Dear 2015: The Great Wall of Venture Capital

Adedayo Aderibigbe
Senior Consultant, Morris Strategy Group

This blog post is a response to the Dear 2015 group blogging event prompt: The year is 2050. Write a letter to the people of 2015 describing what your city is like, and give them advice on the next 35 years. For more responses, see the Dear 2015 Event Page.

 

Take a trip to the Bay Area in California, and you find beautiful weather with outdoor activities for locals and visitors alike to enjoy. On the other hand (or coast, if you like), visit Boston or New York and you find yourself emerged in a concrete jungle of culture, good food, and entertainment. Besides being great places to live and play, what do these places have in common?

Well, when it comes to entrepreneurship, these places constitute the majority of deals, and a staggering 58% of total investment dollars. This is no surprise as entrepreneurs have been moving into these areas since the early 2000s, searching for the next hot investments in industries such as biotechnology, fin tech, and consumer technology, among others. Often entrepreneurs need this startup capital in order to fuel growth or to fund expansion, so the ecosystems in these markets are critical.

So why aren’t entrepreneurship hubs opening up in cities such as Atlanta, where a low cost of living, educated population, and access to talent is available? The reason is because venture capitalists like to be close to their investments. It is found that entrepreneurs who raised capital in places more than 25 miles away were forced to raise less capital, in shorter duration, than those with nearby investors. Though this may seem like an anomaly in the digital age, it has its reasons. For one, there are beds of tech and engineering talent in these major areas, and often people move between opportunities in the same locale to take advantage of up and coming tech upstarts in the area. Furthermore, getting a venture funder is no easy task, so entrepreneurs who want to finance their investments often choose to be in areas where they can easily meet and pitch ideas to numerous investors.

Although this is the current trend, city leaders in 2015 can break down what I would call the “Great Wall of Venture Capital,” or in other words the localization of funding to traditional major markets such as San Francisco, New York City, and Boston. One way can be an increase in crowdfunding investment sources, reducing the dependence on venture funding for pushing a company forward. Cities can allocate capital to startup funds that could aim to solve urban problems in an area of particular interest to its constituents, thus attracting entrepreneurs to solve these problems. Next, cities can be more active in marketing and publicizing their current entrepreneurship scene, no matter how small. Investors are always looking for the next big scene, and a chance to get into a market where there is a growing investment community may appeal to investors looking to make the jump to markets with favorable tax purposes or lower costs of living. Yet another way cities can make their areas more attractive to investment is by developing close relationships between established city industries and technology upstarts. Lastly, cities can promote the development of accelerators that will help entrepreneurs who need a launching pad to get their ideas off the ground but are not yet ready for funding.

Overall, dear leaders of 2015, the landscape is changing. We cannot allow ourselves to be constrained by the geographical limits of the past in a world that is becoming increasingly digital. The next entrepreneur who comes up with a great idea in his Atlanta backyard should not have to pack his or her bags for the West Coast. Digital and support networks – supported by cities – should allow them to flourish and grow exactly where they are.
 

About The Author: Adedayo Aderibigbe is a Senior Consultant at Morris Strategy Group where he leads the firms operational strategy. He is currently pursuing his M.B.A. at the Wharton School of Business where he majors in Finance & Strategy. Most recently Adedayo worked at Google as a Summer Associate in the Consumer Operations Group.