Steve Case’s Seed Fund is Disrupting the Startup Ecosystem in Middle America: Here’s How
Revolution's Rise of the Rest (ROTR) Seed Fund is a venture capital fund that vets early stage investment opportunities through the lens of geography. While 75% of venture capital is deployed in just three states—California, New York, and Massachusetts— Revolution hypothesizes that some of the most compelling investment opportunities in the next decade will likely emerge from startups in cities across the United States. The Rise of the Rest Seed Fund is one of three funds under the umbrella of D.C.-based investment firm Revolution, co-founded by Steve Case, the co-founder and former CEO of AOL.
The ROTR team travels all over the country scoping out entrepreneurs who have transformative business ideas but limited access to investment capital, based purely on where they live. The companies these entrepreneurs are launching are disrupting major industries that have long-established ties to regions between the coasts—industries such as healthcare, transportation, and agriculture.
Caren Merrick, veteran board member, angel investor, and entrepreneur, interviewed Anna Mason, a Partner with Revolution’s Rise of the Rest Seed Fund, to learn how funneling capital to the interior states of the U.S. is challenging long-held perceptions about the startup playbook.
Caren Merrick: By investing through the lens of geography, ROTR has a birds-eye-view of startup ecosystems emerging across the country. How do startup trends differ from region to region?
Anna Mason: The evolution in regional startup communities and ecosystems all across the country has been fascinating. Five to ten years ago, as many regional communities were emerging in nascent stages across the country, you had what I very affectionately refer to as “Silicon X” syndrome. Different communities would proclaim themselves “Silicon Harbor” or “Silicon Alley” or “Silicon Prairie” or “Silicon North” and on and on and on. That's very similar to an early stage startup that hasn't found its own identity or product market fit yet, and so employs shorthand by claiming “I’m the Uber for ‘X’” or “I'm the Facebook for ‘Y’” to try to build a reference by association.
What’s happening now, which is really exciting, is that regional startup communities are maturing and growing out of that “Silicon X” syndrome. We are starting to see authentic branding and individual brand identities emerge. Coupled with that is a measure of unique expertise and product market fit for each of them.
In some regions, this means they can really double-down on industry strength and expertise. For example, Nashville, TN and Minneapolis, MN are often associated with healthcare given the legacy institutions established in both of those regions. Pittsburgh has a similar dynamic with manufacturing.
What we are also seeing on the ground is a consolidation and repurposing of resources. In the early days, many of these regional startup communities had more startup support organizations than successful startups. It’s exciting to see some regions rolling up their startup support communities through partnerships and mergers. I see that as a solid benchmark of maturation and progress.
CM: It seems to me that understanding capacity is a critical success factor for a regional entrepreneur, in terms of looking for opportunities within their industries or communities and identifying problems that they can solve. What trends are you observing on that front?
AM: With regards to capacity, a trend I'm seeing emerge across a number of the companies within our Rise of the Rest Seed Fund portfolio is a cohort of companies that grew through a market expansion strategy. They roll out in one city, gain proof of concept, test product market fit, and then establish and deploy a playbook to roll out the next half dozen cities to prove that the business model can work in more than one place. From there, they can deploy on a faster scale as they launch in a dozen—and ultimately dozens—of cities.
It’s fascinating (and a great proof point of the broader ROTR thesis) to see founders launch companies in less established markets where there's breathing room—literally and figuratively—to test and to grow. This cuts across industry, as we see it in companies that focus on hospitality, logistics, connected healthcare, and the auto dealer industry.
We’ve recently backed Justin Davis, a founder based in Kansas City who quite literally grew up in the auto dealer industry and leveraged that hometown and industry expertise to build a really interesting technology solution. That company is called BacklotCars and it recently raised a Series B round.
Andrew Leone, another founder in our portfolio based in Minneapolis, used to own and run a Johnstone Supply franchise in a pretty unsexy part of the B2B logistics space. He leveraged his expertise and experience as his own first customer, to build and scale a startup that is using technology to solve that last mile delivery problem in the B2B space. His company is called Dispatch and it’s now in markets all across the country. There are at least half a dozen other founders in the Revolution portfolio I can point to.
This trend in our portfolio demonstrates that starting a company in some of these smaller regional markets and expanding from there is an incredibly effective growth strategy.
CM: I sit on the board of a publicly traded real estate investment trust, so I see up close what's happening with commercial properties and the move to more warehouses and just-in-time inventory logistics. There’s a really interesting ROTR portfolio company called STORD that operates in that space. Can you share their story?
AM: STORD is playing in an interesting subset of the logistics space—I would describe STORD as a network distribution play. They're based out of Atlanta and the company created a combination of hardware and software to build an integrated network of third-party warehouses. When combined, these warehouse spaces are a powerful distribution network that gives leading brands and retailers visibility and control over their inventory, so they can deliver to customers with increasing speed, accuracy and visibility.
In logistics, a lot of startups launch to support the Amazon universe in a certain way or they launch to help all the other major retailers that have been disrupted or displaced by Amazon. Amazon has set a high bar of consumer expectations around speed of delivery and visibility into the supply chain. STORD is playing in that ladder by working with a large number of major enterprise corporations to piece together a warehouse supply chain that enables non-Amazon retailers to compete in a world where consumers demand things faster than ever before.
STORD’s journey also demonstrates how our programmatic work with our Rise of the Rest bus tours helps connect us to great companies. We were introduced to the company through a regional fund based out of Chattanooga, Tennessee called Dynamo, whom we got to know during a Rise of the Rest tour through what is known as “Freight Alley” in Tennessee. Dynamo has deep domain expertise in the transportation logistics space and they introduced us to STORD as part of an early seed round that they were leading. STORD then raised its Series A from Kleiner Perkins.
CM: I know you are passionate about funneling venture capital to female entrepreneurs, and Rise of the Rest has backed quite a few. Can you highlight some of the women-founded businesses that the ROTR Seed Fund has helped to launch?
AM: Bringing more venture capital to neglected areas of the country ties very closely to bringing capital to women founders, given the disappointing statistics that less than 10% of venture capital goes to female founders. We have many great female founded companies in our portfolio. They cut across industry, literally everything from mobility, to manufacturing, to logistics, to retail.
One example is Summersalt, a direct-to-consumer swimwear company based out of St. Louis, Missouri and co-founded by two women. You might not necessarily think of swimwear when you think of St. Louis, but they’ve beat the narrative that you can't build a direct to consumer retail brand outside of the major coasts of New York and California. That myth was pretty pervasive in the venture capital industry. These two founders have an extraordinarily complimentary skill set that encompasses supply chain management, technology around fit, brand development, direct-to consumer sales, and developing consumer personas.
Summersalt has developed and owns the IP to 1.5 million body measurements taken across the bodies of 10,000 individual women to really perfect the fit. This technology is a huge component of the edge that they have in this space—in particular when selling out of the gate direct to consumer. Their larger vision, an important part of the investment opportunity for us, is to be the brand that women think of whenever they open up a suitcase to travel. They’ve already begun to launch sleep wear, active wear, and travel wear collections, all driven around their fit technology.
They were introduced to us through a regional fund out of Omaha, Nebraska called Dundee Ventures, which has a great domain expertise in the consumer space. Founders Fund out of the Valley led Summersalt’s Series A funding round last year.
Summersault is another validation of the ROTR thesis: an early stage company launches in a regional city, backed by local and regional investors with deep domain expertise. Those early investors help the company start to scale, which attracts the attention of other top tier investors who can then further accelerate growth.
When we vet investments, it’s not just about the startup. We also look at the health and capacity of the broader community of people and organizations who combine efforts to create the virtuous cycle of innovation and entrepreneurship. We identify and build relationships with the startups, scaleups, major corporations, universities, economic development arms, mayor’s offices, and incubators, who all fit together with the investors and foundations that act as the superglue in the startup ecosystem.
Anna Mason is a Partner on Revolution’s Rise of the Rest Seed Fund. Prior to joining Revolution, she co-founded a fitness-community app that was acquired by Beachbody in 2015. She spent seven years as a distressed bond and private equity trader on Wall Street. Anna previously served as the Co-Director and then board co-chair of the Washington Chapter of The Vinetta Project, a North-American organization that helps early-stage female founders in tech access capital and network connections. She is also on the Board of Trustees for the National Children’s Museum and on the advisory board of BEACON DC, a community-led campaign to make Washington, D.C. one of the most influential and supportive cities in the country for women entrepreneurs.
Caren Merrick is the CEO of Caren Merrick & Co. Previously, she was founder and CEO of Pocket Mentor, a mobile application and digital publishing company that provides leadership development and career advancement. Caren serves on the board of The Gladstone Companies (Nasdaq: GAIN, GLAD, GOOD, LAND) and is a former board member of the Metropolitan Washington Airports Authority and WashingtonFirst Bankshares, Inc. She is also a co-founder and former Executive Vice President of webMethods, Inc., a business-to-business enterprise software solution, which went public on Nasdaq before being acquired.
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