The Rochester Proposition: Rethinking Equity in Venture Capital
To the casual observer, at least, it seems like Silicon Valley continues to concentrate wealth and power at an inordinate rate, although recent trends in remote work may be beginning to change this. Generally, startups and venture capital flock to the region — according to PwC, 44% of venture capital was invested in the Bay Area, which is home to just 2.4% of the U.S. population.
This disparity seems justified, however, at least to an extent. The Bay Area is certainly a desirable place to live. Considering its beautiful environment, comfortable climate, and high paying jobs, it makes sense that so many companies, when given their pick at where to set up shop, choose to do it there.
And to an extent, the explosion of start-ups and VC firms themselves seem to be part of the appeal. Startups and tech giants who disrupt industries value young people with diverse perspectives, innovative thinking, and fresh college educations. With plenty of high paying jobs at mission driven startups which promise fulfilling work and a chance to change the world, it is easy to see why young people are moving there en masse for work. If you were a recent college graduate with a computer science degree and an itch to make a difference, why wouldn’t you want to work there?
Yet when one considers the implications that this concentration of VC and tech startups has on innovation and the country as a whole, it certainly leaves some to be desired.
Let’s consider again how 2.4% of the U.S. population (Bay Area), receives 44% of all venture capital in the country. Those who are able to make it in the Bay Area, then, have an inordinate amount of control over the nature of startups nationwide. This is not just a Silicon Valley problem, however, as 75% of venture capital invested in the country was concentrated in California, New York City, and Boston, just 16% of the population. This leaves just a quarter of venture capital funding for the remaining 84% of the U.S. population.
This disparity displays just how hard it is for those living in smaller cities, or “capital deserts”, to get substantial funding for their companies. It also raises concerns about the quality of innovation. Sourcing founders from primarily California, New York, and Boston does not provide a very diverse pool of founders. The more diversity of perspectives, experiences, and above all, problems, the higher the quality of innovation. Our current system, however, fails to provide adequate representation of the entire nation, which results in myriad missed opportunities.
The pandemic and its shift to remote work, however, has begun to reverse this trend. Many public investors, venture capitalists, such as Elon Musk and Keith Rabois, and with companies, such as Twitter and Coinbase, have all announced moving out of California for other regions in the country that have less taxes and lower costs of living. Largely, however, people are moving from San Francisco to Miami or Austin, which are becoming tech hubs in their own right. There still has not been a large scale restructuring of the way venture capital is invested.
It’s certainly time for a change.
Where better than my hometown, Rochester, NY? With a rich history of innovation, from Kodak cameras to the Garbage Plate, Rochester is primed for a startup boom.
With so many people moving to huge innovation hubs, the competition for jobs and homes is heating up. For instance, Curbed San Francisco reported that housing affordability is at a “historic low” in the Bay Area, and that the median price for a house in San Francisco is $1.7 million. While current trends in remote work are bringing housing prices down, the discrepancy is still large.
So why, then, would you fight for a $1.7 million home in the Bay Area when you can go to Rochester, NY, where the median home price is $79,000 despite being ranked the 13th best quality of life in the U.S.? One of the key factors of this ranking was the average Rochester commute, 21.3 minutes. Look at the average commutes for the Bay Area, Boston, or NYC, and you’ll find a stark difference.
Home affordability and a short commute are just a few reasons that Rochester is prime for an economic revitalization built around start-ups and venture capital.
Rochester is also home to the University of Rochester and the Rochester Institute of Technology, two world class institutions that are known for their expertise in STEM and medicine, which are highly sought after disciplines among tech companies. While perhaps not on par with Stanford or UC Berkeley, Rochester’s universities are certainly high caliber and consistently churning out exceptional graduates.
In terms of location, Rochester is centrally located, within a 6 hour drive to financial and business hubs such as New York City, Boston, Toronto, Pittsburgh and Cleveland. And as it continues to get easier to conduct work remotely, where startups and venture firms are located will become less and less important. It would make sense, then, for more businesses to sprout up in places like Rochester, which can be a lot cheaper and secure a better quality of life for employees, all without sacrificing too much by being geographically far from hubs of business.
For all these reasons and more, it makes sense to start businesses in cities like Rochester.
As a lifelong Rochesterian, I may certainly be biased, but I truly believe that we as a community and as individuals have a whole lot of potential. We are passionate about our city and many of us are actively involved in making it a better place. Even when I attended School of the Arts, a city high school in Rochester, I got to see everyday the passionate and dedicated students who loved their city. What we are lacking though, is the guidance and capital to unlock that potential.
A big part of my education in elementary school was about the history of Rochester, specifically about how it was the classic American “boom town”. Rochester first boomed due to the flour mills on the bank of the Genesee River, then it boomed again when the Erie Canal was built, once more when flower seed factories opened on the East side, and one last time with the Kodak corporation. Rochester, like so many similarly sized cities across the country, was built around booms — rapid expansions of the economy and population due to an inciting event. And now, it’s time for Rochester’s next big boom.
Everything is here: the colleges, the real estate, the population, and a city looking for a catalyst to jump start a long awaited economic revival.
NOTE: Thanks for making it this far! This is an essay I wrote as a part of an effort to work on efficiently communicating my ideas and, specifically, learning in public. I’d love to start a dialogue, hear other perspectives, and most importantly, learn more!