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Thune Doesn’t Like Venture Capital’s Preference for Proven Coastal Markets over Rural SD, But Thinks Private Sector Will Solve That Inequity

Senator John Thune chaired his Senate Subcommittee on Communications, Technology, and the Internet’s hearing yesterday on expanding access to venture capital. Thune’s thesis behind this hearing is that capitalists focus too much of their attention on starting businesses in California, New York, and Massachusetts:

In 2019, California-based companies received roughly 50 percent of all venture-backed investment in the United States.

That same year, just three states – California, New York, and Massachusetts – accounted for almost 75 percent.

There are many valid reasons why this is the case, which I look forward to exploring with our witnesses today.

However, this geographic imbalance also means that a majority of regions within the United States are often shut out from the kind of investment that creates jobs, revitalizes communities, and enables the pursuit of the American dream [Senator John Thune, opening statement, hearing, Senate Subcommittee on Communications, Technology, and Innovation, 2020.12.15].

Thune recruited Rapid City software vendor Ray Hespen to talk about the challenge he faced when he chose living in Rapid City over easier access to coastal investors:

The options for fundraising were minimal. It felt like it was either regional angel players or venture capitalists from the coasts. The angel groups often could only commit to small investments which would have required a large contingent if we were to raise enough to give us the runway we needed. Alternatively, we could participate with the coastal VCs.

Even during this initial period of fundraising, we received some term sheets that, especially in hindsight, felt opportunistic. Since we were in South Dakota, we wouldn’t notice some egregious terms. Due to these mentors’ advice, we were able to avoid some pretty serious mistakes early in our company. Ultimately, we partnered with a fantastic smaller regional capital partner who treated us fairly and has been a great asset since the initial investment [Ray Hesper, prepared remarks to Senate Subcmte CTI, 2020.12.15].

Hmm… so Hesper lived, learned, and got the cash he needed to start his company. Why, then, are we having a Senate hearing? Where’s the market failure requiring a government solution? Is it really a problem that capitalists operating in a free market choose to invest in more viable, opportunity-rich environments than others? Even if there is a problem with the free market picking winners, Senator Thune himself said in his opening remarks “the private sector is primed to solve” this “geographic imbalance”:

At the end of the day, it is not going to be politicians and regulators driving the next wave of American innovation.

It will be the private sector that will ultimately expand economic opportunities across the United States.

And it is my view that the best the government can do is to fully recognize this and then actively try to not stand in the way [Thune, 2020.12.15].

Do you hear yourself, John? One moment you whine that the free market is treating South Dakota unfairly by betting on big-city businesses. But the next moment you say the same private sector that’s making choices you find objectionable will magically make different choices if government takes no active role in changing the economy.

Thune mentions the merits of the socialist expansion of broadband to entice more venture capital to rural South Dakota and other places the free market would otherwise ignore. He opposes other socialist interventions like nationalizing the 5G spectrum to ensure equitable access. So it’s unclear just what role he sees for government in getting sensible investors to make a riskier bet on smaller, more remote markets instead of the proven fertile economic grounds of the coasts.

Hmmm… maybe Senator Thune should hold his next meeting on attracting venture capital to rural areas in Brookings….


  1. o 2020-12-16

    Maybe the question ought to be why can’t/isn’t SD doing the things that encourage more investment from technology companies. What is it about our standard of living, infrastructure, and job market that makes us uninviting to these companies?

    Many have commented for so long about the brain drain of SD. We have been told all the answers, we just continue to not listen. Maybe it has something to do with the absolute conservative/right condemnation of THOSE states and THEIR ways. Maybe there is a whole lot more to the difference between blue and red states than only how they vote for president.

    Will there be follow up hearings about why SD has so much investment in corn and beens and Massachusetts has so little?

  2. Richard Schriever 2020-12-16

    Thune’s “thinking” (actually it’s simply a pattern of thoughts) reflects the (small r) republican notion of the Senate in so much as it represents TERRITORY – in most cases – more or less EMPTY TERRITORY – and not people in our government’s structure and function. Land mass is not entirely disassociated rr4o economics, but is barely there as a concept/factor.

    Economics is a SOCIAL SCIENCE that has to do with USING money to measure human behavior, and not a financial tool. That is an error that many if not most people make when considering economic analysis such as Thune’s committee is trying to investigate around Tech investing.

    Empty land is NOT a “market”. People are the make-up of a market. Economics analysis is about people, John; not land mass. The only instances in economics where I can think of that land mass comes into play have to do with the economics concept of “friction of distance” (the degree to which distance from a market “rubs off” potential participation in that market), and the old saw “location is everything” in geo-location of business enterprises.

