AMERICA IS NOT IN
DECLINE, AND
STARTUPS ARE AN
IMPORTANT REASON
WHY

A CASE STUDY OF ALBUQUERQUE, NEW MEXICO

INNOVATIONS CASE NARRATIVE: VILLAGE CAPITAL
AND REVOLUTION LLC, THE “RISE OF THE REST”

ROSS BAIRD AND HERBIE ZISKEND

In a brilliant essay in the March 2016 edition of The Atlantic Monthly, journal-
ist James Fallows reflected on his three-year, 48-city tour of the United States,
during which he covered 54,000 miles in a single-engine plane. After the ambi-
tious project concluded, Fallows wrote that, contrary to what is often said about
the decline of the United States, especially in a presidential election year, he
finds reason to be very optimistic. His conclusion is that there is a surprisingly
high number of talented people across the country and that the U.S. is in a

promising period of reinvention and renew-
al. Fallows’ journey brought him in contact
with entrepreneurs and innovators who are
launching new startups and creating jobs in
places like Duluth, Minnesota; Redlands,
California; and Columbus, Ohio.

What Fallows calls the “the Big Sort”—the
notion that smart and ambitious people are
congregating in New York, San Francisco,
or Boston—is not playing out as many
assume. “America thinks of itself as having

a few distinct islands of tech creativity; IO
now see it as an archipelago of startups and
reinvention,” Fallows says.

At Village Capital and Revolution LLC, we
too see America as an archipelago of start-
ups and reinvention. Our core investment
thesis is to put money behind talented
entrepreneurs who are tackling problems
in cities beyond the traditional startup hubs.
Revolution, led by AOL cofounder Steve
Case, is in fact investing 90 percent of its

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America Is Not in Decline, and Startups Are an Important Reason Why

capital outside of New York, California, E
Massachusetts. Village Capital’s business
model is committed to changing the power
dynamics in early stage investing and to
deploying risk capital more efficiently. Nostro
focus is on two major problem-solving
areas: access to opportunity for under-
served communities (through health, edu-
catione, and financial inclusion ventures),
and sustainability of the planet’s resources
(through energy and agricultural ventures).

