Speaker 1: A couple of years ago, an entrepreneur named Jayce Wilson
Speaker 1: was trying to raise money for his finance startup called Neighborly.
Speaker 1: Jason is from a small town in Missouri, and he
Speaker 1: started looking for local investors in Kansas City. I love
Speaker 1: Kansas City with all my heart and tried for two
Speaker 1: and a half years to really make something work there,
Speaker 1: but he just couldn't get the help he needed. He
Speaker 1: met with about twenty five investors and they all told
Speaker 1: him no. It was heartbreaking, you know, because it was
Speaker 1: we took it as we're just stupid, we're failures, you know,
Speaker 1: like we can't do this. It took coming to California
Speaker 1: to find somebody who believed in the company. I don't
Speaker 1: think of him as a as a movie movie sorry,
Speaker 1: and that's where he's got to start. But you know,
Speaker 1: he's a very savvy business person, so I wasn't surprised
Speaker 1: by him getting it like that. That investor he's talking about,
Speaker 1: it's Ashton Kutcher, Yes, the Ashton Kutcher. For Jace. It
Speaker 1: turned out to be easier to get money from a
Speaker 1: world famous movie star and an investor in startups like
Speaker 1: Uber and Airbnb than from investors back home. After all
Speaker 1: the rejections he faced in Missouri, Jas came out to
Speaker 1: California in two thousand and fourteen to enroll in a
Speaker 1: startup accelerator kind of like a boot camp for founders
Speaker 1: to help them build their businesses. The programs called five
Speaker 1: D Startups, and it gave him some credibility in Silicon Valley,
Speaker 1: but not back in Kansas City. I think it was
Speaker 1: also people in Kansas City were looking at the D
Speaker 1: name of the company and saying, you're not a finance guy.
Speaker 1: You know, they were expecting something to show up in
Speaker 1: a three piece suit and to you know, sort of
Speaker 1: pattern pattern match with what they know from the world
Speaker 1: of all my banking. Working more and more out of California,
Speaker 1: Jason realized that he was tapping into some key advantages
Speaker 1: in the Bay Area, so after closing a five point
Speaker 1: five million dollar funding round that included a check from Ashton,
Speaker 1: Jas decided to stay out West, abandoning his dream of
Speaker 1: building his company in the show me State. Hi, I'm
Speaker 1: brad Stone and I'm Sarah mcbrad and this week on
Speaker 1: Decrypted will expore one of the technology industry's biggest contradictions
Speaker 1: a lot of effort has gone into cultivating entrepreneurs outside
Speaker 1: Silicon Valley, but building a startup someplace else can be
Speaker 1: really tough. This isn't just in Kansas City, and the
Speaker 1: experience isn't unique to Jason. It's something familiar to founders
Speaker 1: in lots of smaller cities all across America, and it's
Speaker 1: not for lack of smart people or big ideas. Often
Speaker 1: the problem comes down to how much harder it can
Speaker 1: be to get capital when you're away from big venture centers.
Speaker 1: Think about this. Last year, venture capitalists invested sixty nine
Speaker 1: billion in startup companies. That's billion with a B, but
Speaker 1: almost all of it went to startups in California, Massachusetts,
Speaker 1: and New York. If you're a startup and you're not
Speaker 1: in any one of those places, good luck. And Kansas
Speaker 1: City even got what it thought would be a huge
Speaker 1: advantage Six years ago. Alphabet, the company we used to
Speaker 1: call Google, said it would kick off a massive initiative
Speaker 1: in Kansas City. Right at the time, Google wanted to
Speaker 1: blank at the country with super fast, super cheap fiber internet,
Speaker 1: starting with Kansas City. People from the mayor on down
Speaker 1: thought that would do a lot for the city, and
Speaker 1: in particular that it would jump start small technology companies.
