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Peter Thiel is wrong about the cities spearheading startup success

“If you are a very talented person,” Thiel told a Windy City college crowd last week, “you have a choice: You either go to New York or you go to Silicon Valley.”  

Peter Thiel, co-founder of PayPal, stands on stage prior to the start of the second day of the Republican National Convention on July 19, 2016 at the Quicken Loans Arena in Cleveland, Ohio.
Alex Wong / Getty

I grew up in Hawaii, far away from America’s Midwest. But today, I feel a strong solidarity with the people of Chicago and a need to defend them — and all the talented entrepreneurs in cities across the country — against comments Peter Thiel made last week at Roosevelt University in Chicago:

“If you are a very talented person, you have a choice: You either go to New York or you go to Silicon Valley.”

Peter is dead wrong. And I have 4,000 miles logged on a bus to prove it.

For the last two years, I have been getting out of my office and onto a bus to see what’s going on in startup ecosystems across the country. I’ve been to 19 cities on these Rise of the Rest tours, and next month I’ll head to Omaha, Lincoln, Denver, Salt Lake City, Provo, Albuquerque and Phoenix.

At each tour stop, I meet with entrepreneurs, local officials and other investors. I visit growing companies, listen to founders’ ideas, and then put my money where my mouth is and award $100,000 to a pitch competition winner in each city. We’ve found some great businesses on these tours, many with ideas I wish I had thought of myself. WealthForge — an online broker/dealer that connects entrepreneurs with accredited investors — in Richmond. 75F — the developer of technology that automatically adjusts temperature in commercial buildings — in Minneapolis. Artiphon — the maker of tech-enabled musical instruments — in Nashville.

These companies didn’t end up outside of Silicon Valley or New York by accident. They made deliberate decisions to start and grow their businesses in places that provided unique cultures, local expertise and supportive policies.

And contrary to Thiel’s remarks, it’s a trend that I fully expect to continue. In my book, “The Third Wave,” I posit that we have entered a new era where entrepreneurs will disrupt entrenched industries like health care, energy, education, food and transportation. New centers of innovation will thrive as entrepreneurs seeking to disrupt those sectors head to places where those industry ecosystems (not to mention more reasonable real estate markets and modest overhead) exist. For example, the Midwest — with cities in close proximity to farmland — may be a better place from which to transform agriculture than Manhattan or San Francisco.

But while I firmly believe entrepreneurial talent is evenly dispersed, opportunity to grow one’s enterprise is not: 78 percent of venture capital still flows to New York, Massachusetts and California. Because of this, many cities have created programs and policies to foster entrepreneurship and attract talent. And already there is evidence that the paradigm is shifting. The No. 1 city on the Kauffman Foundation’s Startup Index? Austin. The city experiencing the most growth in entrepreneurial activity this year? Washington, D.C. And the city that is home to the most profitable startups? None other than Chicago.

And, let’s remember, Mr. Thiel, that the hottest VR/AR startup, Magic Leap, is not in Silicon Valley or New York, but Florida. Its $1.3 billion of funding comes from places like California (Google) and China (Alibaba), but the company is based in Fort Lauderdale. One more example: Uber, one of Silicon Valley’s hottest startups, is now betting its future on Pittsburgh. That’s ground zero for Uber’s autonomous vehicle efforts (indeed, just last week the company put its first driverless car on the road there). Uber launched in San Francisco, but it recognized the talent they needed was in the steel capital, a city renowned for making things, and the home of Carnegie Mellon, arguably the world’s finest robotics research university.

All of this isn’t to say that Silicon Valley or New York are not hugely important centers of entrepreneurial activity. They are, and they will continue to be. But to deny the existence of talent in other cities is to diminish the transformative innovation happening in every corner of this country. Innovation that brings with it enormous economic rewards (startups account for nearly all new net job creation in the U.S.), and, just as important, critical diversity of people and of perspectives. The rise of the rest means breaking the cycle of capital flowing to the same kinds of people for the same kinds of ideas.

That’s why I keep hitting the road. It’s why I can’t wait to visit Hudl, a company in Lincoln that provides sports teams with game tape; it raised a $72.5 million round last year. Or mobile-shopping app Ibotta, a company that raised another $40 million in 2015 and tripled its office space in downtown Denver. Or a street in Provo that is home to several software companies, each worth more than a billion dollars.

Believing that great companies can start and scale anywhere is our investment philosophy at Revolution, and it’s one we take seriously. Peter Thiel would be well advised to do the same, because if you don’t acknowledge the rise of the rest, you might just get left behind.

Steve Case is chairman and CEO of Revolution, a Washington, D.C.-based venture capital firm, co-founder of AOL, a member of the President’s Ambassadors for Global Entrepreneurship and chairman of the Case Foundation. Reach him @SteveCase.

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