We’ve seen firsthand that this wellspring of
talent across the U.S. is real and growing. In
2014-2015, Revolution, in partnership with
Village Capital, led a “Rise of the Rest” bus
tour to 19 cities to observe local startup
ecosystems—and to invest $100,000 in the most promising entrepreneur they met in each city along the way. Village Capital offered startup mentorship programs in 15 additional communities. Artiphon, a smart-device musical instru- ment startup that won the Rise of the Rest investment in Nashville, is a prime exam- ple. Founder Mike Butera is tapping into the expertise of the city’s growing tech scene, including people involved with the Nashville Entrepreneur Center and musi- cians active in the city’s art scene. Artiphon raised the most money ever for a musical instrument startup with a Kickstarter cam- paign, and in 2015 Time magazine named the Artiphon a top 25 Best Invention. Wealthforge in Richmond, Virginia, is another example of strong talent outside a traditional startup hub. Founders Fred Bryant and Mat Dellorso are drawing on Richmond’s rich “DNA” as a banking and finance center to scale a Fintech startup that uses technology to reinvent the process of making private placement investments. just three Although 78 percent of venture capital goes states—California, to Massachusetts, and New York—there is a rich history of iconic companies starting up all across the country. Infatti, most Fortune 500 companies are based in the other 47 stati: Ford Motor Company began as a small but ambitious car manu- facturer in Detroit; Nike and Under Armour launched in Portland, Oregon, and Baltimore, rispettivamente; and Microsoft got its start in Albuquerque. Promoting greater geographic diversity for new enterprises has the potential to stimu- late economic growth in cities like St. Louis, Kansas City, and Pittsburgh. According to the Kauffman Foundation, new business- es—firms less than five years old—drive almost all of the economy’s net new job cre- ation. Large employers and small business- es employ most people, but they add and shed jobs at roughly the same rate. Most new jobs come from startups, and the “gazelle” firms—the top-performing 1 per- cent of startups—generate about 40 percent of those jobs. This is why we at Village Capital and Revolution agree with James Fallows that there is reason to be optimistic about the U.S. economy, and we believe that other ABOUT THE AUTHORS Ross Baird is Chief Executive Officer, Village Capital. Herbie Ziskend is a Dubin Fellow at the Harvard Kennedy School of Government; he served as Director of Public Policy and Rise of the Rest Investments at Revolution LLC. © 2016 Ross Baird and Herbie Ziskend innovations / volume 11, number 1/2 81 Scaricato da http://direct.mit.edu/itgg/article-pdf/11/1-2/80/705206/inov_a_00249.pdf by guest on 08 settembre 2023 Ross Baird and Herbie Ziskend funds should take notice. venture Technological advances, especially in mobile technology, cloud computing, and big data, have lowered entry barriers for new startups. Improvements in public poli- cy—specifically the JOBS Act passed in 2012, which improves access to capital for budding entrepreneurs—are making it easi- er to launch new businesses. Inoltre, local and national leaders are demonstrat- ing a growing awareness that the key to eco- nomic growth is a vibrant startup commu- nity. Infatti, President Obama held the first ever “demo day” at the White House in 2015. A final factor in the importance of geo- graphic diversity is real estate. The cost of living is more manageable for an entrepre- neur or an employee at a young tech com- pany in Buffalo or New Orleans than in Palo Alto, making the “good life” more afford- able. The data are starting to show that the play- ing field is leveling for entrepreneurs. A recent Harvard Business Review study described how the distribution of venture capital dollars is spreading to metropolitan areas previously overlooked by investors. More companies were funded in the Midwest in 2014 than at any point in the past five years, and four regions in the U.S. are seeing higher unicorn success rates than Silicon Valley.1 South Florida-based “cine- matic reality” startup Magic Leap, for exam- ple, recently closed a $1 billion financing
round and now includes Google and
Alibaba among its investors. As Fallows
points out, in the Kauffman Foundation’s
2015 ranking of the “startup density” of
metro areas—that is, the number of new
businesses divided by the population—San
Francisco is not in the top 10. Miami, Nuovo
York City, and Orlando are on top, followed
by Austin, Denver, and Tampa. Columbus,
Ohio, showed the largest one-year increase
in the number of startups.

In this article we will examine the factors
that we believe enable a city to harness its

regional advantages and “startup DNA” to
create a thriving, sustainable, and impactful
entrepreneurial ecosystem. We will then
offer a case study of Albuquerque, Nuovo
Mexico, which is experiencing a renaissance
of innovation and entrepreneurship by
embracing its long history as an engineering
and technology transfer hub and investing
in an even stronger future.

THE RISE OF THE REST

Supporting local and regional economic
growth is not a new policy objective; it is in
fact embedded in the founding principles of
the United States. As Phillip Longman
pointed out in another Atlantic article, IL
country’s founders created the Senate to
ensure that the smaller and less populated
states would have a chance to participate
fully in the American experiment, and they
included the Postal Clause in the U.S.
Constitution, which guarantees mail deliv-
ery to remote communities. In 1887, after
the advent of the railroad, Congress created
the Interstate Commerce Commission to
protect smaller communities from railroad
price discrimination, and the Federal
Reserve later located member banks in
cities around the country so not all mone-
tary policy would be made in New York.

These efforts and others, including antitrust
legislation and regulatory regimes for public
utilities, made certain that innovation could
emerge in different corners of the country.
As globalization picked up steam in the
1970s and 1980s, many of these policy pre-
scriptions were rolled back, but a critical
shift around regional entrepreneurship has
started to take hold again in recent years,
and we have started to see greater geograph-
ic parity of venture dollars, with high-
growth firm formation poised to follow.

