Posts Tagged: Silicon Valley
If we look back ten years, the venture world was quite different. Investors weren’t too keen on investing out of town. And given the fact that the majority of top investors were congregated around Silicon Valley, many entrepreneurs felt compelled to move to the valley to start their business. It was much harder for a “remote” company in the Mid West, Europe, or Canada to draw any attention to themselves.
I’m less interested in the regional differences than I am in the fact that it’s now possible to build very large, global businesses from anywhere in the world…The Internet is global. Geography is no longer the destiny it used to be.
And what is true for start-ups is also true for venture capital firms. The Internet has disrupted traditional geographic barriers for venture capital in the same way and world-class investors are emerging outside of Silicon Valley.
Look global and local
What does this new dynamic mean for today’s start-up seeking funding? In short, you’re going to want to look for the best funding partner (or collection of partners) possible, rather than just focusing locally.
Many firms have developed specific areas of focus and these type of investors can be extremely helpful in strategic matters. For example, NYC-based Union Square Ventures has built up the most experience around “large networks of engaged users”; Berlin-based Point Nine Capital is one of the strongest early-stage SaaS investors; and version one ventures probably has more marketplace investments than most seed funds.
Thesis-driven investors, like USV or version one, can be instrumental in helping you navigate questions like product roadmap or fundraising because they work with similar start-ups in your space and really understand the area.
Likewise, local investors are usually better positioned to provide more hands-on help. One of the biggest advantages here is in hiring: you can pull from their local network and local investors can even interview key hires in person. At the end of the day, you’ll want to find the best partner(s) that meets your specific needs and situation. In some cases, this is local; in others, it’s a remote expert; or a mix of both.
One final word of caution: if you’re going to go with out-of-town investors, you’ll want to see that they have already made investments outside of their own location, so you know they can communicate and operate well virtually (and are willing to travel to their portfolio companies). In other words, you don’t want to be the trial run for a remote investment.
N.B.: AngelList is a great way to identify investors that might be a good fit for you but it is probably not yet the best way to pitch and close them. Getting warm introduction from a trusted source still has a much higher likelyhood for conversion that simply sending messages on AngelList.
- How the Internet changed the venture capital landscape: Albert Wenger (business.financialpost.com)
- Union Square Ventures is back in Berlin: $7m Series B for THE Football App (venturevillage.eu)
A big part of Silicon Valley’s success as a startup ecosystem can be linked to a continuous recycling of capital: entrepreneurs who made made money selling their company become angels, angel investors and VCs take profits from one deal and invest those in more deals. With tech ecosystems getting more and more important in places outside of the Valley, one can observe the same trends around the “recycyling of capital“: NYC now has a very strong base of entrepreneurs-turned-angels, an increasing amount of early-stage investors out of Seattle have made their money at Amazon, and you see Ryan Holmes (Hootsuite), Jason Bailey or Markus Frind (Plentyoffish) in many of the Vancouver angel deals.
The same trend happens on an institutional investor basis. Founders’ Collective and Social+Capital were both started and financed by groups of successful entrepreneurs and my own Version One Ventures is backed by over a dozen successful Canadian and US entrepreneurs, including some of the above mentioned.
Tech entrepreneurs are often in the best position to invest in other startups as they understand startup life, the product and the market. This was the investment thesis I started my angel investor career with after the exit to Amazon and I think I have done much better by investing in startups than putting my money in real estate, bonds or stocks.
Re-investing capital into startups is what keeps ecosystems going and I hope that we will see even more of this outside of the Valley and NYC.
There is a PayPal mafia, a Facebook mafia and a Twitter mafia, all powerful networks of entrepreneurs and investors based in the Valley. And now there is a really strong “Canadian mafia” emerging. It started to formalize with the launch of the C100 a few years ago. The organization is comprised of a select group of mostly Silicon Valley-based Canadian entrepreneurs, technology executives and VC’s and has launched some amazing programs like “48 Hours in the Valley” or the “Canada CEO tech summit“. But even more importantly, the Canadian angle is starting to open doors in all sorts of places.
I spent the past month in the Bay Area and found that one of the most successful ways to get into a specific organization is to find out if there is any Canadian connection. And interestingly enough, there are Canadians (or people with a connection to Canada) sitting almost everywhere. You can find them in the big Internet companies like Google, Apple or Facebook; you can find them in major tech blogs and among conference organizers; you can find them among VC’s or super-angels. And Canadians are actually starting to talk about a Canadian mafia and feeling proud about being part of this emerging community.
So the next time you are trying to get that important meeting, try the Canadian angle – it might be the most powerful way to break into the Valley.
- ‘PayPal Mafia’ Gets Richer (businessweek.com)
- The “Twitter Mafia” Poised to be Silicon Valley’s Next Great Network (techcrunch.com)
- Whither the Facebook Mafia? (betabeat.com)
When Bessemer Venture Partners recently published their map of major cloud players, I was surprised to see so many Canadian companies on there. Shopify, TribeHR, Unbounce, Clio, Hootsuite, Radian6 and Freshbooks made the list and a few others (like Wave Accounting) probably should have been on there as well. So why are Canadian companies so much better represented in SaaS than in consumer internet? I can mainly see two reasons for that:
- SaaS companies (like e-commerce companies) have a much easier time to monetize their product than most consumer internet plays as monetization doesn’t depend on scale like every ad driven monetization. This means that those companies require way less funding and most of them can be built on smaller seed and angel rounds which is ideal for the sometimes restrictive funding environment we face in Canada. Unbounce, a company I recently invested in, even bootstrapped their business to thousands of paying customers before they took funding to scale their business.
- The second reason is linked to sales & marketing. Traditionally, purchasing decisions for enterprise software were driven by IT departments which translates into a lengthly and costly sales process favouring those software companies that have the strongest relationships into the decision makers at the buyer. Geographical proximity plays a large role in building those relationships which in turn makes it very hard to build large enterprise software companies outside of the Silicon Valley. SaaS starts to remove IT from the purchasing process, meaning the user and the buyer are, increasingly, the same person – the product quality is now much more important than relationships and the chances of building a big SaaS company anywhere in the world have increased dramatically.
- New investment: SilkStart, SaaS for membership organizations (wmediaventures.com)
- Forrester: SaaS Providers Should Go Vertical (devx.com)
- Why Human Resources Software Start-Ups Are On Cloud 9 (blogs.wsj.com)
The products of start-ups sometimes evolve so quickly that the communication of those changes falls behind – websites suddenly appear outdated and stale compared to the real story. This is how I felt when I looked at the w media ventures site a few weeks ago and decided that it was about time for a relaunch. w media had changed in quite a few ways over the past couple of years and the website was still telling a different story:
- While I was exclusively focused on consumer internet companies when I started in 2007, this focus has expanded to SaaS (GoInstant) and mobile (Flurry, Kima Labs, Rewardloop) start-ups since.
- A similar expansion happend in the geographical focus. While I originally only invested in the Pacific Northwest and Western Canada, 5 of my last 6 investments were either based in Eastern Canada, New York or the Silicon Valley.
- What has stayed the same is the focus on investing in passionate entrepreneurs with deep domain knowledge, great product and design instincts and a desire to change the world.