One of the biggest obstacles for new entrepreneurs is a lack of access to capital. When startups have trouble meeting investors, it can be tempting for entrepreneurs to focus on the lack of venture capitalists in the area as the problem. Founders may feel pressure to migrate to well-known entrepreneurial epicenters – like Boston or the Bay Area – to achieve the funding necessary.
With San Francisco, San Jose, Boston, New York, Los Angeles, and San Diego accounting for almost 45% of the global venture investment, this reaction may initially seem well-founded. What startups may not realize, however, is that regionally-focused investments by venture capitalists are rapidly becoming obsolete.
Most successful venture capitalists do not select companies to invest in based on proximity. As Brad Treat, regional business mentor and Entrepreneur in Residence at the Southern Tier Startup Alliance puts it, “moving to be close to investors is like opening your business next to a bank because you took out a loan there.”
With lightning-fast connection speeds and improved technology for secure transactions, there is no longer a need for companies to be geographically close to investors to get capital. Instead, what matters is understanding how venture capitalists think and connecting with the right firms or funds.
One current investing trend for venture capitalists is investment in industry verticals. Industry verticals can be thought of as traffic lanes in a multilane highway. Each investor has a lane, or niche, that s/he is an expert in and most of his/her investments occur in that niche. The investor aims to stay in their lane, but if there is a particularly large gap in a lane adjacent, the investor may briefly shift lanes and take advantage of an exceptionally promising startup. This is one reason that landing venture capital relies more on finding the right investor than finding the closest investor.
The Southern Tier is a perfect example of this. Local startups in New York State have received funding from places all over the country, and the world. From Dow Venture Capital in Zürich, Switzerland, to Cayuga Venture Fund (CVF) right here in Ithaca, New York, Southern Tier companies are proving that you don’t have to live in Palo Alto to get funded by investors like STIC International and Draper Fisher Jurvetson (DFJ).
Even though location is not a large determinant of funding, location and access to resources are critical for the growth of a startup. “The Southern Tier is a great place to grow a startup company. Our startup ecosystem has evolved dramatically over the past 15 years – there’s palpable energy and buzz. [I see] great investment opportunities, and we are delighted to be based here in Ithaca,” said Zach Shulman, Managing Partner at CVF.
With around 800 venture capital firms in the United States, there are investors interested in every industry vertical. Whether a startup specializes in sustainable ag-tech or food and beverage, there is an investor interested – the challenge is finding him/her. As specific challenges in finding investing are identified, there are innovators stepping into these gaps – including when it comes to improving gender equity in startup investments.
“We are working to increase both the pipeline of women investors and the number of funded women founders. We believe that startups will build a better future for everyone if there are more diverse voices at the table” Miller-Out says. Firms like this mean even broader resources in the region for more entrepreneurs to access.
With so many investors out there, how is a startup to choose the right fit for a pitch? Many venture capital firms will opt to hear pitches from startups entirely unrelated to their investment portfolio, not necessarily to diversify their investments, but instead to stay updated on industries outside of their own. Listening to pitches about the newest potential products is one of the best ways for investors to remain relevant.
For the startups pitching, however, preparing for and presenting to investors that have no intention to enter the market the company inhabits costs a great deal of time that would be better spent elsewhere. This is why understanding the investor and his/her investing habits is critical for entrepreneurs. Navigating investor channels can be incredibly difficult for a first-time entrepreneur, and it can take up a great deal of time – an entrepreneur’s most valuable resource.
Luckily, the Southern Tier has systems in place to help entrepreneurs understand which investors are right for them and to become comfortable with pitching their ideas before meeting with them. Our six partner incubators are working to create an ecosystem with experienced mentors to educate startups and connect members with compatible investors. Working with STSA mentors can help you navigate the ecosystem more quickly and effectively, saving precious time and energy for your startup.
If you’re interested in receiving advice and connecting with members of the startup community, be sure to check out upcoming regional events as well as Networking@Rev events. You may just meet someone that can help get your company off the ground, and into the market.