After meeting many hundreds of entrepre-
neurs and logging 4,000 miles while con-
ducting Village Capital’s programs and
Revolution’s Rise of the Rest bus tours, IL
most common question we’ve heard is also

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America Is Not in Decline, and Startups Are an Important Reason Why

the most challenging: What are you seeing
out there that is working well? The answer,
in terms of enabling a city’s startup ecosys-
tem to grow regardless of size, workforce
differences, or core industry strength, is that
we have seen four tactics that work especial-
ly well across the board.

1. Start Local

Nationally, we see many seed-stage busi-
nesses doing slight variations on what other
startups are already doing. As a result,
authenticity is increasingly becoming a
competitive advantage, as it enables a busi-
ness to differentiate itself in a less well-
known city. Business founders who harness
the assets, DNA, and character of a city are
well positioned to succeed. We saw this with
Artiphon, Quale
leveraged Nashville’s
music and tech scene, and Wealthforge,
which leveraged Richmond’s strength in
financial services. Shinola, a portfolio com-
pany launched by Revolution in Detroit, È
growing rapidly, employs former auto
workers who have been retrained to craft
handbags, bicycles, watches, and other
prodotti. Kickboard in New Orleans is
building on the post-Katrina education ren-
aissance, calling on Teach For America
graduates to change the way teachers man-
age school culture. Another successful
Revolution exit was OrderUp, a Baltimore
startup founded to offer the on-demand
economy to smaller markets.

2. Get the Policy Right

Government can make a positive difference,
and the city of Buffalo is a prime example.
The city’s manufacturing base started a
steady decline in the 1970s, which led to a
dramatic decline in population and GDP. UN
long period of struggle ensued, and the for-
mer regional powerhouse—once the thriv-
ing western terminus of the Erie Canal—
lost its vibrancy.

The New York state government has made
targeted investments to spur startup activity

in Western New York over the last five
years. As part of a larger multi-billion
investment in the region, public dollars
have pulled private dollars off the sidelines
to encourage a new generation of college
grads and innovators from the region’s 22
higher education institutions to stay in
Buffalo and start or join a new business.
This has led to the creation or expansion of
new incubators and accelerators that are
housing growing companies, including
Z80Labs, dig, Vcamp, Launch NY as well as
the world’s largest business plan competi-
zione, 43North.

In Philadelphia, outgoing mayor Michael
Nutter’s StartupPHL initiative is funded
con $6 million of public and private monies. Managed by Josh Kopelman at First Round Capital, StartupPHL is investing in early stage tech companies. The mayor’s efforts on behalf of startups has sent a pow- erful signal that Philadelphia offers an envi- ronment where founders can grow their business, rather than relocating along the Amtrak corridor in New York or Boston. Village Capital’s most successful commer- cial exit to date is 1DocWay, a Philadelphia- founded company that uses telemedicine to extend mental health care to rural areas; the company was acquired by major pharma- ceutical company Genoa in fall 2016. Cities that generate the right environment for startups will see similar success over time. 3. Be Dense As technology continues to transform the traditional one worker to one employer par- adigm and an increasing share of the work- force has part-time roles with multiple plat- forme, cities that bring the talents of the cre- ative, innovative makers in their communi- ty under one roof will create a virtuous cycle. Creating shared physical work spaces for founders, workers, and investors enables their ideas and talent to mesh, and it can also make working at a startup more fun, which is meaningful for an engineer trying to decide between a job at an early stage innovations / volume 11, number 1/2 83 Scaricato da http://direct.mit.edu/itgg/article-pdf/11/1-2/80/705206/inov_a_00249.pdf by guest on 08 settembre 2023 Ross Baird and Herbie Ziskend company or a large corporation—and for the entrepreneur who is trying to hire him. Durham’s American Tobacco Campus, a revitalized historic tobacco campus turned office space that houses 300 startups within a five-minute walk of one another, shows what is possible outside of Silicon Valley. The Durham campus has seen seven com- panies exit in the last couple of years, earn- ing a combined $1.5 billion.

