bus, sitting around with local leaders, both governmental as well as university, as well as incubators, and how all of that drove what you got to see in the success of your investments in your competitions and all of that.

Yet at the same time, you also talk about how the pandemic accelerated the dispersion of both capital and talent and allowed people to go and kind of work remotely. You're in a hotel in California today. I'm in a hotel in Miami today. We're able to both do this and have it on our schedule, but we don't have to be sitting at our desk and doing what we're doing. And obviously being in the commercial real estate space, this back to the office issue is a very significant one in everyone's minds. But I hear you talk about, and it sort of says, yeah, the future is this kind of hybrid of being able to use technology to find opportunities, communicate with one another.

But then there is nothing like that collaboration to you saying like I arrived in the city, and everyone's siloed up and until we became the conveners, until you had your conference a couple of weeks ago. There are people who are sitting there, and they can't make that connection if they're sitting on Zoom calls, just talking to the people that they actually usually interact with.

Steve Case: I agree with that. I think that most companies will have some physicality to them. But we have backed some companies that are remote only and they start from day one building a culture around that, building technologies to support this kind of collaboration and do tend to get together periodically every two or three months where they all gather in a particular place to make sure they do have that connection.

We also backed a number of companies that are fully in the office five days a week. They, like working together, often benefit from shorter commutes, sometimes even walkable communities where they can walk to work. And they just prefer being in person and people are there five days a week. And then there are obviously a lot in the middle where you're trying to figure out what their version of hybrid is, three days, two days, that sort of thing.

So, I think what's happened has been an unlock from this idea that companies have to be in the office five days a week. The idea at first has to be in Silicon Valley exactly how this plays out over the next five or ten years I think is unclear. And I think there'll be different examples of things that can be successful with these different models. But I think there is likely to be more in-person connectivity for most companies. If you think about this next chapter, I agree with your point that Zoom works quite well if you know what you need to do and are very task oriented like engineering people often can be even more effective working remotely where there's fewer distractions, but a lot of creativity, collaboration outside the box thinking happens kind of almost accidental serendipitous collisions. And those are much harder to do in Zoom than in a physical place.

Willy Walker: As I think about all the entrepreneurs that you met on this long bus tour and you made 200 investments, a couple of things come to mind. I'd love your insight into it.

The first one is, as you're talking about some companies being fully remote and other companies having everyone in the office every single day – there's got to be something in the entrepreneurial capabilities of an entrepreneur that say to you, Hey, that's amazing that he or she can manage their company completely, remotely and not everyone together or my bias is towards because you might go back to AOL in the early days when everyone being around the bullpen talking about things was what you saw made AOL move from a fledgling startup into a $160 billion corporation.

And it reminds me, Steve, of when I wrote a note to Guy Raz, who's the host of NPR's How I Built This. I said to him, from having listened to lots of episodes here, when I think of how you built this, it's like how you built AOL into this massive company and to a much lesser degree, how I built Walker & Dunlop kind of like methodically step by step. The stories on How I Built This are always seemingly these entrepreneurs who got to the brink of bankruptcy and had mortgaged their home and had all this destruction in their life. And then all of a sudden something just clicks that makes them have this idea that just takes off. The market shifted. They got an order from somebody. But that's obviously the excitement of his show. But I don't view that as How I Built This as far as a long, sustainable company. I see it as your idea has sort of caught fire. You're in the venture business, but you're also in the private equity business. When you look at founders and leaders of companies that you're investing in, is there a different filter for the entrepreneurial look than for the builder of business look?

Steve Case: A bunch of things there. I want to go back to what we talked about before the office. Another thing that came out of our ride the bus tours, that might be of interest to your audience interested in commercial real estate, as we saw in the different cities that we were traveling to, neighborhoods that were emerging, where entrepreneurs were clustering, almost innovation districts in these neighborhoods. And we saw it also as a real estate opportunity wasn't our real focus because we were focused on investing in companies. So, we encourage other people, Blackstone, and others, to launch the Rise of the Rest strategies around these cities. Because we could identify which cities were on the rise, we could identify which neighborhoods were on the rise, but didn't get a lot of traction. And then about five or six years ago, we were approached by Hines, which is a real estate developer with a regional focus about potentially doing a joint venture together and talked about that for a few months but didn't work for a variety of reasons. Two of the people, including the chief strategy officer at Hines, joined us at Revolution and we launched a real estate effort where we've invested initially in some mixed use, more recently some multifamily in these rising cities. And we're seeing a lot of opportunities there. So, I encourage folks who are listening, if they're not focusing on these Rise of the Rest cities, it's not just about opportunities to invest in companies, it's also an opportunity to invest in these cities in terms of the real estate platforms of neighborhoods that can drive a lot of this collaboration.

