AOL founder: Tech's future lies in cities like Des Moines

Kevin Hardy
The Des Moines Register

Last year, more than half of all the nation's venture capital funneled to entrepreneurs in California, leaving startups in the other 49 states to fight over the remaining pot of cash.

AOL co-founder Steve Case is pictured here in Buffalo, NY, during his 2015 Rise of the Rest bus tour. Case argues that the next wave of technological advancement will come in small and mid-size cities across middle America.

Steve Case, who co-founded AOL in 1985, says that must change so cities in middle America like Des Moines can share in the technological revolution.  

"Some call it the flyover country," Case told the Des Moines Register on Wednesday. "It's not really taken as seriously as I think it should be as a center of innovation."

Case was visiting Des Moines as part of a tour promoting the paperback release of his 2016 book, "The Third Wave." His trip here followed earlier stops on his Rise of the Rest tour, which promoted entrepreneurship in overlooked cities across the country. 

In his book, Case argues that recent technological advancements can be sliced up into three distinct segments: In the first wave, dating back to 1985, companies like AOL, Apple and Microsoft built infrastructure around the Internet, bringing it from an idea to reality. From 2000 to the present, we've lived in the second wave, defined by apps, social networks and names like Amazon and Google. Now, Case argues, we're on the cusp of a new internet age, one that will incorporate the internet into every realm of life. This wave will play out in cities across the country, not just tech hubs in California, Boston and New York. 

That's more important now than ever, he said, as President Donald Trump's surprise electoral win in November laid bare just how many middle Americans felt left out by globalization and technological advancements. 

"If we don't level the playing field and even out the opportunity we're going to have a country of two Americas," he said, "of have and have nots."

To bolster the heartland, Case says cities and entrepreneurs need to do a better job of telling their startup success stories. But fundraising remains a major hurdle for emerging businesses outside of major tech hubs. Cities who don't mentor and invest in startups do so at their own peril, he said. He cited research from the Kauffman Foundation that shows startups lead the way in creating jobs, not small businesses or large corporations.

"Fortune 500 companies started startups," Case said. "If you're using the farm analogy, they're the seed corn. If you're not planting that seed corn — some of which will end up dying off, but some of which will grow — you're not going to have a strong, vibrant community 25 years from now. You just aren't."

Case argues that state incentives meant to boost jobs should flow to startups, not necessarily large corporations and small businesses. In Iowa, more than $110 million is spent annually on tax credits and cash payments to existing companies looking to expand here. Less than $3 million is set aside to invest in startups and emerging companies, according to records from the Iowa Economic Development Authority

Regional tech booms are already reversing so-called "brain drain," encouraging natives to "boomerang" back home after fleeing their home cities for career opportunities elsewhere, Case said.

To encourage local tech growth, he said cities must play to their regional expertise. In the case of Des Moines, that means doubling down on ag tech or financial services startups. As technology becomes more pervasive in every part of life, successful tech ventures will need more expertise on specific subjects — not just knowledge of how to code. 

"If you really want to change agriculture, you do, I think, need to understand how farmers think and the culture of farming," Case said. "And its true also in health care. If you really want to revolutionize health care, you need to understand how doctors work."

Central Iowa is already playing to its regional strengths, housing both the newly formed Ag Tech Accelerator and the established Global Insurance Accelerator, each funded by businesses in their respective industries.

"We’re known globally for that," said Mike Colwell, executive director of Square DSM, a business accelerator under the umbrella of the Greater Des Moines Partnership. "You can go to London and people know about the insurance accelerator."

Colwell agrees that lack of funding remains a critical challenge for would-be entrepreneurs here. But investment firms have popped up across the Midwest with the explicit goal of boosting local startups.

"Is it easy to raise capital? No, and it should never be easy to raise capital when you're spending other people's money," he said. "Is it getting easier? Yes."