Buffalo’s Niagara Medical Campus is anoth-
er example of density done right. It is where
founders and innovators are working on
ideas with D!G, Z80Labs, and 43North—all
under one roof. Other promising efforts to
build density can be found in Baltimore’s
CityGarage, Cincinnati’s Cintrifuse, E
COCO, the Minneapolis hub for entrepre-
neurs.

4. Convene and Be a Magnet for
Talent

Creating a convening event—an occasion or
festival that brings together local leaders
and outside capital—is something any city
can do. It can advertise a city’s assets and
help to spur startup activity. Startup and
Create Week in Portland, Maine, for exam-
ple, brings together more than 3,000
investors, founders, designers, and forward
thinkers from over 27 states to learn, be
inspired, and network. That’s a significant
showing in a city like Portland, with a pop-
ulation of only 66,000.

È

in March and

New Orleans Entrepreneur Week, che è
held
led by Tim
Williamson, celebrates innovation, entre-
preneurship, and new ideas. Part of the idea
behind Entrepreneur Week is that the
future of New Orleans will need to be
dreamed up and created by entrepreneurs.
New Orleans’ school system, for example,
which was largely and literally washed away
by Hurricane Katrina, became a national
laboratory for education reform. This was a
tremendous opportunity for entrepreneurs,
as it gave them a chance to participate in a

living laboratory of innovative EdTech serv-
ices. As a city with one of the largest pools of
Teach For America alumni, New Orleans
was already home to bright young educa-
tion minds. This influx of early adopters
and customers provided a crucial ingredi-
ent.