  3. Moses6 2020-12-16

    Please remember South Dakota is not known for high wages our minimum wage is not very high so does not quite get you there.Our winters are usually colder and just over all you can usually do better than here.If you like quiet then there you are.

  4. mike livingston 2020-12-16

    Another fine example of trickle on fascist economics. What is toon going to do with all them lobby-bucks?

    Maybe if the narcissistic dingbat in the gubners office would “Get on it” and refrain from making South Dakota a laughing stock, we may appear attractive to prospective investors

    It is like the opposite of a paparazzi she is the one chasing the camera, but I digress, I believe that this great state is growing fast enough without giving away the farm to the lowest bidder.

  5. Donald Pay 2020-12-16

    It’s simplistic twaddle Thune is mouthing. You can’t have a free market without rules governing the market that are constructed and enforced. Who does that? In the US that is political leaders and regulatory personnel.

    In the 1990s South Dakota politicians stood in the way of creating the regulatory platform that would have made South Dakota the Saudi Arabia of wind and solar power. Other states did create that platform and South Dakota is now trying to catch up.

  6. jerry 2020-12-16

    Austerity be thy name. We are seeing the beginning of the same crap we saw with Obama and how the republicans throttled the economy. Of course, the more or less back fired but this will still be the new rule of Vladimir Thune and the rest of his party.

  7. jerry 2020-12-16

    Private sector does not have the money to develop what is needed in South Dakota. The only way to have renewable energy farms is to have government intervention in them. These farms can be killed with just a few neighbors saying no.. then what? Let’s face it, when you get into the rural areas, everyone is related so there can be jealousy issues with your cousins or in laws. Send in some new blood for starters, breed that stupid out of us with immigrants.

    In the more populated areas, go with the TIF’s (government intervention holding private partners hands) to make it work. Vladimir Thune’s good buddies in the development business know how it works and so does Vlad.

    Better kick it in soon Vlad. “In a troubling sign for the United States economic recovery, retail sales posted their steepest decline in seven months in November as surging COVID-19 infections ushered in more business-sapping restrictions to curb the spread of the virus.

    US retail and food services sales were $546.5bn in November, the US Commerce Department said on Wednesday, marking a 1.1 percent fall from the previous month.” trumps economy is tanking. More stimulus by about 2 trillion boys

  8. Eve Fisher 2020-12-16

    Very few people are going to set up a factory, a call center, or anything else in, say, Fedora, as nice a small town as it is. As Richard says, you need people to work, buy, generate capital, etc., for almost every business. And as Donald said, you have to have a strong regulatory climate, because businesses don’t want to have to worry about such things. And you have to have people who can afford to buy / use / participate in whatever it is your company makes. There’s a reason why greater Sioux Falls already has 230,000 people and is growing every day. People generate more people and income.

  9. jerry 2020-12-16

    Meanwhile, we keep croaking from this virus here. Vlad Thune has done nothing regarding this, nothing. His words are like he, himself is, nothing.

    “South Dakota has reached 1,300 COVID-19 deaths since March.

    The state Department of Health reported 39 deaths Wednesday to bring the total to 354 for December and 1,300 overall. There were 17 women and 22 men included in the deaths reported. One person in their 50s, four in their 60s, seven in their 70s and 27 over 80 were included in the death reports.” Rapid City Journal 12.16.20

  10. mike from iowa 2020-12-16

    Marlboro Barbie has ejaculated more verbiage in one hearing than he had in drumpf’s 4 years of lawbreaking and grifting.

  11. Mark Anderson 2020-12-16

    Well, when my Norwegian ancestors came to South Dakota in the 1870s they were sold a bill of goods. My great grandfather Rolluf Anderson paid the first taxes in his county. He lived between Dell Rapids and Sioux Falls. Its in the history books I have from South Dakota, you can look it up. When I grew up in Sioux Falls it was 65,000 people. The big change was due to Bill Janklow of all people, breaking a biblical code of interest, but that’s another story. If South Dakota can continue as the Switzerland of the US it will be fine, but screwing other people is really kind of bad isn’t it? Otherwise So Daks you will have to adapt to the current Norwegian style of government and I’m sure that will never happen. Its too Thune.

