Since the last time he visited Arizona, AOL co-founder and Revolution venture capital firm CEO Steve Case said the Phoenix metro's startup ecosystem has made significant progress.
"I remember when we were here in 2016, the momentum was building, but it still needed a little bit of spark and collaboration; and it's clear in six years that things have really accelerated," he said during a recent stop in Phoenix as part of a national tour during October to encourage entrepreneurship in noncoastal cities.
Case started his Rise of the Rest mission as a bus tour across the U.S. to visit dozens of cities outside of Boston, New York or San Francisco, the three regions that have dominated in venture capital investment and startups.
This further evolved into a $150 million VC fund, while Case's latest book, "Rise of the Rest," launched in September. In his book, Case highlights the work in cities across the U.S. that have not historically been recognized as startup cities.
"The political leaders in many states and many cities, 10 years ago, were way too focused on thinking of economic development as luring a big company to move their headquarters or open a factory ... and not really focused on thriving a startup community that really couldn't birth new companies," he said.
Case: Fostering startups better than attracting big companies
Although many places are still looking to attract big companies, Case said a lot of cities have focused more on their startup communities, adding that "the only sustainable strategy is to be launching more new companies." Outside of the three big VC cities, Case said 1,400 new regional VC firms have started in Rise of the Rest cities in the past decade.
Case last visited Phoenix in 2016 as part of his Rise of the Rest road tour, which culminated in NeoLight landing a $100,000 investment from Case and his fund. The fund has previously invested in Valley startups Chassi, Equipifi and Qwick, which was named one of the fastest growing private companies in the country by Inc. earlier this year.
Case told the Business Journal that his strategy is to partner with regional venture firms and that he expects to continue investing in Phoenix startups in the future.
Case said that since he started the bus tours, more capital has steered into noncoastal cities, partly because of the Covid-19 pandemic's impact on meetings and employees, but also because of cities focusing on building up cross-sector collaborative communities that encourage risk taking and entrepreneurship.
"Suddenly venture capitalists could do pitch meetings with entrepreneurs that didn't require in-person, made it easier," he said. "This talent dispersion accelerated, where people said, 'I'm going to work remotely anyway, maybe i'll be somewhere else,' and once they're somewhere else, they said, 'I'll stay here, and that's changed the landscape."
Arizona saw a record $1.98 billion in venture capital invested in startups in 2021, but like the rest of the country has seen a VC slowdown through the first nine months of 2022. Still, in the past month, two new fund ventures, PXH Launch and AZ-VC have opened for business to invest in fledgling Arizona businesses.
Case: ASU can be a spark for entrepreneurs
When he was last here, Case said some of the biggest challenges for the Phoenix startup ecosystem was fragmentation and a lack of collaboration. But thanks to a growing research and education system through Arizona State University, a booming population and expanding industries, the Phoenix metro has a chance at further enhancing its startup community, Case said.
"The fact that it is a rapidly growing city that has been attractive in terms of people relocating for decades is huge, that's not common," Case said. "The other thing that's unique, here, is that ASU is the largest, fastest-growing most innovative university in the country ... it's definitely putting Phoenix on the map and becoming more attractive not just for students coming to ASU, but entrepreneurs building off that ASU platform."
Case said he expects Phoenix to be one of the biggest beneficiaries of the Rise of the Rest mission and hopes more people will support entrepreneurs locally.
"Some really significant companies are going to start and scale here that will surprise many people in Phoenix and probably surprise many people around the country," he said. "The startup community that is building here is really going to end up defining the next chapter for Phoenix, and that's very exciting."
Startups in Arizona can also leverage the industries in the state like health care, semiconductors and electric vehicles in addition to the challenges Arizona is facing such as the looming Colorado River water shortage and expanding renewable energy industries.
Although cities like Phoenix and others have seen improvements and more interest from VCs, Case said places like Silicon Valley remain the focus, which means there's still a lot of work to do to bring more capital to other cities and attract talent, as well as to lower barriers and create more opportunities for women, people of color and the LGBTQ community to receive the same attention, capital and support as other startups.