Speaker 1: Think of education, think of entertainment, think of e commerce,
Speaker 1: think of attracting developers. And not only that, but it
Speaker 1: just drives the economy around you. So for Kansas City,
Speaker 1: it's been toasting. That's a Google executive Milo Meddon talking
Speaker 1: in a video presentation during the announcement that Google Fiber
Speaker 1: was coming to Kansas City. Over a thousand cities had
Speaker 1: competed to be the first to get it in Kansas
Speaker 1: City one, but not everything turned out like you said.
Speaker 1: Google gave about a hundred schools in Kansas City free fiber,
Speaker 1: and in some ways, Kansas City is doing great in education.
Speaker 1: About forty of the population has at least an associate's degree.
Speaker 1: That's way ahead of other cities in size, like Las
Speaker 1: Vegas and Cleveland, but its economies growing slower than the
Speaker 1: rest of the country. Things could be turning based on
Speaker 1: some government economic data for last year, but in two
Speaker 1: thousand twelve, two thousand thirteen, two thousand fourteen, and two
Speaker 1: thousand fifteen, Kansas City grew slower than the rest of America. Also,
Speaker 1: a smaller percentage of the population works for startups. Mayor
Speaker 1: Mark Holland of Kansas City, Kansas said evaluating specific benefits
Speaker 1: of Google Fiber is tough. One of the things it's
Speaker 1: hard to measure is without this, would we have done worse.
Speaker 1: He points to lots of ways the city has done
Speaker 1: well over the long term, like overall job growth. I
Speaker 1: do think Google has had an impact on that, but
Speaker 1: I don't know if I'm if I would be the
Speaker 1: right person to parse out percentage that represents. When it
Speaker 1: comes to startups, It's not like there's no money to
Speaker 1: spend on them. All around America. There's a ton in theory.
Speaker 1: In Kansas City where Jason's some people are incredibly well off,
Speaker 1: building big name art museums and hospitals. They also build
Speaker 1: huge companies like Sprint and Hallmark. Driving around there, I
Speaker 1: saw that it's a pretty city. It's green. You pass
Speaker 1: landmarks all the time, performance halls and sports arenas, galleries,
Speaker 1: lots of corporate headquarters. You can tell people care about
Speaker 1: the place. The disconnect seems to be young companies. Entrepreneurs
Speaker 1: say it's really really hard to get investors interested in
Speaker 1: companies that don't have physical assets or are going to
Speaker 1: take a long time to get any revenue. And yet
Speaker 1: Jason's company is all about real stuff. He helps people
Speaker 1: build things like parks and roads in their hometowns. His
Speaker 1: ideas to make bonds for local public projects much easier
Speaker 1: for everyday people to invest in, to give something a
Speaker 1: little boring, a little zing. Make sexy again, right, Which
Speaker 1: that's the top piece of advice Jay says he got
Speaker 1: from Ashton Kutcher. It's even up on a poster right
Speaker 1: when you walk into neighbor Lae office in San Francisco.
Speaker 1: Let's hear that one more time. Make bond sexy again, right,
Speaker 1: Which is a crazy silly phrase, right, But it's also
Speaker 1: we think about it, you know, when we want to
Speaker 1: bring people back to the habit of investing in the
Speaker 1: community has to be fun and rewarding and sexy. Right.
Speaker 1: It can't just be uh, you know, based on the
Speaker 1: plane math. Has to be, you know, something that they
Speaker 1: value beyond just the investment, because US bonds are is
Speaker 1: such a a funky kind of you know, asset class
Speaker 1: at this point, they you know, and it really needs
Speaker 1: to be about the story of investing in your community.
Speaker 1: Jason was telling me all this from his office just
Speaker 1: off Union Square in San Francisco. It's a big shopping
Speaker 1: district but also home to a lot of banks and
Speaker 1: cooled cast iron buildings. Neighborli is in one of those,
Speaker 1: and it's old school, no lobby. You just get buzzed
Speaker 1: in from the street and ride the elevator up. They
Speaker 1: have the whole sixth floor, but it's not actually so big,
Speaker 1: one of those narrow railroad style buildings, high ceilings, exposed bricks,
Speaker 1: typical startup. When you get off the elevator, you see
Speaker 1: rows of old bond certificates hanging in front of you.