In terms of your second question, I really do think that entrepreneurship spirit, you can often tell when you're meeting entrepreneurs that they're looking at things in a different context, but they also have a plan of attack and not just an idea. I love this quote from Thomas Edison: “Vision without execution is hallucination.” They have a battle plan. They have a sense of how they're going to go about this. They've started to assemble a team because we've all learned that entrepreneurship is a team sport. Sometimes we focus too much on the CEO, the founding entrepreneur, not enough on the teams. And they often also have a strategy around partnership, which I think in the next ten or 20 years is going to be critically important.

I don't think you're going to be successful in health care or food and many of these other sectors, unless you have a bias towards partnership, because this requires systems level change and health care, for example, is a big opportunity. One sixth of the economy is kind of messed up. It's not very convenient for consumers, not very affordable, outcomes often aren't that very good. So, you need some systems level change, you need some re-imagination. But that's not about writing some code. That's right about creating software that can create some change, and then getting doctors to use it and nurses to use it, and hospitals to pay for it and health plans to embrace it. The whole thing needs to be integrated in order to have systems level change. That bias towards partnerships is also important.

So, when we're talking to entrepreneurs, it's a very early-stage seed investment versus a venture investment versus a later stage kind of pre-IPO growth investment. You know, the questions are a little different, the dynamics are a little different. But what's common for entrepreneurs who don't just have an idea but really have a plan to put that idea and action.

Willy Walker: I thought one of the really interesting things, Steve, was that the investments that you made weren't just technology investments. The water testing company that you invested in called 120 Water, which was based in Indianapolis, Indiana, but saw the water contamination that happened in Flint, Michigan, and said, there's got to be a way the entrepreneur went to get a home test for her water and couldn't find one and said, there's an opportunity here, let's go do it.

And then about your comment on real estate. You also talked about some of these amazing community leaders, people who started restaurants, people who started grocery stores that did transform segments of these cities that you traveled in to. They're just as entrepreneurial as someone who's creating a software company except their concept isn't as scalable. And so obviously it's harder to get venture capital into their concept. But I thought one of the great parts about the book was that it underscored entrepreneurship in a broader way than what most of us define entrepreneurship as.

Steve Case: Well, some of that is this idea of tech companies or tech startups. Every company is a tech company now. Every company uses technology to manage their business and to kind of extend their business. You can't pick a sector where technology is not more important now than it was ten or 20 years ago and likely going to be increasingly important ten or 20 years from now. So that's why our lens is not just investing in, say, software, but investing in tech-enabled disruption. Tech-enabled reimagination of these different industries. And you mentioned restaurants, a good example, a company way back, a relatively early stage, a company called Sweet Rain, which is now a public company and quite successful in the fast casual space. And they were using a lot of technology. They were working with local farmers. They use technology to connect to the farmers, to build a farm-to-table kind of supply chain. They also used a lot of technology to interact with consumers, and 60% of their orders come on smartphones for either delivery or people picking them up and then in the restaurants not waiting in line. So, it's food, it's restaurants, but it's using a lot of technology to make that possible.

And just about a week or ten days ago, they announced the first store in Naperville, Illinois, which is using robot technology to create the salads. It's really a fascinating thing that they're doing. People should take a look at some of the videos. So, again, most people would see that as a restaurant concept, the food concept. Now, what do our tech investors who have an Internet background are doing investing in a company like that? Well, they're using a lot of technology to reimagine the industry. We believe that the fast-food industry or segment would give way to the fast casual segment, which is starting to happen. We also believe healthier options would knock out some of the unhealthy options. That's starting to happen. And that thesis seven or eight years ago led us to invest in Sweetgreen, one of the small companies, and now it's a much larger company, with $400 million of revenue because they use technology. I think you're going to see more and more of those opportunities for tech enabled companies in this next decade or so.

Willy Walker: So, you talk about an entrepreneur named Cameron Johnson, who is in the real estate space, and worked for a big client of Walker & Dunlop, Greystar. One of the things you highlight in the book, Steve, is you say that Cameron kept seeing people who wanted to rent the model unit. It's so funny because as you can imagine, I've toured a thousand model units and, and I've also often walked in and been like, Hey, you know, I could live here. That's kind of cool. And the fact that you can't actually rent the model unit is what gave Cameron the idea to go out and create Nickson. So, talk about Nickson for a moment. And again, this isn't that sexy. It's not a software company and at the same time, Cameron found an opportunity. One of the things I also thought was really interesting and a huge tip of the hat to you and to the Rise of the Rest is that Cameron, who is an HBS grad and won the HBS venture prize, said that winning your competition was a massive credentialing for Nickson in the business concept that he'd created.