  12. Cory Allen Heidelberger Post author | 2020-12-16

    O, you have a point about the SDGOP’s blindspot. My local SD Senator talks an awful lot about building relationships and being nice to everybody. But my local Senator’s party leaders talk an awful lot about what rotten states California, New York, and Massachusetts are. Whether our constant attacks on our fellow Americans on the coasts are motivated by experience, evidence, or mere envy of venture capital and the opera, constantly hearing South Dakota say, “You suck!” can’t add to the motivation that a venture capitalist in CA, NY, or MA might feel to risk millions of dollars on our entrepreneurs in our insulting state. It appears South Dakota’s political belief in building relationships only extends to members of our club inside our bunker, not to the people we imagine are attacking us from outside.

    It doesn’t make sense to attack the coasts as alien invaders but then cry about the fact that they don’t invest their money in our businesses. Cause, meet effect?

  13. grudznick 2020-12-16

    With your blogging at 18:42 blog time, Mr. H, I find it ironic that your blog is mostly frequented by out-of-state name-callers who say South Dakota, the Great State it is, sucks. They’re not doing much to build relationships.

  14. Cory Allen Heidelberger Post author | 2020-12-16

    Moses, indeed, investors don’t sink their capital into quiet. They want to invest in businesses that can find and generate lots of action. Even our low wages don’t appear to weigh heavily enough in the investors’ calculus to make them think an investment here will pay off more than an investment in California.

  15. Cory Allen Heidelberger Post author | 2020-12-16

    Jerry plugs our insular, small-town culture into the investor equation. Our one-party regime, the clubbiness of the Pierre and Sioux Falls powers that be, and our prevalent beholdenness to going along to get along may inhibit our risk-taking in South Dakota. A state full of entrepreneurs playing it safe to avoid treading on the toes of the Governor and the Mayor and the rich families in town, afraid to start a potentially booming business that would create upward wage pressure on their fellow Chamber and Kiwanis members, may not offer as many bold return-on-investment opportunities as the big markets in California, New York, and Massachusetts, where there are lots of competing political and economic interests and surviving economically depends on taking chances.

  16. John Dale 2020-12-16

    What is at issue for me is access to high risk capital to bring new ideas to life, but in the hands of small business.

    Large corporations are not nimble enough to actualize the potential of many inventions.

  17. Cory Allen Heidelberger Post author | 2020-12-16

    And Mark, does the Bill Janklow economy of usury and trusts contribute to lots of widespread entrepreneurship and wealth in South Dakota? Or does it just keep the underclass employed while concentrating more money and power among the ruling elites?

  18. grudznick 2020-12-16

    Are you fellows saying the ruling elites are all in the Kiwanis? I have always suspected as much, for I had a neighbor who wore one of those funny hats in parades and he said they ruled our town from their secret meetings. Damn Kiwanis.

  19. DaveFN 2020-12-16

    “Large corporations are not nimble enough to actualize the potential of may inventions,” says John Dale.

    He must be totally unaware of the chemical industry. In 2019, the revenue of the chemical industry in the United States was about 530.3 billion U.S. dollars.

    It’s a highly diverse industry when it comes to innovation: pharmaceutical industries continually require new drugs in the pipeline as patent rights are limited to 20 years and must continually innovate (and many of us maintain they even invent new disease conditions to justify the development of new pharmaceuticals), while major plastics companies such as GE Plastics (now owned by SABIC) don’t rely on innovation since global demand for their major products such as BPA-PC (polycarbonate) greatly exceeds supply.

    So I wouldn’t overgeneralize, Mr. Dale, with that simplistic “nimble” rhetoric so popular among short-term thinkers who have no idea the revenue from the longer term.

    No major chemical company is coming or ever will come to South Dakota, of course. Shipping costs to major metropolitan areas from the heartland of South Dakota add too much to the cost of the final product.

  20. jerry 2020-12-16

    Go into a rural town and tell them that you plan on putting a business in. You will need curb and gutter, a sewer system and a road to your business and road improvement overall. Then tell them all of this will increase their property values, hence, property taxes. See how far that flatulence will go. Oh, and tell them they will have to clean up the vacant, derelict lots for more giggles. Ain’t gonna happen, no matter what Vlad says. Mark Stern tried it, you can go to these rural places, drive around and see how well it worked. Good news though, you might find a hubcap to a 50′ Mercury. Won’t be for sale though and there is always someone watching over their junk.

  21. o 2020-12-16

    I suppose this is the logical double-down on refusing those states their popular representation, condemning their ways, then draining their wealth to shore up our economic shortcomings.

    Part of me is surprised there was an available hearing room with all the election fraud and Hunter Biden investigations going on in the Upper House.

