Louisville is best known as the home of the Kentucky Derby, but it has an exciting young startup scene that's supported by both its mayor and governor. Steve Case has found it to be an investing destination worth revisiting through his Rise of the Rest initiative.
Louisville, Kentucky is known across the United States as the home of the Kentucky Derby and a university with a rabid sports fanbase. It's the state's largest city, with around 620,000 people, and has a strong healthcare industry and cultural history.
One thing you probably don't associate with Louisville, even if you live there, is startups. But through the efforts of the mayor, the governor, and a group of passionate entrepreneurs, that may start to change.
Their efforts have grabbed the attention of Steve Case, the AOL cofounder who's been leading his Washington, DC-based venture capital firm Revolution since 2005. For the last four years, he's been leading "Rise of the Rest" bus tours, where he and his team explore a city that isn't New York, Boston, or in Silicon Valley (where 75% of all venture capital in the US goes, according to CB insights) and invest $100,000 in the winner of a pitch competition. The event is used as the beginning of a long-term relationship with Revolution, which last year launched a $150 million Rise of the Rest seed fund that's overseen by former Valley investor and "Hillbilly Elegy" author JD Vance.
Louisville is the first city the tour has visited for a second time. Last December, Louisville Business First reported that 48 companies in the city received a total of $92.2 million in VC funding in 2017 (Boston has around 50,000 more citizens and its companies received more than $8 billion), and AngelList estimates that the average valuation of a startup in the market is just $1.9 million.
So why, then, is Louisville's startup scene worth looking at? It's because even though it's in its infancy, I saw during my visit there that it's a perfect example of what Case is trying to unleash with the Rise of the Rest.
As he explains in his 2016 book, "The Third Wave," Case believes that we are at the forefront of a new era in the US, where the "Internet of Things" becomes the "Internet of Everything," and internet integration moves from things like light bulbs controlled by smartphone app to industry-defining technology like entire agricultural systems linked to real-time data centers. The centers for these shifts, Case argues, will take place throughout the US, through partnerships with each region's established industries as well as its local government.
The bus tour in Louisville kicked off with a breakfast event attended by both Louisville Mayor Greg Fischer and Kentucky Governor Matt Bevin.
Both politicians said they were convinced startups were essential job drivers for Louisville, and that they would take advantage of Revolution's network and insight. Fischer said he believed there was a recent shift among entrepreneurs in the city, noting, "We're starting to compare ourselves to the best."
A major talking point throughout the day was how Louisville's startup scene had to think regionally before it could think nationally. As Vance put it, cities like Louisville shouldn't try to mimic the Valley, but rather embrace their community's strengths. Bevin's administration addressed that in June, with the state's Cabinet for Economic Development announcing that as of July 1, it was replacing its statewide innovation network with a new system of regional offices that will provide entrepreneurs with resources catered to their specific communities.
The winner Case and his team picked at the end of the bus trip was InScope Medical, a medical device company that has a University of Louisville Hospital physician as one of its cofounders. One of Louisville's predominant industries is healthcare, and for a company like InScope to grow, it needs both the expertise and network that a city like Louisville could provide.
"We want great returns for the fund but we also want to showcase the companies to others," Case told me, explaining that they want the companies they invest in to symbolize the unique opportunities in that specific region.
The city's power brokers have taken the Rise of the Rest initiative very seriously.
As Case told me, "Most interesting things are not actually what happens the day we're here, it's what happens in the months before we arrive and the months and hopefully years after we leave."
Louisville has already proven that it's ready to take action.
In June of 2016, Case spent a day in Louisville in a hybrid book tour-bus tour trip arranged by Chuck Denny, a regional president of PNC who oversees Greater Louisville, and who's made it part of his mission at the bank to improve his beloved hometown as much as possible.
At the end of that day, as Case was about to board his private jet, he told Denny,"You have one of everything here. But it's scattered. It needs to be in one place to be easier for the entrepreneurs to access, and to have this density." Within a couple weeks, Denny had convened a team of local entrepreneurs to create an entrepreneur resource center to solve this problem, and in just over a year, 1804 (named for the year Lewis and Clark set out on their expedition) opened its doors.
During the bus tour, we made a stop at 1804, where local entrepreneurs and business leaders discussed how Louisville could improve its startup scene. Those gathered weren't concerned about a lack of talent or ideas as much as they were about spreading startup education to small business owners who don't recognize the potential of their business, and in making places like 1804 inclusive by consciously building diverse networks.
I spoke to Denny after the tour, and he told me that this second tour is already inspiring action the way Case's first visit did. "Now it's up to us to carry the ball," Denny said. "We're already at work at that."