THE FALL OF THE REST

The Fall of the Rest

Venture capital is reconcentrating. America’s emerging innovation regions need a new Edge VC strategy.

For much of the past decade, the geography of American innovation appeared to be opening up.

Steve Case called it the “Rise of the Rest.” Venture capitalists discovered Austin, Nashville, Columbus, Pittsburgh, Detroit, Indianapolis, Burlington and dozens of other cities. The pandemic appeared to accelerate the shift. Founders could build companies from almost anywhere. Talent was dispersing. Coastal investors were writing checks over Zoom.

For a moment, it looked as though the gravitational pull of Silicon Valley had weakened.

It has not.

New Crunchbase data suggests we may now be witnessing something closer to the Fall of the Rest: not the disappearance of entrepreneurship outside the major technology hubs, but the rapid reconcentration of the capital needed to turn promising startups into consequential companies.

In 2025, the San Francisco Bay Area captured 45 percent of all US seed funding, up from 33 percent in 2024 and 28 percent in 2023. New York took another 17 percent. Boston and Los Angeles received approximately 5 percent each.

That left every other community in America competing for just 28 percent of seed capital, the lowest share recorded by Crunchbase and far below the 40 percent average achieved between 2018 and 2024. The four leading metropolitan areas also captured 57 percent of seed deals. The Bay Area alone accounted for approximately one-third. Crunchbase’s analysis⁠ shows a startup economy becoming more geographically divided, not less.

There is an important nuance. Two-thirds of America’s seed-stage startups are still located outside the Bay Area. Entrepreneurship remains distributed. Capital does not.

That is the central problem.

Ideas are dispersed. Capital is concentrating.

The original Rise of the Rest thesis was directionally right. Great founders are everywhere. Research universities, advanced manufacturers, hospitals, military installations and experienced industry executives are spread across the country. Remote work has made it easier to assemble teams outside the largest cities. Many smaller regions offer lower costs, stronger communities and a better quality of life.

But the thesis underestimated the self-reinforcing nature of venture capital.

Capital follows networks. Networks follow successful founders. Founders generate employees, angels and new companies. Large exits produce more capital, experienced operators and greater confidence. Each successful cycle makes the next cycle easier.

Artificial intelligence is intensifying this effect. The Bay Area received more than three-quarters of US AI funding in 2025. The largest rounds increasingly go to a small number of companies with established relationships to the leading funds, model developers, hyperscalers and technical talent pools.

By early 2026, the concentration had become even more extreme. According to a separate Crunchbase analysis⁠, rounds of $500 million or more accounted for 80 percent of US venture investment through April.

This does not mean that only the Bay Area can produce important AI companies. It means that capital markets increasingly behave as if that were true.

The result is a dangerous mismatch. America continues to produce founders and intellectual property across hundreds of communities, but the financial machinery for identifying, funding and scaling those opportunities is being pulled back into a handful of metropolitan centers.

The Rest has not run out of ideas. It risks running out of capital.

Why conventional ecosystem strategies are no longer enough

Most regional innovation strategies follow a familiar formula: create an incubator, operate an accelerator, sponsor pitch competitions, establish university technology-transfer programs and encourage local investors to make angel investments.

These are useful ingredients, but they do not constitute a capital system.

Too many regional programs concentrate on producing more startups without creating the follow-on capital required to keep those companies local. A founder may receive a $50,000 prize, a university grant or a place in an accelerator. But once the company needs $2 million, $10 million or $50 million, it must enter networks controlled elsewhere.

The company may remain nominally headquartered in its original community, but its board, senior hires, strategic relationships and eventual center of gravity begin to move toward the capital.

This is not a moral failure by coastal venture firms. They are responding rationally to their networks, information advantages and portfolio strategies. Nor can regions solve the problem by asking investors to allocate money more fairly.

Venture capital is not regional aid.

The challenge is to build investment systems outside the dominant hubs that can discover differentiated opportunities earlier, make better use of local knowledge and connect those companies to national and global capital once they are ready to scale.

That requires an Edge VC strategy.

Hula offers a glimpse of the model

Hula in Burlington, Vermont, is particularly instructive because it does not treat venture capital as a standalone financial product.

Hula began with the redevelopment of the former Blodgett Oven factory on the Lake Champlain waterfront. It combined an exceptional physical environment with entrepreneurs, remote workers, experienced operators, events, mentors and investment capital.

The Fund at Hula was created around a deceptively ambitious question: What if world-class companies could grow right here in Vermont?

Its early investments included BETA Technologies, Benchmark Space Systems, CoreMap and Greensea IQ. It has now supported more than 20 Vermont companies. Hula has also attracted other funds, family offices and angel investors to its campus, forming what it describes as one of Northern New England’s most active early-stage investment communities. The Fund at Hula⁠ provides companies with capital, mentorship, connections and a community in which founders encounter investors as part of everyday life.

The model is continuing to deepen. The $10 million Hula Community Partners Fund was established with the Vermont Economic Development Authority using the US Treasury’s State Small Business Credit Initiative, with support from the University of Vermont and other partners. Hula has also convened a statewide Venture Roundtable connecting Vermont’s fund managers. Hula’s capital ecosystem⁠ now includes multiple funds and investment strategies rather than a single isolated pool.

The important innovation is not merely that Hula has a venture fund.

It is that Hula brings place, community, talent, companies and capital together.

That is what makes it an Edge VC model.

What is Edge VC?

