Beyond Silicon Valley, surprising threats emerge: City, state governments funding disruptive start-ups

  • Nearly half of the 2018 CNBC Disruptor 50 list come from locations beyond Silicon Valley and New York.
  • City and state governments, in partnership with philanthropies and the local private sector, are funding innovative start-ups.
  • This year's Disruptor 50 list includes companies that got their start in Pittsburgh, Chicago, Jacksonville, Orlando, and Reno, Nevada.
A scene from HBO's Silicon Valley featuring founder of fictional internet start-up Pied Piper, Richard Hendricks, played by actor Thomas Middleditch.
Source: HBO
A scene from HBO's Silicon Valley featuring founder of fictional internet start-up Pied Piper, Richard Hendricks, played by actor Thomas Middleditch.

If you thought San Francisco (or New York) was home to every disruptive tech company, think again. Yes, the lion's share of the world's tech companies call Silicon Valley home, but as it turns out, plenty of innovative companies do thrive in the most unlikely places outside of that little region of California. The 2018 CNBC Disruptor 50 list proves just that, with nearly half of this year's list coming from locations outside of California and New York.

There's no denying that Silicon Valley reigns as the place to start a new tech company. With its deep pool of talent, an abundance of capital, and a business culture that encourages crazy new ideas as well as celebrates failure, many young innovators make the pilgrimage there and never leave. Silicon Valley's entrepreneurs enjoy the plethora of tech billionaires who are constantly looking for new ideas to fund. Recreating that model elsewhere is impossible. So how is it that communities far outside of Silicon Valley that lack private money to support innovation are generating so many disruptive companies?

The answer to that question is that local governments and foundations have stepped in to offer capital, mentors, and much-needed support to entrepreneurs.

Take Ohio, for example. With its declining manufacturing industry, the state earned a reputation as being the epicenter of the Rust Belt. About a decade ago, however, the State of Ohio decided to do something to address its failing economy. It created a $2.3 billion initiative called the Ohio Third Frontier to support commercialization and entrepreneurship. Importantly, the Ohio Third Frontier mandates that its funding be matched by private sector or philanthropy which provides critical market validation and additional leverage for its support. This initiative was truly a big bet on Ohio's future. Not many state governments had taken such a bold approach.

One of the beneficiaries of the State of Ohio's Third Frontier funds was LISNR, ranked No. 22 on the 2018 CNBC 50 Disruptor list. Lisnr was founded in Cincinnati, a town well known as being home to Procter and Gamble and Macy's, decidedly non-tech consumer goods companies. What did Cincy know about disruptive technologies? Apparently a lot. Even with its relatively small population of about 300,000, Cincinnati's leaders made an effort to support entrepreneurs, and the city became home to several growing tech companies.

Rodney Williams, co-founder and CEO of LISNR
Source: LISNR
Rodney Williams, co-founder and CEO of LISNR

LISNR received its initial seed investment from CincyTech, a public-private seed stage investor backed with support from the Ohio Third Frontier. And talk about disruption — LISNR developed a technology that sends data over audio, so you don't need an internet connection to share information. Think about that: LISNR's partners, like Live Nation's Ticketmaster, can replace paper tickets and digital passes with LISNR smart tones. Wow. And that's all taking place 2,300 miles away from San Francisco.

More from CNBC Disruptor 50:

China's goal is to crush Silicon Valley

Start-ups worldwide are trying to crush Uber, and the stakes are high

Airbnb effect: Fueling start-up ecosystems around the globe

Government support (like the funding from Ohio Third Frontier) was just one of many creative ways that states like Ohio have worked to jumpstart a entrepreneurial ecosystem. My hometown of Cleveland, Ohio, took many additional steps to accomplish its own success in supporting entrepreneurs. I profiled that massive effort in a free, Case Western Reserve University Massive Open Online Course (MOOC) called Beyond Silicon Valley, available through the MOOC platform Coursera, No. 42 on this year's CNBC Disruptor 50 list and a three-time CNBC Disruptor.

More than 135,000 students from 190 countries have participated in the three years since I launched my course. I've learned through my students that governments and donors all over the world are now creatively providing resources to create a burgeoning entrepreneurial network, new jobs, and new growth. It's no wonder that half of the 2018 CNBC Disruptor 50 list don't come from the tech and business world's deepest pockets in Silicon Valley and New York, but places like Pittsburgh, Chicago, Jacksonville, Orlando, and Reno, Nevada, and overseas locations like Amsterdam, Bangalore, India, Singapore and Beijing, China. The geographic diversity of disruptor companies will continue to grow.

By Michael E. Goldberg, assistant professor of design and innovation at the Weatherhead School of Management, Case Western Reserve University. Goldberg just released a free book, Beyond Silicon Valley, which profiles 20 students around the world that are working to implement strategies to support entrepreneurs in their communities. Goldberg is a member of the 2018 CNBC Disruptor 50 Advisory Council.

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