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Arkansas Inc. Podcast – Why Tech Startups Are Migrating to Middle America

 September 17, 2018
In this episode of the Arkansas Inc Podcast, Host Jeff Moore, AEDC’s EVP of Marketing, talks with Yuval Yarden, director of Ecosystem Engagement at Global Entrepreneurship Network and Uday Akkaraju, CEO and founder of financial tech startup BOND.AI, about the technology industry that has recently been growing in Arkansas. Listen or read below about the recent stream of startups moving from larger metropolitan areas to smaller cities, and how Arkansas can be the perfect choice for those seeking greater access to talent, capital, and connectivity.



Speaker 1: Welcome to the Arkansas Inc Podcast, where we discuss the latest topics and trends in economic development with subject matter experts and influencers from across the nation and around the world.

Jeff Moore: I'm your host Jeff Moore, EVP of Marketing Communications for the Arkansas Economic Development Commission. Today my guests are Yuval Yarden, director of Ecosystem Engagement at Global Entrepreneurship Network, and Uday Akkaraju, CEO and founder of the financial tech startup, BOND.AI.

Jeff Moore: And today we're going to spend some time learning about a recent trend of startups, who are moving from larger metropolitan areas to smaller cities. Welcome, you guys.

Yuval Yarden: Thanks for having me.

Uday Akkaraju: Hey thanks. Thanks for having me, too.

The Rise of The Rest

Jeff Moore: So until recently, you know, when we heard about tech startups and companies and tech jobs, places like Silicon Valley, New York, Boston, and Austin come to mind. But lately, there seems to be this growing movement of tech and other startup companies, setting up shop and growing in smaller, middle-American cities, bringing an increase in tech jobs to these areas.

Jeff Moore: So today we're going to dig a little bit into that topic and I want to find out from you why we're seeing this trend in the U.S. AOL founder, Steve Case has been outspoken on this movement. And he calls this the Rise of the Rest. So starting with you, Yuval, tell us a little bit about Global Entrepreneurship Network and what your perspective is on this startup and tech migration movement.

Yuval Yarden: Absolutely. So Global Entrepreneurship Network is a network of 170 countries around the world that are all building startup communities. Of course, every country or almost every country and every city around the world now is looking at how to become an innovative city and how to engage entrepreneurs in the work that is happening to build the economy.

Yuval Yarden: And so what we're doing is tapping into those communities and bringing them in together. Because we live in a world that is heavily tech-enabled and people are communicating all over the world. And we know that different parts of the world have different strengths that we can tap into. And we strongly believe at GEN or Global Entrepreneurship Network that having that global connectivity is an advantage that every city will have in the next, you know, years to come as they build what they're building in their local ecosystem.

Yuval Yarden: My work is mainly focused in the U.S. and on, as you said, the Rise of the Rest community. So the cities outside of New York,  San Francisco and Boston who are building startup communities in second and third-tier cities. And even smaller communities in rural areas. And so the Rise of the Rest movement is something I'm really passionate about, and really excited about because I think it's the wave of the future. And it's how our country is going to grow overall. It doesn't really make sense to create two really big cities and no other great cities in the country, especially as big and as powerful as the U.S. has become.

Yuval Yarden: So my job is to make sure that cities all across the country have the resources that we might find in New York and San Francisco, but we might not find in other places. And the Rise of the Rest movement, as you said, I think there is -- there's a big ... You asked about, you know, why it's happening or you know, what's exciting about it. There's a big, you know, I don't want to say drain, but essentially drain out of Silicon Valley and out of New York.

The Third Wave

Yuval Yarden: Two statistics I'm really excited about. In 2016, 24,000 people left SF. That's double the year before that. So we're already seeing people migrate out of San Francisco. And last week in the New York Times, I read that 27,000 people moved from New York to Philadelphia last year. So it's very clear that people are realizing that these two hubs aren't the only two hubs. And the main reason that is, is ...another point that Steve Case makes in his book is the Third Wave. The third wave of innovation, which is really, we're in the heat of it right now. And it's looking at the big sector of our economy, the Fortune 500 companies, the big industries that grew our country from the start to where it is now; Healthcare, Agriculture, Energy. And these industries are not based in New York and Silicon Valley the way that maybe the internet of you know, the beginning of the internet might have been, you know, really focused in Silicon Valley. And so people are moving.

Yuval Yarden: The combination of the high cost of living and the saturation of the market and the industry being focused all over the country, people are moving to the industries, to be closer to the industries and the customers and the talents all across the country. It's not all focused in those two cities. So you're seeing that migration out of those two cities and into, for instance, West Arkansas sounds like there's a big FinTech focus or retail focus that, you know, being around Wal-Mart, being around all the FinTech companies that you have in your state is extremely valuable. And you don't get that being in Silicon Valley.