Steve Case: Yeah, it was great of Cameron to say that, I appreciate that. And I think we do recognize we have a lot of responsibility to not just invest in these companies but champion these companies. In some of these cities where people in those cities tend to be a little more cautious, risk averse around entrepreneurs. The fact that we're investing in the company, and they want to pitch competition helps elevate their stature and helps them attract people to join the company, helps them attract customers, helps them attract other investors. So, we're well aware that it's not just what we're doing directly, but some of the broader impacts we have.

But going back to the Nickson story, yeah, exactly. The way you describe it, he noticed that people wanted to rent what was there, but that wasn't really an option. So, he created a company that essentially can do that, that people can essentially rent a full package of furniture, art, the whole shebang like they rent an apartment or rent it for a year. And they went about a year. They decided to move to another apartment or another city. They turn on the keys, they're done. So, it creates a great level of convenience for the customer and also helps the owners of those assets, in this case, their apartments be able to maximize essentially the prices they can get for these units. So, it's sort of a win-win.

We've done other things in what some people call the proptech space, companies like Place Maker and Mint House that are working with buildings, office buildings, apartment buildings to figure out new ways to manage that inventory. So those are again examples of tech enabled disruption of what some think of as a non-tech business. But we recognize that this collision between technology, innovation and other sectors, in quite some ways we're entering what I call the third wave of the Internet, which is when the Internet meets the real world and it means the real world in terms of where we're in, how we live and how we move around, how we invest and what we eat and how we stay healthy, how we learn. All these things are up for grabs in this next era, and technology obviously is going to be a critical part of it. But many other aspects need to come into play in terms of the company building.

Willy Walker: You talked about the bus tour in Rise of the Rest, focusing on, if you will, the democratization of access to capital and investing in entrepreneurs in cities that typically wouldn't have access to all that you brought. You also point out in the book, Steve, that as it relates to minorities, which Cameron is one of, that only 1% of venture capital goes to minority-sponsored businesses and less than 10% of venture capital goes to companies started by women. Clearly, there are plenty of minority as well as female entrepreneurs who are deserving of investment in them. It reminds me I had Julia Boorstin, who wrote a book called When Women Lead, on the Walker webcast a couple of months ago, and one of the stats that she pointed out, I think it was by the Kauffman Foundation, that female-run companies have exactly the same success rate at raising Series B financing as male-led companies, but a fraction of the amount of male led companies on the series A, in other words, the first pitch. What can women and minorities do to have a better batting average on that first pitch?

Steve Case: Well, that is not just what they can do but what we can all do. That part of the challenge is a lot of people don't have access to venture capital, to access the seed or angel investor. They themselves don't have money. Their family doesn't necessarily have money. So that early friends and family round, they don't have friends and family that have money. So how do you give them that connectivity sort of on ramp the people who make those investments and that carries through in terms of the later stage investment as well. I think that's the reason why the Series B at a later stage tends to work better for female founders, founders of color. By then, the company has established itself, has a track record, it already has some additional investors and is raising a subsequent round that it's still harder for them, but it's easier than it was in the early stages. And it's not that they're not pitching it right. It's that they don't have the opportunity in many cases to pitch it.

That's why when we travel around, we're trying to make sure we have a broad aperture, not just determined thinking about place, but also thinking about people and making sure that when we do pitch competition in different cities, it is a diverse mix of founders that reflects the community and frankly, many of the communities we're visiting, Atlanta, Baltimore, cities like that are more diverse. And not surprisingly, if you have a more diverse community, you're also going to find more diverse founders. But it takes work. It takes intentionality. I think we're making a little progress there, but it's still a lot of work to be done.

Willy Walker: So, you just mentioned the third wave. You wrote a book on it The Third Wave (An Entrepreneur's Vision of the Future), the Internet, basically interacting with our lives. And you talk in this book about the fact that the pandemic accelerated the third wave. Talk for a moment about the third wave. And then my question would be, is A.I. the fourth wave or is A.I. part of the third wave?

