A couple of years ago, an entrepreneur named Jayce Wilson was trying to raise money for his finance startup called Neighborly. Jason is from a small town in Missouri, and he started looking for local investors in Kansas City. I love Kansas City with all my heart and tried for two and a half years to really make something work there,
but he just couldn't get the help he needed. He met with about twenty five investors and they all told him no. It was heartbreaking, you know, because it was we took it as we're just stupid, we're failures, you know, like we can't do this. It took coming to California to find somebody who believed in the company. I don't think of him as a as a movie movie sorry, and that's where he's got to start. But you know, he's a very savvy business person, so I wasn't surprised
by him getting it like that. That investor he's talking about, it's Ashton Kutcher, Yes, the Ashton Kutcher. For Jace. It turned out to be easier to get money from a world famous movie star and an investor in startups like Uber and Airbnb than from investors back home. After all the rejections he faced in Missouri, Jas came out to California in two thousand and fourteen to enroll in a startup accelerator kind of like a boot camp for founders
to help them build their businesses. The programs called five D Startups, and it gave him some credibility in Silicon Valley, but not back in Kansas City. I think it was also people in Kansas City were looking at the D name of the company and saying, you're not a finance guy. You know, they were expecting something to show up in a three piece suit and to you know, sort of pattern pattern match with what they know from the world
of all my banking. Working more and more out of California, Jason realized that he was tapping into some key advantages in the Bay Area, so after closing a five point five million dollar funding round that included a check from Ashton, Jas decided to stay out West, abandoning his dream of
building his company in the show me State. Hi, I'm brad Stone and I'm Sarah mcbrad and this week on Decrypted will expore one of the technology industry's biggest contradictions a lot of effort has gone into cultivating entrepreneurs outside Silicon Valley, but building a startup someplace else can be really tough. This isn't just in Kansas City, and the experience isn't unique to Jason. It's something familiar to founders in lots of smaller cities all across America, and it's
not for lack of smart people or big ideas. Often the problem comes down to how much harder it can be to get capital when you're away from big venture centers. Think about this. Last year, venture capitalists invested sixty nine billion in startup companies. That's billion with a B, but almost all of it went to startups in California, Massachusetts, and New York. If you're a startup and you're not in any one of those places, good luck. And Kansas City even got what it thought would be a huge
advantage Six years ago. Alphabet, the company we used to call Google, said it would kick off a massive initiative in Kansas City. Right at the time, Google wanted to blank at the country with super fast, super cheap fiber internet, starting with Kansas City. People from the mayor on down thought that would do a lot for the city, and in particular that it would jump start small technology companies. Think of education, think of entertainment, think of e commerce,
think of attracting developers. And not only that, but it just drives the economy around you. So for Kansas City, it's been toasting. That's a Google executive Milo Meddon talking in a video presentation during the announcement that Google Fiber was coming to Kansas City. Over a thousand cities had competed to be the first to get it in Kansas City one, but not everything turned out like you said.
Google gave about a hundred schools in Kansas City free fiber, and in some ways, Kansas City is doing great in education. About forty of the population has at least an associate's degree. That's way ahead of other cities in size, like Las Vegas and Cleveland, but its economies growing slower than the rest of the country. Things could be turning based on some government economic data for last year, but in two thousand twelve, two thousand thirteen, two thousand fourteen, and two
thousand fifteen, Kansas City grew slower than the rest of America. Also, a smaller percentage of the population works for startups. Mayor Mark Holland of Kansas City, Kansas said evaluating specific benefits of Google Fiber is tough. One of the things it's hard to measure is without this, would we have done worse. He points to lots of ways the city has done well over the long term, like overall job growth. I do think Google has had an impact on that, but I don't know if I'm if I would be the
right person to parse out percentage that represents. When it comes to startups, It's not like there's no money to spend on them. All around America. There's a ton in theory. In Kansas City where Jason's some people are incredibly well off, building big name art museums and hospitals. They also build huge companies like Sprint and Hallmark. Driving around there, I saw that it's a pretty city. It's green. You pass landmarks all the time, performance halls and sports arenas, galleries,
lots of corporate headquarters. You can tell people care about the place. The disconnect seems to be young companies. Entrepreneurs say it's really really hard to get investors interested in companies that don't have physical assets or are going to take a long time to get any revenue. And yet Jason's company is all about real stuff. He helps people
build things like parks and roads in their hometowns. His ideas to make bonds for local public projects much easier for everyday people to invest in, to give something a little boring, a little zing. Make sexy again, right, Which that's the top piece of advice Jay says he got from Ashton Kutcher. It's even up on a poster right when you walk into neighbor Lae office in San Francisco.
