Richard Branson, John Chambers bringing Hyperloop, and millions, into Appalachia's poverty-stricken region

Rebecca Fannin, special to CNBC.com
Key Points
  • Richard Branson's Virgin Hyperloop plans to open a certification center and testing track in West Virginia for its transformative transport technology.
  • Branson's friend, former Cisco CEO and JC2 Ventures founder John Chambers, a native West Virginian, is among tech titans making big investments in the distressed Appalachian region, with the aim of bringing its coal and chemicals economy into the future.
The Virgin Hyperloop project is aiming for safety certification by 2025, with commercial operations beginning in 2030.
Virgin Hyperloop

West Virginia has received a much-needed tech economy boost with Richard Branson's Virgin Hyperloop plans to open a certification center and testing track in the state for its transformative transport technology. The plans were debuted in Charleston today by Virgin Group's Branson, a strategic investor and partner in Virgin Hyperloop, and his equally influential friend, former Cisco CEO and JC2 Ventures founder John Chambers.

"Today is one of the most exciting days in Virgin Hyperloop's history," said Sir Richard Branson, founder of the Virgin Group, in a release. "The Hyperloop Certification Center is the start of the hyperloop journey for West Virginia, for the United States, and for the world. We're one step closer to making hyperloop travel a reality for people everywhere."

"West Virginia failed to disrupt itself and was left behind when the coal mines and chemical producers closed," said Chambers, a native of West Virginia, who is spearheading several philanthropic and investment efforts to revitalize the state with tech start-ups and venture capital, including through his VC firm. "The state needs a renewed focus on innovation to drive job creation and economic growth and create a tech ecosystem that will grow startups," Chambers said.

As one of his initiatives, his alma mater, West Virginia University in mountainous Morgantown, is getting ready to debut a new $100 million business school building in April 2022 on the Monongahela riverfront. The facility is an extension of the John Chambers College of Business and Economics established with a Chambers donation in 2018 to spur entrepreneurship in Appalachia.   

John Chambers
Katie Kramer | CNBC

The state got another lift this week from another Silicon Valley tech icon, former Intuit CEO Brad Smith. He has donated $25 million to fund a program to recruit tech talent to the often overlooked Mountain State. "We are dreaming big and some might be very surprised by the transformations we're making and the quality of life here with mountain biking, hiking, fishing and white water rafting," said Smith, who is from the tiny town of Kenova, West Virginia. Plans are to launch the program by early 2021 with applications from out-of-staters looking to apply their tech talent, work remotely and change their lifestyle.

A graduate of Marshall University in Huntington, Smith previously donated $10 million for scholarships at his alma mater Marshall University and gave $25 million to its college of business renamed the Brad D. Smith Center for Business and Innovation. His initiatives look to instill an entrepreneurial culture in West Virginia, and he's invited such tech leaders as Sheryl Sandberg to speak to local students (though Covid-19 has delayed those plans) and has organized startup pitches at the university. "We believe these investments and efforts will advance the state's efforts to become a start-up state," Smith says.

A state in transition

Besides Chambers and Smith, another Silicon Valley tech icon is helping to jumpstart West Virginia. Former Oracle CEO and Kleiner Perkins partner Ray Lane gave $5 million in 2000 to West Virginia University to support its Department of Computer Science and Engineering.  Efforts by these leading tech executives and founders could help to revive Greater Appalachia, and test if philanthropy can reboot former Rust Belt areas.

West Virginia University of Technology campus in Beckley, W. Virginia.
Google Earth

Over the past two to three decades, the Appalachian region has struggled with job loss, drug addiction and poverty as the coal mines and factories closed due to offshoring, increased imports and new energy sources. West Virginia lost more than 32,700 jobs from 1994 to 2018, according to the Bureau of Labor Statistics. Manufacturing made up 13.1% of jobs in West Virginia in 1990, but by 2017, accounted for only 6.1%. Mining and logging jobs fell from 5.4% of state employment to 2.7% in the same time period. 

Roughly 16% of the state's 1.8 million people live in poverty, compared with 10.9% nationally, according to statistics from the U.S. Census Bureau. Moreover, only 20% of West Virginians have a bachelor's degree, the lowest level in the U.S., Census Bureau figures show. During the pandemic, West Virginia's unemployment rate hit 15.9% in April 2020, above the national average of 14.7%, but improved to 8.9% in August, according to the Bureau of Labor Statistics, as businesses started reopening as early as May.

Virgin Hyperloop said in a release that beyond progressing hyperloop regulatory and commercial goals, the certification center will create thousands of new jobs across construction, manufacturing, operations, and high-tech sectors.

