January 15, 2020

Hi friends, and welcome back. I started off my day by running face-first into a cement pole at my daughter's preschool. I hope your day is going much better than that.

  • Start off 2020 by inviting a couple of friends to sign up for this newsletter.
  • Today's edition is 1,484 words, a 5.5-minute read.

1 big thing: Venture capital slowly seeps outside Silicon Valley

Adapted from Pitchbook; Chart: Axios Visuals
Adapted from Pitchbook; Chart: Axios Visuals

Venture capital investment is seeping out from Silicon Valley to the rest of the country, but the West Coast still dominates the market by a wide margin.

Why it matters: Venture capital investment can play a crucial role in building fast-growing, tech-based economies like those of the Bay Area, Seattle, Austin, New York and Boston. But VC investors don't typically stray outside those markets to look for the next big thing.

By the numbers: Last year, the Bay Area's proportion of overall U.S. venture capital investment fell to the lowest point since 2013, according to year-end data from Pitchbook and the National Venture Capital Association.

  • The proportion of West Coast deal value also slipped to around 50% of the country's total, down from 62.3% in 2018.
  • Meanwhile, deal counts and values crept up or stayed steady in every other region between 2018 and 2019.

The big picture: The majority of U.S. venture capital funding goes to California, New York and Massachusetts — and 2019 was no different.

  • "[O]ne of my predictions last year — that we’d see an increase of VC going to 'rising' states — proved to be wrong," AOL co-founder and Revolution CEO Steve Case wrote in a recent Medium post.
  • The amount of VC investment going to California, New York and Massachusetts actually increased from 75% in 2018 to 78% in 2019.
  • Case says he's sticking with his prediction for the coming year, based on the rising cost of Silicon Valley (as well as the start of the backlash against it) and the multibillion-dollar exits in "rising cities."

What's happening: Investors with Silicon Valley roots are branching out and raising funds in places they see as having untapped potential.

  • Last week, J.D. Vance launched a new VC firm called Narya Capital and raised $93 million for its debut fund, which is targeting a total of $125 million and will be headquartered in Cincinnati. Big Silicon Valley names are limited partners — including Peter Thiel, Marc Andreessen, Eric Schmidt.

When Mark Kvamme moved to Ohio from Silicon Valley to start Drive Capital eight years ago, "people literally thought I was crazy," he said. "One investor even told me, Ohio is where venture capitalists go to die."

  • Drive now has $1.2 billion under management and has invested in over 40 companies, including Root Car Insurance and Beam Dental.

Still, there's a reason the Bay Area remains dominant: its high concentration of talent, entrepreneurs and customers, along with the lion's share of capital thanks to blockbuster IPOs creating new wealth to reinvest.

  • Investors agree that, even though there are some shoots of progress in other regions like the Midwest, it will take four or five successful exits and more local institutional investors to kick-start the investment engines.
  • "We have to have multiple billion-dollar exits, and those will beget new companies," Kvamme said. "It takes time."

The bottom line: "The days of VCs hiding in a bunker in Silicon Valley are coming to an end," said Roy Bahat, head of Bloomberg Beta, a venture fund backed by Bloomberg LP. "If we want to realize the full potential of technology, we need people everywhere making it."

2. Microsoft adds $250 million to affordable housing investment

Illustration: Sarah Grillo/Axios

One year ago, Microsoft announced it would invest $500 million to address the affordable housing crisis in its hometown. Today, it announced an additional $250 million in the form of a line of credit to the Washington State Housing Finance Commission.

Why it matters: Microsoft's total investment of $750 million deepens its role in Seattle as part financier, part philanthropist in trying to lessen the low- and middle-wage housing shortage plaguing many tech hubs around the country.

  • "There are discussions happening that weren’t happening before," senior director of Microsoft Philanthropies Jane Broom told me this week. "But right now, there’s still a lot of talk, a lot of hypothesizing and listening."
  • "We really want to move toward action and work with developers to help prime the pump with some clearly defined projects," she said.

Details: The $250 million line of credit to the WSHFC will preserve and recycle tax-exempt bond status, essentially providing more funds for incremental affordable housing projects.

How it works: The commission has a limited number of tax-exempt bonds available. But the demand far outweighs the supply. So the line of credit will allow the commission to repay a tax-exempt bond used for an affordable housing project, which then allows the bond to be reallocated to another project.

  • Microsoft expects the money could create up to 3,000 more affordable housing units over the next decade.

The bottom line: As we've written before, the affordable housing crisis is so severe that corporate investments won't be the silver bullet. Zoning codes, tax laws, construction costs, the price of land and cut-backs on federal assistance are all factors — and will take years to address.

