“If you are a very talented person, you have a choice: You either go to New York or you go to Silicon Valley.”
Silicon Valley billionaire Peter Thiel is a high-level advisor to President Trump. As the author of a popular book called “Zero to One”, he is also someone who can tend to think in absolutes.
Thiel once offered this piece of advice to entrepreneurs: “Competition is for losers. Build a monopoly.” He thinks this way about geography, too, telling an audience in Chicago last year: “If you are a very talented person, you have a choice: You either go to New York or you go to Silicon Valley.”
I don’t know how involved Peter Thiel was in the crafting of President Trump’s budget proposal, released last week, which proposes cuts to established cultural and economic institutions across the board. But the budget’s barely-concealed subtext is remarkably similar to the undertone of Thiel’s comment about talented people: If you want to succeed in this country, run like hell for the coasts.
Silicon Valley, Wall Street and Everywhere Else
Every economic conversation in this country should be about jobs. And where and how we invest in entrepreneurs dictates a great deal about the kinds of jobs we are going to create.
According to the Kauffman Foundation, nearly 100% of net new jobs in America over the last thirty years have been created by startup companies. But new firm creation is only recently ticking up from a thirty-year low. According to the bipartisan Economic Innovation Group, three decades ago 80% of the country’s metro areas saw more firms starting each year than closing shop. But today, that’s only true for 33% of the country’s metro areas. In the other two thirds of the country, more firms are dying than starting up.
There’s no doubt that the innovation economy is working pretty well and producing jobs in some places. It’s working well for investors in Silicon Valley and New York, and for the entrepreneurs who have the savings and freedom to pick up their lives and families and move to those places: 78 percent of venture capital in the US flows to New York, California and Massachusetts. And while Wall Street bank stocks are at an all-time high, community banks have cut investment by half.
Silicon Valley’s an amazing ecosystem, with brilliant inventors, and great entrepreneurs. But many in Silicon Valley, on Wall Street, and other winners in Peter Thiel’s monopoly economy have a problem. They’ve created an “us versus them” bubble where a few places on the coasts are attracting the capital and resources. And they’re starting to worry that automation — whether it’s self-driving cars or robotic manufacturing — will put the rest of the country out of work. Rather than invest in the rest of the country, though, many of those who have the deepest pockets and broadest resources to address these concerns are hanging the rest of the country out to dry.
And while there are plenty of concerned citizens on the coasts, including those who have roots in the middle of the country, who are asking “How can I help?”, the silence from many who have the power to drive change is deafening. The only idea I hear out of Silicon Valley to address the natural consequences of this monopolistic thinking is “universal basic income,” where the winners create an annual basic income for the losers that otherwise are not at all employable. Providing everyone a basic safety net is not necessarily a terrible idea, but it’s being implemented with an “us versus them” arrogance about where the world is headed (more of my thoughts on that here).
If you take this “us vs. them” philosophy to its logical conclusion, you get something resembling President Trump’s budget: the rich in a few cities continue to get richer, while the rest of the country hollows out — and the best cultural and economic ideas from the rest of the country are left in the dust.
An “Us vs. Them” Budget
The proposed Trump budget promotes cutting agencies and programs such as the Economic Development Authority, the Treasury Department’s Community Development Financial Institutions program, and the Advanced Research Projects Agency for Energy (ARPA-E). These programs, in my experience, have provided critical start-up capital to companies in the places where Peter Thiel doesn’t invest. They are proven job-creators for today’s economy, and they provide important safety nets for re-training workers for the jobs of the future.
President Trump’s budget argues that these dramatic cuts are justified because the private sector “provides efficient mechanisms” for small-business development and growth. But we’ve seen the trend-line of private sector investment, and it doesn’t look promising for the communities in the middle of the country that got him elected in the first place.
I know this because I’ve seen it play out on the ground. Over the past seven years, our team at Village Capital has worked in 35 cities and invested in over 70 entrepreneurs, most of them in states outside of New York and California, Massachusetts and New York, including a smart pesticide startupin West Lafayette, IN, an edtech company in Iowa City, and a fish farming startup hiring dozens of workers in rural Paducah, KY. We’ve worked with middle-of-the-country investors like Louisville’s Access Ventures, whose venture philanthropy model includes everything from housing redevelopment to investing in underserved entrepreneurs. And we’ve worked with other investors like AOL founder Steve Case, who has been a rare leading voice for investing in the heart of the country long before the rise of Donald Trump, including with his “Rise of the Rest” initiative that travels outside the coasts to invest in great companies.
And very often, the American people are the first investors in places where people like Peter Thiel aren’t investing. As Congress debates what to do next with this budget proposal, I thought it would be helpful to provide a few specific examples of companies and projects that received support from the programs and agencies that President Trump proposes cutting.
The Appalachian Regional Commission is an independent agency that supports redevelopment in Appalachia. Last year they launched the POWER Initiative to invest in coal-impacted communities. We’ve worked with the ARC, as well as government officials from both sides of the aisle like Senator Shelley Moore Capito (R-WV) and Democratic Senator Mark Warner (D-VA), and we know that many local leaders see the ARC as one of the last institutions doing effective economic development work in the region For example, the POWER initiative last year provided seed capital for a $2.2 million project to support drone and autonomous vehicle technology in southwest Virginia, which could provide a boost to a region that already has promising autonomous projects at the University of Virginia’s Wise County campus.
Building clean energy companies
In 2016, for the first time in history, solar power became the cheapest form of new electricity on the planet. Clean energy technology has already proven to be a solid job creator. And because it revolves so heavily around hard research, a lot of clean energy innovation is coming from universities, research centers and entrepreneurs between the coasts.
The Department of Energy has an important role to play here. Their investment and support can fill a gap for early-stage companies, as it has for our portfolio companies like Atlanta-based Emrgy, which helps turn any running water in the country into productive hydro, and Nashville-basedSolar Site Design, which helps create good-paying jobs for folks installing solar panels. Yet Trump proposes cutting the Advanced Research Projects Agency (ARPA-E) program, which provides seed and growth funding to early-stage energy companies. ARPA-E has made hundreds of successful investments in start-up companies, earning praise from people like Energy Secretary Rick Perry.
Supporting middle-of-the-country entrepreneurs
President Trump’s budget calls for cuts to the Commerce Department and the Small Business Administration’s programs to support entrepreneurs, including the agency’s entire Economic Development Administration. We’ve worked with many of the accelerators supported by the SBA, and know that they’re often the first and only risk capital for start-up companies in the middle of the country. From New Orleans’ Propeller, to Lawrence, Kansas’ Bioscience & Technology Business Center or the Ben Franklin Techcelerator in Harrisburg, PA, we’ve seen these firms step up and help start-ups before private investors are ready to step in.
President Trump was elected, in part, because he seemed to speak for many Americans who were forgotten and left behind. He and I share the same goals of a vibrant, dynamic economy — but I’m afraid that if anything resembling his budget is passed through Congress, we’re going to end up creating more Silicon Valley and Wall Street monopolies and fewer jobs in the rest of the country.
I know that crafting budgets is difficult, and any budget has to make tough choices about what to prioritize. But I’m worried that the private sector has so massively concentrated its investments in start-ups in a few cities, and I’m baffled that any strategy to restore American dynamism would further reduce critical support for entrepreneurs between the coasts.
If you’re an entrepreneur in the middle of the country who’s looking for help growing your business, or a investor (whether or not you live on Wall Street or Silicon Valley!) who is just as concerned as we are, we want to work with you. Reach out to me at [email protected], or learn more on Village Capital’s website.