One of these bright young minds was Jen
Medbery, a coder who was living in New
Orleans and working as a founding teacher
at a charter school. After three years in the
classroom, Jen developed Kickboard, a tool
to help teachers to make better decisions in
the classroom by providing reliable data on
each student. Kickboard was Village
Capital’s first investment, and it has raised
$2 million in funding. The teacher-friendly Kickboard software is now used by 200 schools in 20 stati. Jen has been compared to an “edtech god- mother” for New Orleans, but she is not alone. Entrepreneurs in the city benefit from 4.0 Schools, a nonprofit incubator for schools and education startups that was founded in New Orleans in 2010, and the city recently hosted a “Tech for Schools” summit, which brought in 25 entrepreneurs from around the country. By 2015, New Orleans was 56 percent above the national average in the number of startups per capi- ta, and was named the second best city for women working in technology. In the next section, we will dive deeply into Albuquerque, New Mexico, a city that is wholeheartedly embracing its unique start- up DNA and blending regional strength with impact objective. Albuquerque and Engineering and In 2015, Village Capital partnered with the Kauffman the Foundation Albuquerque community on a program to support early stage entrepreneurs who are addressing water insecurity issues through technology. Village Capital chose Albuquerque for this engineering- E 84 innovazioni / Thriving Cities Downloaded from http://direct.mit.edu/itgg/article-pdf/11/1-2/80/705206/inov_a_00249.pdf by guest on 08 settembre 2023 America Is Not in Decline, and Startups Are an Important Reason Why biotech-heavy program because of the city’s strong credentials as an engineering hub. to Water insecurity is a major problem around the world, including in the United States. According the World Health Organization and UNICEF, 750 million people lack access to clean water (Di 2.5 times the U.S. population). In the United States, IL 2014 drought affected areas that produce one-third of the country’s cattle and half its fruit, vegetables, and winter wheat. Inoltre, irrigation and food pro- duction put some of the greatest pressure on freshwater resources, E 2.5 billion gal- lons of water are contaminated each day in the U.S. by oil and gas production. New Mexico is a state with limited water resources, and Albuquerque is right in the middle of this crisis—and this opportunity. About ten years ago, a drill rig in the middle of the New Mexico desert hit a windfall—a pool of brackish water that may well be the largest in the U.S. Brackish water is saltier than drinking water, but modern desalina- tion techniques allow it to be converted into a drinkable liquid. If this discovery had hap- pened in another city, it would be viewed simply as a boon to the water supply, but Albuquerque is well positioned to take advantage of the discovery by positioning itself as a hub for entrepreneurship around water sustainability, and engineering more broadly. The city already has a history of innovation, and technical engineering is in the city’s DNA. An early site of computer develop- ment, Paul Allen and Bill Gates moved to Albuquerque to develop the first iteration of Microsoft. Sandia National Laboratories has received more than one hundred awards from R&D magazine, and engineers at Los Alamos National Laboratory were pioneers in atomic energy. The University of New Mexico has a strong engineering program, boosted by the university’s Science and Engineering Park, and the Air Force Research Laboratory has conducted numer- ous experiments with NASA. Because of this history, Albuquerque has an incredibly dense research, technology, and innovation infrastructure that has been built over many years and has primed the city to be a mod- ern-day innovation hub. THE “RAINFOREST IN THE DESERT” Over the past few years, the University of Mexico (UNM) and the city of Albuquerque demonstrated a strong commitment to sup- port entrepreneurial activity by creating a district for research and innovation within the city. In 2013, UNM partnered with local business leaders to create Innovate ABQ, an entrepreneurial hub strategically located between the downtown business area and the UNM campus. As a core site of the dis- trict, Innovate ABQ is envisioned as a cata- lyst for research and innovation throughout the region. UNM professor Robert G. Frank comment- ed on the project: We have the research-rich envi- ronment of our universities and national labs, the state’s high ranking as a place for entrepre- neurs, engineers, and scientists, and we are great at spinning out new companies . . . We have all the ingredients. Now it is time to bring these elements into cre- ative synergy. We have taken the first steps. Now it is time to scale up our efforts and move the state forward. The city calls itself the “Rainforest in the Desert,” based on an idea authored by entrepreneurial leaders Victor Hwang and Greg Horowitt that a polycrop culture of ideas and capital create great ecosystems. In such places, Silicon Valley being a prime example, a highly diverse group of people can connect rapidly, share ideas freely, and collaborate from the bottom up—like a bio- logical rainforest. innovazioni / volume 11, number 1/2 85 Scaricato da http://direct.mit.edu/itgg/article-pdf/11/1-2/80/705206/inov_a_00249.pdf by guest on 08 settembre 2023 Ross Baird and Herbie Ziskend Sandia Labs, Los Alamos, and UNM repre- sent a keystone species in Albuquerque’s “rainforest.” By breaking down traditional hierarchies and reaching across social boundaries, they are able to connect people with ideas, talent, knowledge, and capital, while also serving as a filter for high-quality connections and propagating cultural behaviors that are conducive to innovation. Innovate ABQ has a number of assets that play off each other, including low-cost incu- bators like Epicenter and Fatpipe ABQ, accelerators like ABQID and the Bioscience Center, and support and investment organ- izations like the Wesst Enterprise Center and the New Mexico Angels. Finalmente, the Albuquerque government has invested sig- nificant resources in its Living Cities’ Integration Initiative, an effort to accelerate job creation and economic mobility through innovation and entrepreneurship. With this forward-looking environment, Village Capital believed Albuquerque was the best place in the country to gather a cohort of companies to address the pressing engineering challenge of water sustainabili- ty. BUILDING A WATER ECOSYSTEM In 2015, Village Capital launched a national venture development program to build a water ecosystem in Albuquerque, in part- nership with the Kauffman Foundation, the Community of Albuquerque, and national investors BSP Fund, Chilton Capital Management, the Tecovas Foundation, and the New Belgium Family Foundation. IL 12 water technology ven- tures selected to participate included inno- vative water sub-metering systems, tech- nologies that harness wave energy, desalina- tion solutions, and even portable pressur- ized shower systems for rural communities. Three of the ventures were based in New Mexico, including an Albuquerque firm that produces water conservation systems for gardens and a Santa Fe startup that mar- kets low-cost desalination pumps. At the end of the program, Village Capital invested in two companies: Emrgy Hydro, which delivers affordable hydropower from waterflows previously considered too small or too slow for energy purposes, and AQUEES, which helps large buildings reduce water usage and save money through solutions like water analytics and smart metering. È interessante notare, after participating in the program, five ventures from outside of the city set up formal operations in Albuquerque. Engineering companies in Albuquerque, and cities like it, are showing promise by building globally competitive companies at a fraction of the cost of their potential com- petitors in Boston or Silicon Valley. We offer three examples. In 2006, John Elling founded Acoustic Cytometry with technology licensed from Los Alamos National Laboratory. The com- pany developed a method for using sound waves to guide cells through cytometers, or cell meters, which allows medical researchers to examine tissue samples more closely. Within two years the company was acquired by a larger biotech corporation, and Elling is in the process of launching another company at the Santa Fe Business Incubator. Pajarito Powder started in 2012 with the mission of being the world’s first commer- cial manufacturer of drop-in replacement non-platinum fuel cell catalysts. Platinum is exorbitantly expensive and has a precarious supply chain. Pajarito Powder has leveraged the Los Alamos National Laboratory and other research facilities to deliver catalysts made of widely available and inexpensive materials that also have the requisite per- formance and durability. In December 2015 the company was selected to lead a $2,790,000 energy department advanced
research project to develop, in conjunction
with its partners, a reversible hydrogen elec-