Speaker 1: It's actually a California version of their office in Kansas City.
Speaker 1: They still keep a foothold there. Yeah, we've got an
Speaker 1: event space and then our office that's open, big windows,
Speaker 1: lots of plants and fun things. That's Chris Parrot showing
Speaker 1: me around neighbor Le's office in Kansas City. He's one
Speaker 1: of Jason's co founders. We've got and that's the other
Speaker 1: co founder, Patrick Hasti. He's the compliance officer. Chris is
Speaker 1: the numbers guy. Super nice space. Frankly, I think um
Speaker 1: for a very reasonable price, especially when compared to the
Speaker 1: coasts or other larger cities. That's what I heard from
Speaker 1: a lot of startups in Kansas City how little it
Speaker 1: costs to do business there. But I got the sense
Speaker 1: that could almost be a bad thing. Perhaps part of
Speaker 1: the reason so many startups succeed in slicon valleys, that
Speaker 1: there's so much pressure since that another company could eat
Speaker 1: your lunch at any time. Why not. Entrepreneur told me
Speaker 1: about how life in Kansas City was almost too easy.
Speaker 1: He said it allowed people to dabble in starting companies
Speaker 1: without really committing. He even had a word for it.
Speaker 1: I ran it by Jay's from neighborly. Are you familiar
Speaker 1: with the term entrepreneur? Entrepreneur? Somebody told me there are
Speaker 1: a lot of entrepreneurs in Kansas City. Entrepreneur. Um, yeah,
Speaker 1: let's see entrepreneur. What can you help me define it.
Speaker 1: It's like somebody wants to be an entrepreneur, but they
Speaker 1: because people aren't as comfortable with the concept of risk
Speaker 1: do it on the side. Like the Jays said, in
Speaker 1: some ways, starting a software business is actually riskier in
Speaker 1: Kansas City. It gets back to, you know, in silicon value,
Speaker 1: if an engineer commits to a project and you know,
Speaker 1: they may you know, take lower uh salary for a
Speaker 1: year or two and get a larger chunk of equity
Speaker 1: and something that may or may not work out. Um,
Speaker 1: but if that thing doesn't work out, you know, they're
Speaker 1: not in an unemployment line for six months, or they're
Speaker 1: not trying to retool their career to figure out how
Speaker 1: they can remain relevant in the the future. They're being sought
Speaker 1: after by ten other companies at any given time. Let's
Speaker 1: play Devil's advocate here. That situation could really be a plus.
Speaker 1: It might mean companies that do start up in the
Speaker 1: Hartland have less turnover and can really focus. Yeah, while
Speaker 1: I was in Kansas City, I met an entrepreneur called
Speaker 1: make Farmer who spent a few years trying to get
Speaker 1: a search company called Leap off the ground. He explained
Speaker 1: something he noticed on a visit to Silicon Valley talking
Speaker 1: with an Apple executive in a coffee shop near Stanford University.
Speaker 1: She said, I don't know how you can do this
Speaker 1: from Kansas City, just since this energy in this room,
Speaker 1: and I actually took the complete opposite point of view
Speaker 1: that you know, if you're gonna build something, it's going
Speaker 1: to be very unique and it's going to have a
Speaker 1: completely different point of view doing it on a call
Speaker 1: it an island or a place like Kansas City. I
Speaker 1: think you have a and you can tap in to
Speaker 1: any of the relevant movements that are happening in in
Speaker 1: technology UH and know how to leverage those as need be.
Speaker 1: But you're able to stay really focused on what you're
Speaker 1: wanting to build. Makes company didn't work out, but there's
Speaker 1: evidence to back him up. Last year, the big Chinese
Speaker 1: company Ali Baba spent a hundred million dollars buying a
Speaker 1: Kansas City startup. I verify the scan veins in your
Speaker 1: eye to figure out if you're who you say you are.