Despite President Trump loosening environmental regulations on the coal industry, production and jobs in the sector are declining.
Getty Images

The state has been the heart of coal country, but that's slipping. Despite President Trump loosening environmental regulations on the coal industry, the U.S. Energy Information Administration finds production dropped to its lowest level in 41 years in 2019 in a shift to cheaper and renewable sources of energy such as natural gas. As many as 52,805 work in coal mines nationally, with 13,998 in West Virginia in 2019, according to the energy information source.

The Mountain State needs entrepreneurial energy, high tech talent and venture capital spending to regain from its losses. But while signs of a rebound are surfacing and some sandboxes are emerging in life sciences, data centers and cybersecurity, there is still a long way to go.

Only one start-up in West Virginia got venture funding in 2019 for a total of $200,000, statistics from the National Venture Capital Association show. On the high side, California recorded 3,870 venture deals closed totaling $65.6 billion in 2019.

Venture capital moving from Silicon Valley 

AOL founder Steve Case who today leads Revolution Ventures has stepped in to help fill the gap. Since 2017, his two Rise of the Rest funds have backed 130 early-stage start-ups in Middle America, focusing on overlooked hubs.

He points to the pandemic as leading venture investors to source deals outside the usual stomping grounds of Silicon Valley, Boston and New York, which comprise 75% of $133 billion in venture funding nationwide. He's also led busloads of coastal venture investors on eight tours of the heartland since launching these Mid-America start-up scouting trips in 2014, though the tours haven't made it to West Virginia yet.

The trend toward remote working and a backlash against the high living costs and congestion are making Silicon Valley lose its appeal and leading to a redistribution of talent. A poll of 3,300 Bay Area tech workers by workplace app Blind found that 15% have relocated since Covid-19 began, and most don't plan to return.

"A lot of anecdotal evidence gives me confidence that we will reach a turning point, and the trend of venture capital concentrated in Silicon Valley will finally reverse," says Case, beating the drum of his Rise of the Rest agenda. "The rising costs and the beginnings of a Silicon Valley backlash, coupled by the multi-billion-dollar IPOs and acquisitions we've seen recently in rising cities, leads me to predict that the Rise of the Rest is a trend whose time has come." 

A man pauses in an alley on May 18, 2017 in Morgantown, West Virginia.
Getty Images

Pioneering investor, Mountain State Capital in Morgantown, recently raised a $20 million new fund to back tech start-ups in central Appalachia. Co-founder and managing director Mike Green, who had worked for Silicon Valley start-ups and is originally from New York, found that the lifestyle and culture in West Virginia suited him. "Lakes, mountains, good quality air and enjoyable lifestyle. What was lacking was capital," he said.  "I went on a mission to initiate a start-up culture," he added, noting that of 13 investments he's made in the region, five are in West Virginia.  He chairs a West Virginia Investment Fund pooling accredited investors and has become a member of an angel investor alliance that compares deal flow weekly.     

One of his recent venture investments at Mountain State Capital is Serucell, a rejuvenating skin serum invented by plastic and reconstructive surgeon, Dr. Tom McClellan, and manufactured in West Virginia. "I wanted to have a big impact in a small place," said McClellan, who has a lab in Morgantown and holds 35 patents.    

To bolster a tech economy, the state is working on improving access to broadband internet in the mountainous and largely rural state, which ranks "in the bottom tier or dead last" with a penetration rate of 85% compared to a national figure of 93.5%. The West Virginia State Broadband blueprint is a call to action to bring fast, reliable and affordable wireless connections statewide. 

Another tech booster is West Virginia Forward, a collaboration of West Virginia University, Marshall University and the state's Department of Commerce to strengthen and diversify the region. One of their projects is the hiring of consulting company McKinsey & Co. to outline the state's inherent strengths such as auto parts assembly, aerospace maintenance, and new sectors including life sciences, cybersecurity and cloud services. Getting Virgin Hyperloop to plant roots in West Virginia is a step toward reaching a goal of becoming a start-up state.  

Virgin Hyperloop has done initial R&D work at a test site in Nevada since 2017.  West Virginia is the first Hyperloop certification facility. Several urban areas and regional corridors in the U.S. are considering the technology for future transportation projects, including North Carolina's Research Triangle, Chicago, Columbus, Ohio, Pittsburgh, Missouri and Texas. 

In July 2020, the US Department of Transportation and the Non-Traditional and Emerging Transportation Technology Council released guidance on a regulatory framework for hyperloop in the United States. Virgin Hyperloop says its aim is to achieve safety certification by 2025, with commercial operations beginning in 2030.

 —By Rebecca Fannin, special to CNBC.com

This story has been updated to reflect that Sheryl Sandberg was invited by former Intuit CEO Brad Smith to speak to students in West Virginia, but Covid-19 delayed that engagement.

Transporting people at 600 mph on Hyperloop One is 'too exciting': Richard Branson
Transporting people at 600 mph on Hyperloop One is 'too exciting': Richard Branson