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America Is Not in Decline, and Startups Are an Important Reason Why

competitive advantage, and make startup
formation a key component of the local eco-
nomic ecosystem. Despite the many chal-
lenges facing the United States, we can all
do more to celebrate entrepreneurship and
the men and women who are trying to build
high-growth, change-the-world companies
in unlikely places. As Fallows puts it, “Until
the country’s mood does change, the people
who have been reweaving the national fab-
ric will be more effective if they realize how
many other people are working toward the
same end.”

1. A unicorn is a startup company valued at

more than $1 billion. trode that will enable cost-effective produc- tion of hydrogen and reversible fuel cells. RiskSense is a 60-employee Albuquerque company that helps public agencies and other clients identify and fix vulnerabilities in their networks. The company, which is an offshoot of New Mexico Tech, built its expertise handling highly sensitive informa- tion for state agencies and national labs that manage, among other things, the develop- ment of nuclear weapons—perhaps the most sensitive information in U.S. research. In 2015, with reported 2014 revenue of $4.6
million and 273 percent growth, the compa-
ny made the Inc. 5000 list of fastest-growing
companies.

Albuquerque is just one example; we could
do a similar case study on dozens
of cities across the U.S. that have identified
regional assets, and then taken steps to
build out resources and a community of
entrepreneurs around them. Whether it’s
financial inclusion in St. Louis or agricul-
ture in Minneapolis, every city has its story.
We look forward to these communities
changing the national narrative around
where entrepreneurship can thrive.

CONCLUSION

Silicon Valley, which symbolizes the prom-
ise of innovation and capitalism, is the envy
of the world—as it should be. Entrepreneurs
and investors in the Bay Area are tackling
real problems and building companies that
create and capture value. But if we want
communities across America to be places
where people can grow, thrive, and build
livelihoods for their families, we need a
more evenly dispersed innovation econo-
my. As James Fallows points out, and as
Revolution and Village Capital have wit-
nessed firsthand, we’re in the early stages of
such a dispersal of talent taking hold. How
do we accelerate it and expand it to
more cities and towns nationwide?

Primo, identify local assets, then work with
local leaders to develop these assets as a

innovazioni / volume 11, number 1/2

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