VC Firms Focused on Middle America Have a Better Shot at Stimulating Economies Than Governments
State and local governments are willing to bid for your business—at least, if they think you can bring jobs to them. With hopes of growing into the next Silicon Valley or New York City, governments often dangle millions or even billions in front of businesses they want in their jurisdictions. In 2018, when Amazon was eyeing new real estate for its second headquarters, Maryland offered a package totaling $8.5 billion of taxpayers’ money to the corporate giant, while New Jersey floated $7 billion. In November of that year, the company finally selected a $3 billion package to settle their HQ2 in Long Island City, but the entire project fell apart three months later because of local pushback.
It may have been wiser for Amazon to consider where they could have settled with less local pushback and more natural advantages, instead of where they could get some of the highest bidders.
Indeed, governments are wasting their resources and upsetting their constituents in the name of luring companies with bait that’s only marginally important to the company. But they need to consider why they’re bending over backwards to have business settle in their neighborhood — even if their citizens don’t want them to. Governments aren’t offering incentives packages that businesses look for, as Maryland can attest after Amazon turned down its $8.5 billion gift. Businesses care much more about the availability of land, growth opportunity, and talent when they are considering where to locate.
So then, if tax incentives aren’t the answer to growing jobs in a given area, what is?
One rather appealing option is Venture Capital. Though historically a coastal-elite affair, with nearly two-thirds of all investment funneled to San Francisco, Boston, New York, and Washington, D.C, a few early-stage investors are starting to realize the advantage that Middle America has over the coasts. With its entrepreneurial spirit, low cost of living, and top-tier talent (who are being forced to leave the region due to lack of job opportunities), venture capitalists are seeking to invest in the heartland to see it grow into a booming hub of business.
Take Dundee Capital, for example. It’s a firm that’s launching a pre-seed funding round in partnership with the Kauffman Foundation, aimed at Middle America. By investing in areas that have lower costs of living but a history of growing strong and vibrant businesses, Dundee Capital has the potential to be far more effective at increasing commerce in this region than local governments could hope to be.
As a recent study points out, Dundee, dubbed the “Champion of the Mighty Middle,” will partner with entrepreneurs to guide them through their first round of funding. This involves far more than just giving money to entrepreneurs. It includes strategic advising, networking, and helping build a business that can outlast the first round of funding.
But it doesn’t end with Dundee. Billionaire Steve Case’s firm Revolution, for its “Rise of the Rest” fund, embarked on a road tip looking beyond the coasts for companies to invest in during the 2020s. VC firms like Dundee Capital and Revolution are going back to the roots of what venture capital was created to be — making many bets and growing the best new businesses of tomorrow. All this to say, it doesn’t just make good patriotic sense to have a strong business presence in cities all across America. It makes good business sense, too.
These efforts are poised to be far better for state economies than failed attempts at using tax incentives to attract an already-large business. A VC investment helps new firms grow local economies, too — honoring local culture, values, and advantages along the way. But a government changing taxes is simply making a risky bet at the expense of constituents.
It looks like the business model in Middle America will be shaken up as we roll into the 2020s, and they’re on track to be disruptively dynamic. So much for the “flyover states” — investors are realizing that Middle America is far too good an investment to pass up.