Why the Rust Belt May Drive the Post-COVID Economy – Crunchbase News
By Somak Chattopadhyay and Pia Sawhney
As the United States begins to recover from the COVID-19 pandemic, we need venture capital investment more than ever. But we must also ensure that it is better distributed.
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Investors in Silicon Valley, New York and Boston are now more willing to make decisions about companies located hundreds or even thousands of miles from their offices, rather than a 20-minute drive from Sand Hill Road .
In addition, entrepreneurial talent has left major technology hubs to begin growth in other regions of the country. All of this is proof that the technology companies of the future can and will indeed be built anywhere.
But that’s not the whole story. Venture capital has become a political, economic and social justice mandate, rather than just a fundraising mandate.
Despite the pandemic that has changed the importance of place, the majority of all venture capital is still invested in just three states: California, Massachusetts and New York.
According to Brookings, innovation jobs generated by venture capital are also concentrated, to a good extent, in 16 US counties. The same report shows that 41 counties now hold half of the innovation-based jobs nationwide. And understand this: These jobs represent less than 27 percent of the country’s total jobs.
The overinvestment and overconcentration of technology in a few hubs has a negative economic impact on workers and the middle class. Places outside the major poles suffer from declining growth and opportunity, negative stigma and a climate of social disintegration associated with the stagnation of towns and villages.
The political divide also affects these results. Being less secure economically means reacting by voting against those who support coastal populations and branding them as insensitive and indifferent political elites.
As Congressman Ro Khanna from Silicon Valley noted, in our currently constantly diverging economy of haves and have-nots, almost all of us are losers.
What makes a great place to start a business?
The modern technological economy has to work for more people and places, and thanks to technology, it has become easier to do so.
Now, knowledge workers can migrate for a better quality of life anywhere, without having to travel to the headquarters of a big tech city. As technology increasingly enables businesses to be built everywhere, founders can take advantage of unique resources in their hometowns or in new college towns.
Lower start-up costs, formidable research universities and regional expertise in key industries also lead to innovations in small towns that are less and less likely to happen otherwise or elsewhere.
As the founders and some investors have long known, there are great opportunities in the heart of this country. Venture capital outside of hubs comes more slowly or later in a business’s development, but capital goes much deeper and has a visible and lasting impact on local jobs and community growth.
Let’s rewrite history
We know the story. Beginning in the 1980s, the Rust Belt – so called because of decades of declining industrial manufacturing jobs in favor of automation and overseas investment – saw decades of neglect.
Following the 2016 presidential election, there was a lot of talk about returning older industries, like coal and steel, to states where manufacturing had previously supported the economy. But that did not happen.
Today, new models of work-life balance, new investment frameworks and new infrastructure have the potential to revive neglected areas of the Rust Belt and Midwest.
Promoting economic growth through tech startup ecosystems isn’t just good business, it’s good government, good community development, and good planning for a transformative future.
From the Northeast to the Midwest, where industrial cities were once dominant, metropolitan areas that share characteristics with larger cities, including Buffalo, Columbus, Pittsburgh, and Indianapolis, have become significant competitors in the tech arena and could become our cities of the future.
Local universities with an excellent reputation in science and engineering have helped create vibrant startup communities, alongside business development organizations and passionate individuals. New ecosystems driven by the digital transformation of traditional industries now include agriculture, healthcare, transportation – all sectors that have real-world roots and specific local economic histories with legacy strengths in manufacturing and logistic.
Chris Olsen of Drive Capital in Columbus, Ohio, often describes the Midwest not only as “where things are made” but also “where things are made”.
Brookings noted that the center of the country is home to more than 200 of the nation’s Fortune 500 companies and 20 of the top 200 research universities in the world. The report also shows that the upper Midwest generates a quarter of the country’s corporate and academic patents and a third of its academic research and development.
As MIT professors Simon Johnson and Jonathan Gruber suggest in their book âJump-Starting America,â creating new technology hubs in old manufacturing hubs would dramatically improve pathways to better economic outcomes for places that have been left behind. for account.
Building momentum: who will fuel technology-driven growth?
These days, the idea of ââinvesting in startup ecosystems in upstate New York, the south and the Midwest isn’t as outrageous as it once seemed. This is certainly how we felt when we started our journey and presented the thesis seven years ago.
This approach – being closely involved in the ecosystems we build – means that our business, our community and our region collaborate deeply. Collectively, this means highlighting and utilizing key local strengths and working alongside industry professionals and community leaders.
We believe that great companies can be created in unexpected places, that creativity can come from anywhere, and that thriving entrepreneurial ecosystems can be created in underrated regions.
Pia Sawhney and Somak Chattopadhyay are directors of Armory Square Ventures, a venture capital fund located in New York State.
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