Steve Case on the 3rd Wave of Internet Innovation

SMITH BRAIN TRUST – A third wave of internet innovation is under way, says Steve Case, co-founder of AOL, but for the United States to continue to lead – and stay ahead of China – entrepreneurship needs to be strong in cities and regions outside of Silicon Valley, New York and Massachusetts. The country needs more venture capital dollars, spread across the country and better policies to support startups, he says. 

Case, who founded Washington, D.C.-based venture capital firm Revolution in 2005, has been crisscrossing the country to champion startups with the firm’s Rise of the Rest initiative and seed fund. He joined fellow entrepreneur and investor Robert G. Hisaoka ’79 on stage at the University of Maryland Oct. 9 to share his thoughts and inspiration for an audience of students and would-be entrepreneurs. The event was part of the Robert G. Hisaoka Speaker Series at the Dingman Center for Entrepreneurship at Maryland’s Robert H. Smith School of Business.  

Case wants to level the playing field for entrepreneurs across the country. Last year, he says, nearly 75 percent of venture capital dollars went to startups in California, New York and Massachusetts. Maryland saw less than 1 percent of VC dollars. Entrepreneurs often feel they be in Silicon Valley to get funding, creating a brain drain from other U.S. regions that Case says needs to stop.

He says there also needs to be more diversity among founders who get funding. Last year, over 90 percent of venture capital went to men, and less than 1 percent went to African Americans.

“If you look at the data and are honest about it, it does matter where you live, it does matter what you look like, it does matter who you know, whether you have an idea and you have an opportunity to turn that into a company and really the opportunity to pursue the American dream,” Case said. “And that’s not right. That’s not fair. It’s also really dumb, because if we’re going to continue to lead, we need to get everybody on the playing field. We need to have every idea have a shot.”

Case said many midsized American cities have some momentum in the entrepreneurship community, but they need more capital. He says the country also needs better policies that make it easier for entrepreneurs to start and run businesses.   

Case has written extensively about the internet revolution, including in his 2016 book, “The Third Wave: An Entrepreneur’s Vision of the Future.” The first wave of the revolution – 1980s through early 2000s – was the advent of the internet and the move to get everyone online, a move in which AOL played an integral role. The second, ongoing wave has been about software and services built on top of the internet. “The emerging third wave integrates the internet in much more seamless, pervasive, and sometimes even invisible ways,” he says. He pointed to healthcare, education, food and agriculture as sectors ripe for disruption.

Case says there were three criteria for success in the first wave of internet innovation that are now more applicable than ever: perseverance, partnerships and policy. He says the overnight successes that were Facebook and Snapchat will be impossible to replicate when tackling change in healthcare, for example. Partnerships will be crucial to disrupt whole sectors, and new policies will be needed. When Case was starting AOL, he recalls, it was illegal to connect to the internet, so regulations had to be changed. With the coming wave, Case says there will have to be regulations around new technologies in healthcare, drones, driverless cars and food safety.

“With such important aspects of our lives, there have got to be some rules of the road,” he says. “And innovators who understand that will have the advantage.”

Case says the Washington, D.C., region is poised to be one of the next great startup towns. He says he is “guessing” Amazon’s next headquarters will be somewhere in the region, adding, “It seems like the logical place to be.” He started his own businesses in the region. “Staying here and flying a flag here will likely be a good bet,” he says, with the region well-positioned on several fronts, including the policy front. “The things that will be critical in this third wave play to the advantages of entrepreneurs here as opposed to entrepreneurs elsewhere.”

Case isn’t all talk. He has been working on policy issues since 2011, when he was named founding chair of the Obama Administration’s Startup America Partnership. He was instrumental in passing the Jumpstart Our Business Startups (JOBS) Act. More recently, he has been working to build bipartisan relationships to push policies that help the United States remain as innovative as possible, recently with legislation in the tax reform that creates incentives for investments in businesses in disadvantaged areas of the country. He is an active immigration reform advocate.  

“I think we are at risk of losing what’s now a global battle for talent,” he said. “We make it hard for people to come here, hard for people to stay here and we need to address that.”

Case says he often reminds people in Washington of the country’s history of entrepreneurship. “America itself was a startup … a startup that almost didn’t make it. It was pretty fragile. And now it’s the leader of the free world,” he said. The success is all thanks to entrepreneurs, who led the agricultural revolution, the industrial revolution and the technology revolution. “That’s why we went from this fragile, tiny, kind of irrelevant startup nation to the leader.” To maintain that status, Case says, entrepreneurship must lead.

“And so whether its immigration policy or incentives around capital investment or investments in nascent research or a whole host of things, we better step up our investments. Now is not the time for the United States to step back and create a vacuum,” he said. “It’s a time when we need to be doubling down on our entrepreneurs.”

See related: “Five Tips for Entrepreneurs from Steve Case.”