Yuval Yarden: So that's the trend that we're seeing and that's coined the Rise of the Rest. And that's the work that GEN is doing is making sure that people are getting the resources that you might be getting in San Francisco and Silicon Valley in those cities.


Jeff Moore: That's a really good national shot at a very high level of how this migration is kind of working and what's contributing to that. I think Uday, you obviously have been in San Francisco, have been in New York. Your company was one of ten selected to be part of the 2017 Venture Center FinTech accelerated program here in Little Rock. So tell us a little bit about BOND.AI and the journey you've been on since completing the accelerator program and what brings you back to Little Rock?

Uday Akkaraju: So BOND.AI, I mean as the name suggests, it's an artificial intelligence platform for financial institutions. So if I go into specifics, so what we're trying to do is with increasing technology, people are actually not going to physical branches. Right? So but still banks want to maintain that engagement with their customers. So we have made a platform for these banks, which is artificial intelligence. So that they can still keep connections with their consumers serving whatever their goals are, help them with their finances, and everything that they can do in a physical branch, we have a platform for these banks to make it digital.

Uday Akkaraju: So that is something about our platform. So as you said, yes, I lived in San Francisco. I lived in New York before moving to Little Rock, right? So I lived in all those hot places. But when I was there, I definitely felt there was some kind of imbalance, right? So if you see for young companies like us right now, the conditions are simply not supportive enough. The thing is, I mean there's, you see that local intense inflation for rents, for talent, for just moving around. I mean the costs are pretty, pretty high. And if you see these big companies like Airbnb, Uber, I'm they're taking 100 million, 200 million in funding. What happens to these smaller companies who need 2 million? So maybe they're eating away those kinds of shares, which these companies actually require.

Uday Akkaraju: So for us, I mean for me, the most important question on the personal side was will my employees afford a house? Can they raise a family here? Can they have peace of mind? Can they have the quality of life they actually deserve while working in this intense environment? So all these factors, I mean didn't add up, so I actually thought when I was in the FinTech accelerated here, I mean I had everything. So I had a good quality of life. I had access to capital. I had access to talent. So I thought why not? Let's make a move here.

Uday Akkaraju: So we were here for like three months. We had a good time. Went back to New York, thought about it. Had a good comparison and we actually took a big decision of coming back here. And I'm one of those prime examples of like you all were mentioning. I mean, a recent survey says 49% of the Bay area residents or the New York residents are actually willing to move out. So I'm a prime example of that. Moving out actually has more benefits than I was in New York or San Francisco.

Access to Talent

Jeff Moore: So kind of talk to me a little bit about the key drivers here. I think you guys all have touched on several of those costs of doing business, talent, funding, those sorts of things. So let's talk a little bit more about the talent. As more startups are founded and expanded in these smaller Middle American markets, will they be able to find the talent needed? I mean the thing I think initially is that smaller markets mean smaller populations mean less talent. But what will the challenges be and will they be able to find the talent they need and the skilled workers they need to fill these jobs?

Uday Akkaraju: I think we haven't faced the problem on that because there are good university ecosystems everywhere in the U.S., so there is definite talent. I mean even if it's a company like Google or Airbnb, you need, when you take in new people, you need to train them anyway. So we are doing the same thing. We get people with good skill sets. We tune them, train them according to our needs. And that is what we are actually doing and we have been successful in that. So I think on the talent perspective, yes there might be a challenge finding the number of people here. But for young companies, I think you won't need volume. You need quality. You need a few people and I definitely think you'll get that in any place.

Jeff Moore: Yuval, what are your thoughts on talent situation?

Yuval Yarden: I completely agree. I think there is thought and this perception that Silicon Valley and New York just have more people and therefore the talent must be like you said, there must be more talent and it must be better. But I'm seeing two things. One is people think that maybe if they move to New York, they'll get better jobs, but there is a very, it's a very saturated market. So every job, lots of people are applying for it. And you have to spend more time sifting through applications, interviewing people, and ultimately finding the person and recruiting people from other cities.

Yuval Yarden: I love that, I love that statistic that 49% of people are willing to move. If there is a certain person, you know, and you have an incredible company, they'll move to where you are. And I think it's the city's job to kind of market itself in a way that makes it attractive for people to leave the larger cities and come to the smaller cities in the middle of the country. Both for the work opportunity and for the quality of life and the family.

