- Short Description
- Focus on a Geo is when a VC invests in companies headquartered in the same area. When you have an explicit regional focus, it is easier to understand which deals to send you. Governments, philanthropies, or local enterprises are often LPs in these VCs. It is worth contrasting an explicit geo focus sourcing approach with two others:
- Place-Based Investing is a multi-asset strategy for impact in a particular place. This approach often includes real estate, lending, and small business investing. Venture capital is only a part of what this kind of investor does. Place-Based Investing is a strategic and holistic ethos for an investor, not just a sourcing strategy.
- An implicit geo focus on companies near your office. For example, Silicon Valley VCs have de facto invested in companies within an easy drive. (Although some do mention it as a screen criterion, not a sourcing strategy.)
- Focus on a Geo is when a VC invests in companies headquartered in the same area. When you have an explicit regional focus, it is easier to understand which deals to send you. Governments, philanthropies, or local enterprises are often LPs in these VCs. It is worth contrasting an explicit geo focus sourcing approach with two others:
- Benefits:
- Ground Floor: If you are early to focus on an overlooked region that takes off, you can be in a valuable position. A focus on an overlooked region can provide a valuation advantage, as well. And it can also increase brand-building and win-rate.
- Clear Focus: With a clear focus, your fund can be top of mind for referrals.
- Reinforces Other Sourcing: The strategy is complimentary with other sourcing strategies.
- Less Travel: Depending on the size of your region of focus, you may have to travel less to meet with companies. But, depending on the region, you may travel more to meet with LPs.
- Repeat Game: With a geographic focus, you have more chances working with the same people. Game theory teaches that repeat play with the same players increases the incentive to cooperate. This can lead to more trust and lower transaction costs. And speed!
- Recruiting: If you focus on the right size region, you can help companies with recruiting by knowing the candidate pool and being known.
- Trade-offs:
- Can Create Stigma: Many of the geographically-focused VCs are government-backed or have a philanthropic motivation. Portfolio companies run the risk of a stigma of not being competitive. You want to avoid other VCs believing that the company is not able to impress other “market-driven” investors.
- Remote Only. How do you handle the increasing numbers of startups that are born “Remote Only” (aka without any offices anywhere)? You may want to be careful to not miss out on these companies.
- Mullet Companies: Alas, not meaning that companies that are “business in the front and party in the rear.” A company may be “headquartered” in the region but have a lot of people or operations elsewhere. So they are short in the front (the HQ) and long in the back (the other offices in another region). It is common to have sales, business dev, and fundraising activity out of the HQ. And then the company will have most of the employees in another country or state. Part of the dynamic can be more access to capital inside the region combined with the high cost and lack of appropriate talent.
- Examples:
