More Venture Capital vs More Local Venture Capital

One of the commonly repeated phrases by city leaders is that we need more venture capital in the region. Partly, the statement is conflating the desire for more money to come to the region (presumably from the limited partners in the fund that invests) with the desire for more of the financing in successful local startups to be local money (e.g. local VCs are more likely to have local limited partners). So, a) we want more successful startups, b) we want more venture capital, and c) we want the venture capital to be local, if possible, so that more of the proceeds from the winners stay local.

Here are a few thoughts on more venture capital vs more local venture capital:

  • More venture capital, in general, will come with more successful startups (entrepreneurs need to come before the money comes)
  • Venture capitalists can be shown good startups in a region, but they’re only going to invest if they believe that a startup is going to deliver the best return compared to all other startups evaluated (e.g. if a VC from California invests in a startup in Atlanta, it’s because the Atlanta startup is going to make them more money than the startups they looked at in California)
  • Local venture capital is going to be smaller dollar amounts as firms build up their track records, and only after many years (decades?) of success, will local firms be able to raise and invest the much larger sums we’re seeing growth and late stage startups raise

Wanting more venture capital invested in a region is different from wanting more local venture capitalists. Regardless, both will happen with more successful startups and outsized returns from investments in those startups. More venture capital starts with more success stories.

What else? What are some more thoughts on more venture capital vs more local venture capital?

One thought on “More Venture Capital vs More Local Venture Capital

  1. Austin is finally reaching a tipping point at which, instead of our founders having to beg for attention from west coast money, that money is knocking on our door. It’s not where it needs to be, but it’s moving in that direction. To me, there are 2 reasons why I’m glad to see not just more money, but more OUTSIDE money (especially California), in Austin: (1) it brings a different culture with it, and (2) it’s detached from local tech politics.

    While early-stage capital here is becoming increasingly less scarce, particularly as large VCs break up and form faster-moving “boutique” VCs, there is still a significant “VC as celebrity” culture – meaning that VCs are accustomed to being the highly demanded product in very short supply, and they act accordingly. California VCs, on the other hand, have a massively different mindset. They’re accustomed to competing with each other for good deals (more supply in CA) and therefore have a much more “value add” (what I can I do for YOU) attitude. Every ecosystem needs more of that.

    Secondly, it’s a sad reality that in every small ecosystem there are power players who use their influence to maintain a tight lock on deal flow. People that, even if you don’t like them, even if they’re complete a**holes and add nothing to your company, they expect you to kiss the brass ring for “access.” As ecosystems grow, the grip those players have is loosened – but nothing loosens it more quickly than outsiders who can write big checks without caring at all about local influencers.

    Great blog. Cheers from Austin.

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