Go deeper.

3. Coord launches digital curb pilot challenge for cities

Illustration: Rebecca Zisser/Axios

Coord, a curb-management company, is offering its services at no charge to up to three cities that are trying to better manage — and monetize — curb space.

Why it matters: Ride-hailing, e-commerce delivery trucks, on-demand food delivery, e-scooters, bikes and pedestrians — not to mention personal vehicles looking for street parking — are all competing for a limited amount of curb space, making that narrow stretch of the road congested, chaotic and even dangerous.

Details: Offering pilot programs free of charge is a way to let cities experiment with the "digital curb" platform that New York-based Coord, which is backed by Alphabet's Sidewalk Labs, has built to help cities digitally inventory, price, allocate and manage the curb.

  • Coord already operates in 15 North American cities including San Francisco, Seattle, Austin and Washington, D.C., and says the pilots would be a minimum of two months long and are also open to places like airports, college campuses and entertainment districts.
  • Applications are open until Feb. 14.
  • Pilots can include smart commercial loading zones, ride-hail management and passenger loading zones, and demand-responsive pricing.

Since curbs are public rights of way, it's up to officials to get them under control while also considering the revenue that comes from parking meters, permits and tickets.

  • "Those are established revenue streams, so not only is there political resistance to giving up parking in a community, but there's financial resistance," said Coord CEO Stephen Smyth. "We think it's really important to provide a business model that a city can get behind to enable a city to generate revenue from new, post-parking curb uses."
  • For example, delivery fleets may be interested in paying a regular fee for better access to commercial loading zones instead of paying the parking tickets for illegally double parking.

4. Yellow buses get an after-school job

Illustration: Sarah Grillo/Axios

Utility companies are helping cash-strapped school districts replace diesel buses with electric ones that have a secondary purpose: helping to manage electricity demand.

Why it matters: Electric buses are cleaner but cost about three times more. Using them for energy storage can help close that cost gap and smooth out energy demand on the electric grid, Axios' Joann Muller writes.

What's happening: Less than 1% of America's school buses are electric today, but that's beginning to change.

  • Communities in California, Massachusetts and a few other states are testing electric school buses and charging infrastructure.
  • Michigan-based DTE Energy, for example, has a pilot program with six buses in two school districts. It is testing charging infrastructure as well as Vehicle-to-grid (V2G) technology.

The most ambitious V2G effort comes from Dominion Energy, which is planning to deploy 1,050 electric school buses in Virginia over the next five years.

How it works: V2G enables electric vehicles to store surplus energy from intermittent wind or solar sources during non-peak periods and feed power back to the grid when needed.

School buses are a better source of distributed power than passenger EVs because their usage patterns are predictable.

  • They are idle at precisely the times when energy demand is at its peak — midday and during the hottest summer months.

The bottom line: With 480,000 school buses on the roads, the impact could be huge, Ryan Popple, founder and CEO of Proterra, a supplier of electric transit buses, tells Axios. "If you fully electrify the school bus fleet, you're offsetting a couple of nuclear power plants."

5. Urban files

Illustration: Sarah Grillo/Axios

The future of firefighting☝️(Axios)

Public transit ridership has increased, thanks to NY and DC (CityLab)

California could sue San Francisco, other cities over homeless under new plan (CurbedSF)

States will be the battlegrounds for 2020 tech policy fights (Axios)

Did Uber just enable discrimination by destination? (CityLab)

6. 1 work thing: Home office appeal

Sources: IPUMS USA, Ruggles et al. (2019); and St Louis Fed; Chart: Axios Visuals
Sources: IPUMS USA, Ruggles et al. (2019); and St Louis Fed; Chart: Axios Visuals

St. Louis Fed researchers found that more than 3% of American employees primarily worked from home in 2017, up from 0.7% in 1980, per Axios' Felix Salmon.

  • That number rises to 4% for workers in sales and 5% for workers in management, business and finance.
  • In Boulder, Colorado, 9% of full-time employees work primarily from home.
  • At Axios, 12% of full-time employees work from home.

As Axios' Erica Pandey points out, the growing acceptance of remote work could lead to new opportunities for people who live too far from jobs. But working from home remains a privilege only available to middle- and high-skilled workers in jobs that can be done on a computer or over the phone.

  • It also requires a fast, reliable broadband connection for video conferencing and workforce-collaboration platforms.

The bottom line: America's self-employed have been working from home for decades. Now full-time employees are beginning to discover the attractions of avoiding the open office.

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Thanks for reading, see you next week!