Let's hear that one more time. Make bond sexy again, right, Which is a crazy silly phrase, right, But it's also we think about it, you know, when we want to bring people back to the habit of investing in the community has to be fun and rewarding and sexy. Right. It can't just be uh, you know, based on the
plane math. Has to be, you know, something that they value beyond just the investment, because US bonds are is such a a funky kind of you know, asset class at this point, they you know, and it really needs to be about the story of investing in your community. Jason was telling me all this from his office just off Union Square in San Francisco. It's a big shopping district but also home to a lot of banks and cooled cast iron buildings. Neighborli is in one of those,
and it's old school, no lobby. You just get buzzed in from the street and ride the elevator up. They have the whole sixth floor, but it's not actually so big, one of those narrow railroad style buildings, high ceilings, exposed bricks, typical startup. When you get off the elevator, you see rows of old bond certificates hanging in front of you. It's actually a California version of their office in Kansas City.
They still keep a foothold there. Yeah, we've got an event space and then our office that's open, big windows, lots of plants and fun things. That's Chris Parrot showing me around neighbor Le's office in Kansas City. He's one of Jason's co founders. We've got and that's the other co founder, Patrick Hasti. He's the compliance officer. Chris is the numbers guy. Super nice space. Frankly, I think um for a very reasonable price, especially when compared to the
coasts or other larger cities. That's what I heard from a lot of startups in Kansas City how little it costs to do business there. But I got the sense that could almost be a bad thing. Perhaps part of the reason so many startups succeed in slicon valleys, that there's so much pressure since that another company could eat your lunch at any time. Why not. Entrepreneur told me about how life in Kansas City was almost too easy. He said it allowed people to dabble in starting companies
without really committing. He even had a word for it. I ran it by Jay's from neighborly. Are you familiar with the term entrepreneur? Entrepreneur? Somebody told me there are a lot of entrepreneurs in Kansas City. Entrepreneur. Um, yeah, let's see entrepreneur. What can you help me define it. It's like somebody wants to be an entrepreneur, but they because people aren't as comfortable with the concept of risk
do it on the side. Like the Jays said, in some ways, starting a software business is actually riskier in Kansas City. It gets back to, you know, in silicon value, if an engineer commits to a project and you know, they may you know, take lower uh salary for a year or two and get a larger chunk of equity
and something that may or may not work out. Um, but if that thing doesn't work out, you know, they're not in an unemployment line for six months, or they're not trying to retool their career to figure out how they can remain relevant in the the future. They're being sought after by ten other companies at any given time. Let's play Devil's advocate here. That situation could really be a plus. It might mean companies that do start up in the
Hartland have less turnover and can really focus. Yeah, while I was in Kansas City, I met an entrepreneur called make Farmer who spent a few years trying to get a search company called Leap off the ground. He explained something he noticed on a visit to Silicon Valley talking with an Apple executive in a coffee shop near Stanford University.
She said, I don't know how you can do this from Kansas City, just since this energy in this room, and I actually took the complete opposite point of view that you know, if you're gonna build something, it's going to be very unique and it's going to have a completely different point of view doing it on a call
it an island or a place like Kansas City. I think you have a and you can tap in to any of the relevant movements that are happening in in technology UH and know how to leverage those as need be. But you're able to stay really focused on what you're wanting to build. Makes company didn't work out, but there's evidence to back him up. Last year, the big Chinese company Ali Baba spent a hundred million dollars buying a
Kansas City startup. I verify the scan veins in your eye to figure out if you're who you say you are. And another company, c Tufo, has raised a hundred million dollars from investors like the big Singapore firm Tomask working on some cool financing ideas around working capital. Noticed that those companies got major backing from firms outside Kansas City. That's because raising cash away from big venture centers like
San Francisco it's just too hard. Exactly. Here's Jay's talking about trying to raise money a couple of years ago, and at that time it was still you know, give us your you know, your pro forma for five years. UM, tell us how you're going to get to profitability in the next year. It was tell us, you know what physical assets you're gonna buy so that part of our money isn't you know, is recoverable in the event that this goes under. The problem is Neighborly was a startup.