Yuval Yarden: So I think, you know in New York you'll get 200, 300 applications for the two, three, four that you might get in Arkansas. But those two, three, four people are probably going to stay in Arkansas and they're probably really excited about you starting a startup around them and you’re building, you know, a team there. Also, you can pull from some of the larger corporations and some of the more successful companies that are already there and that competition for that talent is smaller. But if you're an executive at Wal-Mart and you're looking for a change and to do something exciting and innovative and new and your kids are in elementary school and your husband or wife is, you know, working full-time, then you're probably not going to New York. And you probably are looking for something exciting. So I think there is that opportunity. That talent is there. It just takes a little bit more of specific searching and not just putting a job description out there on a website and tons of recruiters giving you a call, which ultimately is often a waste of time anytime.

Yuval Yarden: The other thing that I'm seeing a lot of is workforce development programs and university engagement programs. So these universities all over the country, recruiters are coming to them and pulling them to the big cities. But a lot of times, the local community isn't coming and doing the same. So I'll give you a Philadelphia example. For us, startups were coming to Temple University where I went. It's a large state school in Philadelphia. Startups from all over the country were coming to recruit. Banks were coming to recruit. The local startups didn't set up a booth at the career fair. And the local, you know VC firms weren't looking at the talent there.

Yuval Yarden: And so I think we need to do a better job, you know, investing in the universities locally and not just, you know, Facebook will come and Google will come, but also that little five-person startup should be, you know, setting up a booth right next to them. And the entrepreneurs should be coming into the university classes and giving talks about, you know, the value of becoming an entrepreneur and why doing it in Arkansas, for example, is going to save you money and give you a larger opportunity to succeed. So I think positioning that as a career path in the universities in your community and really showing them opportunities for where they can work is great.

Yuval Yarden: And the last piece is that I am seeing so many people bounce in San Francisco and New York. They'll stay at a job for three months, six months, nine months and then you know, Google will steal the Twitter talent and then Twitter will steal the Facebook talent. And they'll all just, people will move from one to the other. And their salaries will just go up in small increments and other additional benefits will go with them. But you're not keeping an engaged workforce. So like you were saying before, it's always going to take an onboarding period and an education period and if you lose someone so quickly afterward, then you're wasting a lot of money on that. And if you're competing on dollars, often times you'll end up, your runway will be shorter because you'll run out of money much faster.

Yuval Yarden: So those are some thoughts about talent, but I don't think that being in a smaller city is necessarily a downfall. I think it takes more strategic work.

Access to Support

Jeff Moore: Obviously in San Francisco and New York, there are obvious advantages. Part of me wants to think a little bit about life cycle here because you kind of, you both have addressed it to some degree or another. When you're single, living alone, you know you can make it work as talent. Or you know even in early-stage businesses, a startup, your nimble, maybe a bit more nimble, but what unique advantages are there to the smaller cities that help support these startups? What unique advantages might there be from Little Rock, Arkansas from Fayetteville Northwest Arkansas? Go ahead, Uday.

Uday Akkaraju: Yes, first for a young company, I mean a startup, you need capital. Right? So if you're in San Francisco or New York, to survive, to actually operate, you need to raise more capital which is more challenging. If you come to a city like Little Rock or Fayetteville, I mean you can extend your runway ten times with the same amount of money you have in San Francisco and New York. That's what we are doing. We're having more people. We have less capital, but we have a runway more than companies who are operating out of those two ecosystems.

Uday Akkaraju: But I think for me, the most important thing is the community. And then as Yuval was mentioning, the loyalty of the employees. The community around you is very, very important. So the community in small cities like this, I think offers a more friendly environment. And it has more positive energy. That's what we felt. That's why we moved here.

Uday Akkaraju: So I'll give you an example and there is a town called, I think it's called Okinawa in Japan. So it's a place where the average life expectancy for women is around 90. That's the oldest in the world. I mean people, they actually, what they do is they form a kind of social network called Moai where a group of five friends offers social, logistic, emotional and even financial support for a lifetime. It has a lifelong journey. It is very powerful and maybe that's why the longevity is amazing. So that kind of support system, I think you experience in cities like this - smaller cities like this. And that is very important for entrepreneurs who spend a lot of energy working for this company. And they want every help they need and they get everything that they require here.

Jeff Moore: Yuval, how do you find the support networks in the entrepreneurial ecosystems and such that you work in?

Yuval Yarden: I completely agree. I think in a big city, it's very easy to become a tiny fish in a massive pond, kind of get lost and maybe not find the opportunities that you're looking for, work a lot harder to get noticed. And you know starting my career in Philadelphia and building my home base there was, I think the best way for me to launch because I knew people individually. If I wanted to grab coffee with someone, they were always open to it. I didn't have to wait three weeks for someone to take a meeting. I didn't have to prove that I was important enough. And I see a lot of that. I've been in New York for about three months and I'm seeing a lot of that here already.