Speaker 1: And another company, c Tufo, has raised a hundred million
Speaker 1: dollars from investors like the big Singapore firm Tomask working
Speaker 1: on some cool financing ideas around working capital. Noticed that
Speaker 1: those companies got major backing from firms outside Kansas City.
Speaker 1: That's because raising cash away from big venture centers like
Speaker 1: San Francisco it's just too hard. Exactly. Here's Jay's talking
Speaker 1: about trying to raise money a couple of years ago,
Speaker 1: and at that time it was still you know, give
Speaker 1: us your you know, your pro forma for five years. UM,
Speaker 1: tell us how you're going to get to profitability in
Speaker 1: the next year. It was tell us, you know what
Speaker 1: physical assets you're gonna buy so that part of our
Speaker 1: money isn't you know, is recoverable in the event that
Speaker 1: this goes under. The problem is Neighborly was a startup.
Speaker 1: They didn't have pro format revenue, that's essentially projected revenue,
Speaker 1: and their path to profitability is years away. They didn't
Speaker 1: need any physical assets and didn't plan to buy any.
Speaker 1: For most investors in Kansas City, that made them bad bet.
Speaker 1: Here's lancelom Ay, an investor at open Air, one of
Speaker 1: the more established VC firms in Kansas City, talking about startups.
Speaker 1: There probably a fair criticism for from some of the
Speaker 1: you know, the founders of the entrepreneurs to say that
Speaker 1: they're collector of being held with a higher standards. They
Speaker 1: probably are, but that's not just the Kansas City issue,
Speaker 1: and probably anywhere he means anywhere except Silicon Valley. In
Speaker 1: place like Silicon Valley, you know, people probably air on
Speaker 1: the side of taking more risks on at the Series
Speaker 1: A level because they're because the fear of missing out
Speaker 1: by Series A. He means the first investment round founders
Speaker 1: ways after they've tapped out friends and family. I think
Speaker 1: the biggest issue that we have here is probably you know,
Speaker 1: we don't yet have um it's a chicken and the
Speaker 1: egg problem. We don't have as many funds investing here
Speaker 1: that are here and that are investing here as we
Speaker 1: would like, and not the function of you know, having
Speaker 1: more available startups to invest in, and the more successful
Speaker 1: start so we have here, the more that old capital
Speaker 1: to kind of feed. But Chase did get around that
Speaker 1: lack of hometown capital, right. Jason was something of a
Speaker 1: mover and shaker in Kansas City. He'd been part of
Speaker 1: the group that helped convince Google to wire Kansas City
Speaker 1: for fiber Internet, and through that project he got to
Speaker 1: know another mover and shaker, Lisa Mitchell. Lisa introduced him
Speaker 1: to an entrepreneur, Bow fish Back, who founded a startup
Speaker 1: called Zarle, and Bow introduced him to one of his
Speaker 1: own investors, Ashton Kutcher. Ashton grew up in a small
Speaker 1: town in Iowa, not far from the small farm town
Speaker 1: where Jays grew up in Missouri. Do you think part
Speaker 1: of the appeal for Ashton was that he's a Midwesterner too,
Speaker 1: and he liked to see, Yeah, he he has a
Speaker 1: unique perspective. He's seen like the United States and communities
Speaker 1: from the same eyes that I saw that like this
Speaker 1: very small town right that a town center, and and
Speaker 1: he gets community and he gets, you know, the need
Speaker 1: to come together and to good projects like schools and
Speaker 1: parks and libraries. And he's also exceptionally savvy as a
Speaker 1: business person and understands how industries operate with middleman. Kansas
Speaker 1: City has worked pretty hard to foster startup community. One
Speaker 1: guy who has worked on it is Matthew Marcus. He's
Speaker 1: helped pull together a community of entrepreneurs in a neighborhood
Speaker 1: nicknamed Startup Village. Matthew showed me around and I asked
Speaker 1: him whether it stings a little when a promising startup
Speaker 1: like neighborly leads town. Oh gosh, no, not at all. Um. No,
Speaker 1: I mean the thing is is that, I mean, entrepreneurship
Speaker 1: obviously very difficult path, professional path. Um. You know, sometimes
Speaker 1: a startup needs to go away from Kansas City or
Speaker 1: elsewhere to get to the next level. UM. I always
Speaker 1: wish him the best of luck, um, and I hope
Speaker 1: they stay in touch. I mean it's almost like a
Speaker 1: family member going off to the next phase of their
Speaker 1: journey and is hey, well, we'll see again, I hope
Speaker 1: and best of luck. He might end up saying that
Speaker 1: to Google Fiber. Last year, Alphabet stopped fibers expansion to
Speaker 1: more cities. Fiber laid off staff. The project CEO left
Speaker 1: in October, and the new head is far more focused
Speaker 1: on wireless. You could say that Fiber is on hold,
Speaker 1: but the people in Kansas City who have it still
Speaker 1: have it now. Other providers there off for fiber internet
Speaker 1: to Plenty of people believe it's perfectly possible to nurture
Speaker 1: startup communities almost anywhere in the country. One of the
Speaker 1: most famous advocates is of venture capitalist named brad Feld.