Steve Case: The way I think about the three waves, I should say that when I was in college, it was now about four decades ago, I read a book called The Third Wave by a Futurist and some of you may know Alvin Toffler. I found that inspirational because it set me on the path to do what I did with AOL and helped create the Internet, helped make it mainstream. So, when I was writing my first book, I decided to use that title and pay tribute to him. Thankfully, he was still alive at the time, and I was able to talk to him about it and read an advanced copy of it. But I had a different version of the third wave, and my version was focused on the Internet. So, the first wave was getting America online. Getting the world online goes back to what we said at the very beginning when I went from nobody knowing or caring about the Internet to everybody being part of it, that meant the servers and the on ramps and the modems and the software and all the reasons to get online and the ability to get online. That was really, you know, most of the eighties and nineties were that first wave of the Internet the last couple of decades.

The second wave is really about building software apps on top of it, that the infrastructure is there. So, you didn't have to build the infrastructure - you just built on top of the infrastructure. Google and Facebook and obviously many other iconic companies have emerged in that software-centric second wave.

The third wave is, as we talked about earlier, when the Internet meets the real world and you're starting to disrupt some big sectors of the economy and important aspects of our lives. What's interesting allowed me to write that book is some of the lessons from the first wave that weren't all that relevant in the second wave are becoming relevant again and again in the third wave. The notion of partnerships we've talked about was critically important and that in early days we couldn't have been successful, had 200 partners, PC manufacturers, modems companies, software companies, media companies, everybody had to do their part to essentially stand up the Internet.

That wasn’t as clear in the second wave, companies like Facebook and others didn’t really need partnerships. They were able to launch an app. It took off virally and they kind of overnight had a pretty significant business. And the third wave, the sector is up for grabs, partnerships are going to become more important. And the other is policy. In the early days of the Internet, that early first wave, it was still illegal when we got started in 1985 for consumers or businesses to be on the Internet. It was restricted to government agencies and educational institutions. So, we had to commercialize the Internet. We had to get Congress to pass legislation that allowed consumers and businesses to get on the Internet. We had to do a lot of things in terms of the rules, child safety, commerce, taxes, a bunch of things had to be thought through in those early days of the Internet, the first wave. Similarly, the third wave policy is going to be front and center again because the sectors up for grabs tend to be regulated - health care, food, things like that. And also, some of the technologies, including what you mentioned, AI create some challenging issues, opportunities that we should take advantage of, but also some risks that we need to manage and hedge against. So, some entrepreneurs, I know at some places they don't want to deal with the government. And in this new world we're in and they'll become even more clear in the next ten or 20 years. Government is a player I think needs to be a player on issues such as AI.

Willy Walker: You mentioned some of the risks of AI. In the book, when you're talking about Carnegie Mellon and how Carnegie Mellon University came to be. You talk about the endowment that Andrew Carnegie set up to create the Carnegie Institute that then merged with Mellon.

But one of the things you raised there is Andrew Carnegie had a statement of Embrace Your Fears, and you use that as kind of the underpinning of Carnegie Mellon and why Carnegie Mellon has been such an advanced university, is investing in robotics and technology and other things of that nature. Help me, Steve, embrace my fears as it relates to AI.

I had Mo Gawdat, who was the COO of GoogleX on the Walker Webcast on his book Scary Smart. And to be perfectly blunt about it, Mo scared the heck out of me and everyone else who listened to that Walker webcast as it relates to the power of AI and why he left GoogleX to write his book. And there clearly is a lot of the unknown out there. You are as insightful a technologist as I will talk to. Does AI excite you, scare you or something in between?

Steve Case: It excites me and scares me. And so, like any new technology that has a particularly robust set of capabilities, how do you maximize the benefits and minimize the kind of hedge against some of the risk? And the risks are very clear, at least on this one. Unlike some other things -I give governments, not just in this country but around the world, credit for recognizing there are some challenges. Even just last week there was a hearing in Congress, both Sam Altman of OpenAI and other people testifying. A couple of weeks before there was a meeting at the White House with the White House team and some of the leaders in AI.

So, there are people in the phase of recognizing it is important, also recognizing it's super complicated, and they need to get up to speed before they can be thoughtful about any kind of regulations. But people are focusing on it, recognizing that it creates some very interesting sets of challenges that we need to deal with and threats that we need to deal with. On the positive side, the reason I'm on balance, optimistic is that it has the potential to do amazing things.

One of the companies we backed in Chicago called Tempest uses AI to save people's lives. The founder, Eric Laskowski, his wife, was diagnosed with breast cancer, he was a successful entrepreneur, he was able to talk to a bunch of people. And pretty much everybody I talked to said they should do something different. And that was kind of scary and sort of concluded that it was a data problem and his wife's life was hanging in the balance. So, he started this company to basically aggregate data, including data from a number of hospitals. About 2,000 hospitals now contribute to their data set to allow a much more personalized diagnosis if you have cancer or other kinds of diseases that lead to a much more specific, personalized intervention in terms of what the therapy should be. That company is saving lives, and it's only possible because of AI.