Yuval Yarden: So I think at least starting your career or starting your company in a small city is really important because for everything that you just mentioned. The people genuinely care about each other. They genuinely want to see you succeed, not only because it's good for the city, but because your kids are in the kindergarten class together. You grew up together and went to the same high school. You live on the same street. There is more connectivity than just the fact that you work at the same company or that you are, you know starting a startup in the city. I think that's really, really valuable because when you’re building a startup, I think the term "work-life balance" is a little bit just cliché at this point. But you want to put yourself in a situation where you can succeed and be a healthy, both emotionally and physically healthy person as well. And feel supported by the people around you. And in a small city, it's just easier to do that.

Uday Akkaraju: Yes, guess what? I mean just to add to that, I mean big companies in San Francisco and New York are actually paying people to move out of those big cities so that the cost of living is less.

Yuval Yarden: Yes.

Uday Akkaraju: I mean the communities are great. Instead of paying them to come to San Francisco, they are actually paying them to move out of these big cities to actually take advantage of all the positive benefits these smaller cities offer.

Jeff Moore: Well that certainly speaks to the talent piece of this. We're going to take a short break and then we'll be right back with Yuval and Uday to talk a little bit more about this startup migration.

Access to Capital

Jeff Moore: So we've talked a little bit about access to talent. We've talked a little bit about access to support and mentoring. So let's talk just for a moment about access to capital. Access to funding. So how are entrepreneurs finding the funding they need outside of these major markets where it seems like that's where the money would be, Uday?

Uday Akkaraju: I think before, Venture Capital used to be hyper-local, right? People used to think I need to invest in companies, the people around me. But you see companies are out of India, Europe, Japan, China. I mean there are unicorns coming out of everywhere, from Florida, from New York, from Philadelphia, from even maybe Little Rock. There was a big company called FIS from here. So there are unicorns from every part of the country. So it's not hyper-local anymore. So I think investment funds, VC funds are realizing that especially with Fred Wilson from ABC, Steve Case, of course, starting the Rise of the Rest fund. You know Brad Feld from the Foundry Group or even, there's a venture firm called Haystack from San Francisco whose latest portfolio investments was more than 50% was invested in companies out of the Bay area. So I think capital is actually flowing to other cities and I think young companies need to take advantage of that.

Jeff Moore: Yuval, what are your thoughts on funding?

Yuval Yarden: So I think that everything you mentioned, I think there is, you know, it's definitely true. There are definitely VC funds that are focused on you know outside of Silicon Valley, New York. But I also think there are a few other sources of funding that are coming together. First of all, the crowdsourcing space is growing. It's not only becoming more popular, but people are willing to you know, actually invest in things that they weren't thinking about investing before because now there is equity associated with it. Or now it's just becoming more of a, something that is more common practice.

Yuval Yarden: We're also seeing micro VC, or VCs that maybe are smaller funds of only several million dollars, but that are funding very local startups and igniting the economy and individual cities or states. And some of those are the actual city or state creating a VC. And other ones are angel investors coming together or VC funds that are being raised in a specific community for a specific purpose. But I also think overall, VCs are realizing that investing in diversity is actually profitable for them. It's not just the right thing to do or impact focused work. It's actually profitable for them. And they're silly to only look at three cities or four cities across the country and not look at the rest. Especially, bringing it back to my first point about the third wave of innovation and people really investing and living around to the larger corporations and industries that are being built around the country. They're also realizing that their dollars are going much further outside of these big cities.

Uday Akkaraju: Yes, I think I should add to that point of community funding, crowdfunding, which is actually a great phenomenon in smaller cities. So when anyone asks me about, "Hey, how did you raise funding?" I say I raised from LPs. LPs is a standard term in the venture capital field. But for me, it's local people. So I raised actually money, we made a point to actually raise money from local people here. So I do not have the data, but I think you'll definitely see that crowdfunding, community funding phenomenon greater here, rather than in these hot invest in the west and east coasts.

Growing a Startup Ecosystem

Jeff Moore: And so Yuval, you mentioned inviting VCs too, you know to visit and matchmaking of sorts, kind of putting, connecting the dots. As a state agency, as the State of Arkansas, how can states be not just from a funding standpoint, but collectively how can they be more supportive and help with these ecosystems and their growth?