Edge VC begins with a different premise from conventional regional venture investing.

The goal is not to recreate Silicon Valley in miniature. It is to invest where a region possesses an authentic edge.

That edge might come from an industry cluster, a research institution, a major employer, specialized infrastructure, local customers, an unusually deep workforce or knowledge accumulated across generations.

Pittsburgh has robotics, autonomy, advanced manufacturing and entertainment technology. Burlington has aviation, climate technology, complex systems, health innovation and a quality of life capable of attracting exceptional people. Maine has ocean industries, composites, forestry, energy and shipbuilding. Syracuse has semiconductor manufacturing and a once-in-a-generation opportunity around Micron. Columbus has logistics, insurance, healthcare and advanced manufacturing. Morgantown has energy, health sciences and national-security capabilities.

These are not consolation prizes for places that failed to become Silicon Valley. They are sources of competitive advantage that Silicon Valley often lacks.

An effective Edge VC strategy would have five defining elements.

1. Invest around a regional edge

Each fund should have an investment thesis grounded in capabilities that are genuinely present in the region. Generic local funds produce generic deal flow. Specialized funds can develop proprietary knowledge, attract experienced investors and recognize opportunities that national firms may initially overlook.

2. Put capital inside an innovation place

Capital should be embedded in a Knowledge Town, innovation district or entrepreneurial campus where founders, researchers, experienced executives, students and investors interact continuously.

A fund operating from a remote office and reviewing pitch decks is not an ecosystem. Hula demonstrates the advantage of giving the capital network a physical home.

3. Build the full capital ladder

Regions need more than pre-seed money. They need a connected sequence of proof-of-concept grants, angel capital, seed funds, Series A investors, growth capital, strategic corporate investment and mechanisms that allow successful local founders to recycle wealth into the next generation.

The objective is not to finance every round locally. It is to give companies enough support and negotiating power to access larger markets without surrendering their regional roots.

4. Import networks, not companies

Traditional economic development often tries to recruit companies after they have been created elsewhere. Edge VC should instead recruit investors, executives, customers and strategic partners into the networks surrounding locally rooted companies.

A coastal fund should be able to invest in a Vermont company without requiring that its leadership relocate to San Francisco. Regional capital can serve as the trusted local lead, reducing the information and governance risks for outside investors.

5. Connect venture returns to regional development

An Edge VC fund should still be judged by financial performance. But its wider system can also produce jobs, retain graduates, commercialize university research, reuse underutilized property and expand the regional tax base.

The important distinction is between investing for economic development and using successful venture investing to drive economic development. The first often compromises investment discipline. The second aligns capital formation with place.

Universities should become part of the capital architecture

Universities are conspicuously absent from too many regional venture strategies.

They run accelerators, license intellectual property and occasionally invest through endowments, but they rarely treat venture formation as a core element of their regional economic role.

A Permeable University would behave differently.

It would open its research, facilities, faculty networks, students and underused real estate to a larger entrepreneurial community. It might provide space for venture firms, establish proof-of-concept funds, become a limited partner in professionally managed regional funds and help recruit experienced executives as entrepreneurs, mentors and fellows.

Universities also possess something venture firms value greatly: sustained access to emerging talent and knowledge. What they often lack is the commercial machinery for converting that knowledge into scalable companies.

An Edge VC system can provide that missing machinery. In return, the university helps give the investment platform legitimacy, continuity, specialized expertise and a pipeline that cannot be reproduced through pitch competitions alone.

The objective is not capital equality

Some regions will not produce enough investable opportunities to support a dedicated venture fund. Others will attempt to manufacture clusters that do not exist. Publicly supported funds can become politically allocated, poorly governed or too risk-averse to function as genuine venture capital.

Those are serious risks.

But the reconcentration of venture capital is also a risk. A country that depends on four metropolitan areas for most of its seed investment is leaving extraordinary amounts of talent, research and industrial knowledge underdeveloped. It is also making its innovation system more brittle and intensifying the geographic divisions already destabilizing American politics.

The answer is not to distribute venture capital equally across a map. It is to construct a network of highly capable investment nodes, each rooted in a distinctive regional advantage and connected to national capital markets.

Not every community needs to become a venture hub. But every region with a genuine knowledge advantage should have a pathway for turning that advantage into companies.

From the Rise of the Rest to the Rise of the Edge

The Rise of the Rest was an important call to recognize entrepreneurial talent outside the dominant coastal hubs. For a time, the numbers appeared to support its optimism. In 2021, the Bay Area’s share of venture funding was falling, regional funds were proliferating and remote investing seemed capable of permanently changing the industry’s geography.

The latest evidence tells us that this transition was not self-sustaining.

Entrepreneurship may disperse naturally. Capital does not.

Without deliberate regional investment architecture, the most promising companies from emerging ecosystems will remain underfunded, relocate or become peripheral participants in networks controlled elsewhere.

The next strategy must therefore move beyond celebrating founders in overlooked places. It must give those places the institutions, investment expertise and capital ladders required to convert invention into enduring regional wealth.

Hula shows what this can look like: a beautiful and magnetic place, a community of entrepreneurs, a locally rooted venture fund, a wider network of investors, university participation and an explicit ambition to grow world-class companies without exporting them.

That model should not simply be copied. It should be adapted to the particular edge of each region.

The Fall of the Rest is not inevitable. But preventing it will require more than another accelerator, innovation slogan or national bus tour.

It will require capital at the edge.