Even more recently with the pandemic, some of the work around vaccines, people were surprised by how quickly vaccines came to market. Part of that was because Moderna was using AI to really expedite discovering what was working and what wasn't working, which allowed them to bring to market a vaccine. We also have the opportunity to use AI in education and in other sectors in ways that could be very helpful. So, I see great benefits of AI, but I also see great risk. And I think we need to bring the right balance, being optimistic about it, not just focusing on the downside, but also not being kind of Pollyannaish about it. There are great risks associated with AI. We need to take it seriously. We need to be proactive, not reactive, and think about policy related to AI. And it's not just about letting the industry kind of self-regulate. I do think there is a role for the government, but the government needs to be informed before they're able to make thoughtful decisions regarding what regulations are appropriate.

That's the phase we're in now, and hopefully over the next year or two, some clarity will emerge that will hedge against some of the risk while still kind of trying to maximize some of the opportunity.

Willy Walker: So, my final question, Steve, we've talked about venture during this call, but at Revolution, you invest everywhere, you invest in the public markets, you invest in private equity, you invest in real estate, you invest in venture. As your team sits around and says right now, May of 2023, we sort of like this and we're not loving this. Give us what you like right now in this environment? What do you steer clear of right now in this environment, given the breadth of your overall investment portfolio?

Steve Case: We are mostly focused on the seed venture and growth stage. So early-stage companies before they go public before they're profitable really is our primary focus. We do have some other efforts I mentioned, such as real estate, but that's sort of our spot. I'm actually not surprised. We've seen this market reset a couple of years ago. I was concerned about valuations. They did strike me as being kind of frothy. So, we actually pulled back on some of our later stage investments to accelerate some of the monetization of some of those investments, because it did feel like things have kind of gotten out of hand there. There are a number of firms that were really trying to get into companies that didn't believe entry valuation matters. They just wanted to get into these companies. And it was, it just struck me as a little bit bizarre. So, the fact that the market is correct, the public markets and now the private markets have corrected or are correcting, I think makes a lot of sense since I've been doing this for a while. It doesn't really surprise me now that it now creates opportunities to invest that maybe didn't exist a couple of years ago. So, we're enthusiastic about this next chapter. It goes back to some of the things we're talking about.

We believe the two megatrends that are really what's driving our thinking at Revolution: one is around place, kind of focused on the Rise to Rest, we tend to not focus on Silicon Valley because that's where everybody else is focused on. And we're focused on these other places, which is where we think some of the big companies of tomorrow will be birthed. Place, I think is a real megatrend. And the other is policy for the reasons we mentioned. We think being headquartered in Washington, D.C., having a pretty good understanding of how policy works, a pretty good network. We can be helpful to companies and across these different sectors where policy is increasingly important.

And oh, by the way, if people haven’t been paying attention, our government last year passed $3 trillion of investment in the innovation economy around things like decarbonization, reshoring and things like the Inflation Reduction Act, the CHIPS and Science Act, that also fund some regional hubs, the Bipartisan Infrastructure Bill. So, I think investors who are not paying attention to that are going to miss out on opportunities.

So, I would urge people that if they're interested in investing not just on the venture side, but also on the real estate side, look at these rising cities and what's happening there is really quite phenomenal. Think about place more as you think about your investment strategies and also recognize that policy is becoming much more of a front and center issue. You've seen that in the last year in the crypto space where people thought it was who are very enthusiastic, suddenly realized governments were going to intervene and take some action. You're starting to see that with the discussion we just had around AI. Government is going to play more of a role because health care, because education, because food, because financial services, because transportation are such core parts of our society and tend to be regulated sectors. So, the innovators of the future need to understand that, respect that and engage with policymakers, not run from them. So that would be my recommendation. That's certainly what we're doing at Revolution. I really centered our strategy around place and on policy.

Willy Walker: Steve, thank you. It's been super fun. It's an honor to have you on. Great to see you. Look forward to seeing you next time. I'm in D.C. and you're there. And just greatly appreciate you taking an hour to talk about your great book, Rise of the Rest.

Steve Case: Thank you Willy, it was great being with you. I hope to see you on the road on our next Rise of the Rest bus tour.

Willy Walker: You invite me in, I'm showing up on the bus. You just let me know. Thanks so much for joining us. Have a great day.

Steve Case: You too.

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