They didn't have pro format revenue, that's essentially projected revenue, and their path to profitability is years away. They didn't need any physical assets and didn't plan to buy any. For most investors in Kansas City, that made them bad bet. Here's lancelom Ay, an investor at open Air, one of the more established VC firms in Kansas City, talking about startups. There probably a fair criticism for from some of the you know, the founders of the entrepreneurs to say that
they're collector of being held with a higher standards. They probably are, but that's not just the Kansas City issue, and probably anywhere he means anywhere except Silicon Valley. In place like Silicon Valley, you know, people probably air on the side of taking more risks on at the Series A level because they're because the fear of missing out by Series A. He means the first investment round founders
ways after they've tapped out friends and family. I think the biggest issue that we have here is probably you know, we don't yet have um it's a chicken and the egg problem. We don't have as many funds investing here that are here and that are investing here as we would like, and not the function of you know, having more available startups to invest in, and the more successful start so we have here, the more that old capital to kind of feed. But Chase did get around that
lack of hometown capital, right. Jason was something of a mover and shaker in Kansas City. He'd been part of the group that helped convince Google to wire Kansas City for fiber Internet, and through that project he got to know another mover and shaker, Lisa Mitchell. Lisa introduced him to an entrepreneur, Bow fish Back, who founded a startup called Zarle, and Bow introduced him to one of his own investors, Ashton Kutcher. Ashton grew up in a small town in Iowa, not far from the small farm town
where Jays grew up in Missouri. Do you think part of the appeal for Ashton was that he's a Midwesterner too, and he liked to see, Yeah, he he has a unique perspective. He's seen like the United States and communities from the same eyes that I saw that like this very small town right that a town center, and and he gets community and he gets, you know, the need to come together and to good projects like schools and parks and libraries. And he's also exceptionally savvy as a
business person and understands how industries operate with middleman. Kansas City has worked pretty hard to foster startup community. One guy who has worked on it is Matthew Marcus. He's helped pull together a community of entrepreneurs in a neighborhood nicknamed Startup Village. Matthew showed me around and I asked him whether it stings a little when a promising startup like neighborly leads town. Oh gosh, no, not at all. Um. No, I mean the thing is is that, I mean, entrepreneurship
obviously very difficult path, professional path. Um. You know, sometimes a startup needs to go away from Kansas City or elsewhere to get to the next level. UM. I always wish him the best of luck, um, and I hope they stay in touch. I mean it's almost like a family member going off to the next phase of their journey and is hey, well, we'll see again, I hope and best of luck. He might end up saying that to Google Fiber. Last year, Alphabet stopped fibers expansion to
more cities. Fiber laid off staff. The project CEO left in October, and the new head is far more focused on wireless. You could say that Fiber is on hold, but the people in Kansas City who have it still have it now. Other providers there off for fiber internet to Plenty of people believe it's perfectly possible to nurture startup communities almost anywhere in the country. One of the most famous advocates is of venture capitalist named brad Feld.
Brad lives in Boulder, Colorado, a small town with a lot of startups. He wrote a whole book on this idea, and he also started a boot camp for startups called tech Stars. It operates in a lot of cities he wouldn't think of as big tech centers. That includes Kansas City, right. Didn't brad Feld even by a house there? Yeah, he did right after Google Fiber came to town. I actually visited at house in January. Matthew Marcus, who also runs the Kansas City Startup Foundation gave me a tour. Are
you kidding me? Wow? Brad Let's promising young entrepreneurs lived there for free. Let's just say they don't always have time for housekeeping. I can only imagine. So, Sarah, what do you think can Kansas City join the ranks of San Francisco and Beijing is one of the world's top tech startup hubs. I've actually thought about it a lot, and I think that a lot more cities are going to become tech startup phubs. I think it's just going
to get easier for places all over the world. And I think it has a lot to do with capital that I think will be easier to get. I think the fact Ali Baba went to Kansas City and invested and didn't make the company leave town is huge. Yeah, that's interesting. I mean, I think all these smaller cities
have a little bit of an uphill battle. It's not just the availability of capital, but the absence of mentors and other companies that established technology companies that can pave the way and throw off experienced founders, the engineers who, upon graduating, if they are great and qualified, they might go seek out a place like San Francisco. On the other hand, as we both know, the cost of living on the coast is getting out of control, and so maybe a place like Kansas City starts to be alluring
in that way as a sort of economic alternative. Right. I think it's changing. It's just taking way way longer than you'd think. And there are other problems there too, Like they don't have a big university like Stanford that's just spinning off engineers. They have some, but they're farther away. Right, Well, let me ask you this question. Did Google over promise with Google Fiber when it came to town. I think with Google everyone just thought, gig a bit Internet. That
just sounds amazing. And the fact is, it seems like but liked gig a bit Internet. It turned out, you know, people like getting on the Internet a little faster. But for most startups it really didn't make a big difference.