    I am reminded of when Menards was breaking into our local business “family” and word was that they were told to hold the line on low wages — you know, the SD way.

  22. jerry 2020-12-16

    o, Volkswagen was forced to do the same by Vlad Thune’s bro, Senator Corker of Chattanooga, Tennessee. Volkswagen wanted to pay workers the same wage as they pay in Germany and give the same benefits. Can’t do that you know, keep the working man poor and benevolent. So they put an end to that. If allowed, all the car manufacturing plants in the south would have to raise the pay. Okay for white boys but not for blacks and browns.

    Reservations could be economic impact zones, can’t have an Indian making a living while the rest of the crew is not. Vlad Thune knows this too. He is just tall, that’s all.

  23. jerry 2020-12-17

    Meanwhile, the trump recession marches on. Herd immunity means herd unemployment and hunger, typical Vladimir Thune economic planning.

    “The number of Americans filing initial claims for unemployment insurance remained high last week, the Labor Department reported Thursday. After dropping earlier in the fall, claims have moved higher, and they remain at levels that dwarf the pace of past recessions.

    There were 935,000 new claims for state benefits, compared with 956,000 the previous week, while 455,000 filed for Pandemic Unemployment Assistance, a federally funded program for part-time workers, the self-employed and others ordinarily ineligible for jobless benefits.”

  24. Mark Anderson 2020-12-17

    Cory, Janklow made trillions and trillions for the upper class who moved their operations to Sioux Falls. Its hit or miss, other states followed and just check out student loans. The Republicans seem to represent rural America now, but its hard to see how they do.

  25. mike from iowa 2020-12-17

    Marlboro Barbie speaketh (from the Hill)….
    Top GOP senator warns of potential for brief shutdown
    BY JORDAIN CARNEY – 12/17/20 04:16 PM EST 303

    Senate Majority Whip John Thune (R-S.D.) warned on Thursday that the government could briefly shut down over the weekend as talks over a sweeping deal to pass funding and provide coronavirus relief drag on.

    Asked about needing a days-long continuing resolution (CR) to keep the government funded past Friday night as talks continue, Thune indicated senators could block that from happening if leaders don’t have a larger deal in hand.

    “I mean I’ve already — I know people who are gonna object to that, that want to keep pressure on the process until we get a deal,” he said.

    “So, it would take consent obviously to do a short term CR,” Thune added.

  26. John 2020-12-17

    The US taxes paid by those “evil” coastal states fund much of the SD budget and her farm subsidies. (Frankly, it may be less expensive to make farmers federal employees.)

    If South Dakota, or another flyover back water were so “innovative” then why didn’t they invent the “Tractor of the Year”? SD, etc., can’t because it (they) hasn’t and won’t invest in education.

    The 4th industrial revolution will further take people off of farms, and then take students out of rural schools, and then take folks out of rural towns. It might be time to do here what the US did with its too many and excessive military interventions — break up the large land holdings to reinvigorate the rural and national economy. Let the howling begin.

    Remember, it takes a mere 11 of >3000 US counties to win the Electoral College and none are in flyover country. The days of the old republicant policies supporting the gilded age are over. Godspeed the coastal counties that support our economy. Republicants will go extinct if they do not completely over-haul their policies and practices. They are so policy bankrupt that trump had no policies in his failed re-election bid.

  27. Cory Allen Heidelberger Post author | 2020-12-18

    Dave FN mentions shipping costs. For global players, access to literal ships is vital. South Dakota is as far away from ships as one can be in North America. Minnesota has an advantage with its international port at Duluth. More broadband is good, but maybe we need a canal to Lake Superior.

    We could probably afford to dig that great ditch to Duluth if we diverted all those farm subsidies from Kristi’s family and the other tax favors John mentions.

  28. Cory Allen Heidelberger Post author | 2020-12-18

    John’s link to Monarch’s all-electric tractor includes two words that should strike fear in the hearts of every South Dakota small-town Main Streeter: “driver optional.” Ag corporations won’t even need people to come to South Dakota to mass-produce their commodity crops.

  29. jerry 2020-12-18

    Vladimir Thune is a lying sack of horse do do. Here is the latest from Dear John.

    “”Republicans were working to limit the power of the Federal Reserve to provide credit to businesses, municipalities or other institutions in the future, both by rescinding money earmarked to support Fed lending programs and preventing the central bank from restarting them using different funds.” New York Times 12.18.20

    republicans, in general, hate the idea of a successful country. They prefer the chaos of broken dreams and destroyed business. They are the anti-christ of democracy.

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