Yuval Yarden: I think a lot of states and cities, you know they know the larger donors and they're higher, net worth individuals in the community, and their angel investors. And I think there is an opportunity for some matchmaking, some introductions. And really at the very basic level, just inviting them out to these events. Hey, you know I see that you're funding campaigns. I see that you're investing in some bigger non-profits in the area and donating to them. You're a philanthropist at this or that museum or university. Have you thought about checking out the startup community? It's a really incredible community that's growing here. People are building really exciting stuff. And it's actually, can be very profitable for you to put some of your money there. And not only is it an economic development play, but it's also an opportunity to create some new technology that we can, you know share came out of Arkansas and continue to build the opportunity for jobs and for smart people to stay and work here.

Yuval Yarden: So that message around hey, let's just, you know I'd love to bring you out to a Happy Hour or I'd love to introduce you to a few companies, I think could go a really long way. And that's my biggest tip.

Yuval Yarden: And my other one is to just listen to what the entrepreneurs need between policy work, which I'm not an expert in, but I know there's a lot of policy work happening across the country to help shape cities in a way that's entrepreneurs can be more innovative. And just understanding, you know, what it is that they need. So just spending more time saying hey, what do you need here that you don't have? And understanding that and trying to collect that data to see if there's anything that a Chamber of Commerce, the city, the state can really do to move things forward and make Arkansas more welcoming. And every city and state in the country, a more welcoming place for entrepreneurs because those places will thrive.

Jeff Moore: So Uday, from your perspective being in Little Rock, being in the state of Arkansas, what are your thoughts about how the state might facilitate more mentorship, more support in your efforts?

Uday Akkaraju: I see a good phenomenon here, I mean I think happening in Little Rock. I mean in Arkansas. There are a lot of incubators, a lot of accelerators actually popping up. I think that is very, very important for non-startup, typical non-startup ecosystems. Those are the kinds of ecosystems, incubators, and accelerators that will actually accelerate the kind of entrepreneurial activity happening in this area.

Uday Akkaraju: But if you take our example, we raised almost half of the funding from the State. So there is a lot of funding available. If we were not in the accelerated program, we wouldn't have gotten the connection to the State. So I think the State should, I mean what if they realized there is a lot of funding. There are a lot of entrepreneurs, but that bridge needs to be created. So State has to take it for, building that bridge, helping people. Hey, there is funding for this. There is a grant for this. You need to actually come up with your idea and we'll likely fund it.

Uday Akkaraju: So I think that is what is a missing piece. States should do a better job in actually selling the kind of grants, the kind of funding programs they have. Because they already have entrepreneurs. They just need to connect with them. And these accelerators, incubators, the VC Fintech, or the health accelerator which has come up recently are doing a tremendous job.

Jeff Moore: Since recent interviews, we've held with startups around Arkansas: Little Rock, Fayetteville, we've heard this common theme. And that is there's a lot of support within the community of entrepreneurs. People seem really willing to help one another, mentoring, advice, introductions, networking, that sort of thing. So do you find that smaller markets tend to foster this more supportive culture or you know more access to resources versus these larger, more competitive metropolitan cities? And I'll start with you, Yuval. What are your thoughts?

Yuval Yarden: Yes, absolutely. They have to and they are. And I think it's, I think we're seeing people really celebrate entrepreneurs. And create programs to celebrate, to support entrepreneurs in their community. So I think it's definitely happening and people are individually a lot more invested in the work too. Not only through work, but through their personal life as well.

Jeff Moore: Uday, what are your thoughts?

Uday Akkaraju: Absolutely. I mean the smaller the community, the better of course. So it's absolutely that phenomenon I've realized, experienced personally in smaller cities. So the community is tighter. You have access to resources. I mean as I told you, the most important thing in smaller communities, places like Little Rock is you get the quality of life, what you want as an entrepreneur. And you have the right community to support you in every aspect. So you need a lot of supporters in entrepreneurial and you get everything here.

Jeff Moore: Well it's a great trend. I mean it's always amazing to see these trends sort of develop and to witness these. And certainly, we're fortunate in Little Rock, Arkansas, in Northwest Arkansas, around the state to have some amazing culture and ecosystems. And so again, so glad to have you and I'm Jeff Moore and I've been your host for the Arkansas Inc Podcast. My guests today are Yuval Yarden. She is the director for Ecosystem Engagement at Global Entrepreneurship Network. And Uday Akkaraju, who is the founder and CEO of BOND.AI, a financial tech startup here in Little Rock, Arkansas. And we are so glad you guys joined us and just a great conversation and I learned a bunch. So I appreciate your time.

Yuval Yarden: Thanks so much for having me.

Uday Akkaraju: Hey thanks. It was a great conversation.