Speaker 1: Brad lives in Boulder, Colorado, a small town with a
Speaker 1: lot of startups. He wrote a whole book on this idea,
Speaker 1: and he also started a boot camp for startups called
Speaker 1: tech Stars. It operates in a lot of cities he
Speaker 1: wouldn't think of as big tech centers. That includes Kansas City, right.
Speaker 1: Didn't brad Feld even by a house there? Yeah, he
Speaker 1: did right after Google Fiber came to town. I actually
Speaker 1: visited at house in January. Matthew Marcus, who also runs
Speaker 1: the Kansas City Startup Foundation gave me a tour. Are
Speaker 1: you kidding me? Wow? Brad Let's promising young entrepreneurs lived
Speaker 1: there for free. Let's just say they don't always have
Speaker 1: time for housekeeping. I can only imagine. So, Sarah, what
Speaker 1: do you think can Kansas City join the ranks of
Speaker 1: San Francisco and Beijing is one of the world's top
Speaker 1: tech startup hubs. I've actually thought about it a lot,
Speaker 1: and I think that a lot more cities are going
Speaker 1: to become tech startup phubs. I think it's just going
Speaker 1: to get easier for places all over the world. And
Speaker 1: I think it has a lot to do with capital
Speaker 1: that I think will be easier to get. I think
Speaker 1: the fact Ali Baba went to Kansas City and invested
Speaker 1: and didn't make the company leave town is huge. Yeah,
Speaker 1: that's interesting. I mean, I think all these smaller cities
Speaker 1: have a little bit of an uphill battle. It's not
Speaker 1: just the availability of capital, but the absence of mentors
Speaker 1: and other companies that established technology companies that can pave
Speaker 1: the way and throw off experienced founders, the engineers who,
Speaker 1: upon graduating, if they are great and qualified, they might
Speaker 1: go seek out a place like San Francisco. On the
Speaker 1: other hand, as we both know, the cost of living
Speaker 1: on the coast is getting out of control, and so
Speaker 1: maybe a place like Kansas City starts to be alluring
Speaker 1: in that way as a sort of economic alternative. Right.
Speaker 1: I think it's changing. It's just taking way way longer
Speaker 1: than you'd think. And there are other problems there too,
Speaker 1: Like they don't have a big university like Stanford that's
Speaker 1: just spinning off engineers. They have some, but they're farther away. Right, Well,
Speaker 1: let me ask you this question. Did Google over promise
Speaker 1: with Google Fiber when it came to town. I think
Speaker 1: with Google everyone just thought, gig a bit Internet. That
Speaker 1: just sounds amazing. And the fact is, it seems like
Speaker 1: but liked gig a bit Internet. It turned out, you know,
Speaker 1: people like getting on the Internet a little faster. But
Speaker 1: for most startups it really didn't make a big difference.