The Wild West of Venture Capital: 4 Ways to Ensure Your Southern Startup Gets Noticed By West Coast VCs

west coast VC

In 2017, $71.9 billion in funding was raised through venture capital, making it a dominant force in the financing of innovative companies and an engine of economic growth. No longer is VC restricted to Silicon Valley, where it famously got its start in funding the likes of Facebook, Apple, Microsoft, and even IBM (yes, VC has been around that long). The expansion of VC into other parts of the country means that startups are no longer forced to set up shop in Silicon Valley in order to secure funding.

However, while VC firms are growing rapidly all over the country, many still lack the breadth, expertise, and deal flow of West Coast firms — getting the backing of a Silicon Valley firm still carries clout. Furthermore, while it is possible to get funding from the west coast even if you don’t make the trek, studies show that VC firms tend to favor local opportunities to invest, at least in the angel and seed rounds, so it takes more for startups to stand out to those Silicon Valley firms.

If you are looking to build your startup outside of the established VC markets of Silicon Valley, New York and Boston, there are a few questions you should consider: 1) How does a southern startup capture the attention of West Coast firms? And 2) When is the appropriate time to reach out to VC firms? We will outline four important steps any startup should consider before looking towards the West for investment.

Step one: Understand your business model

Make sure you have an investor deck that identifies your market fit, consumer base, and your strategy for acquiring customers and making money. Your business model should be scalable and you want to show cash flow. It is best to try and grow the business organically before seeking funding, especially from a West Coast firm.

Lastly, as part of your investor pitch, you should be able to articulate the value that a firm could bring to your company and why you are seeking capital. Are you looking to buy equipment or continue product testing? To build out technical or sales talent on your team?

Step two: Customer acquisition

Any VC firm will be interested in your customer base so it is important to be able to show that you have acquired customers, preferably paying and/or repeat customers. This is assuming you are not in an industry that includes years of testing and FDA approvals prior to introducing the product on the market. Customers are your biggest ally and should be a critical focus of any startup that is identifying their product market fit and optimal business model.

Step three: Network locally

Making local connections is a great way to get incremental feedback on your company as well as help you reach reputable West Coast VC firms. If your network is small or you don’t know where to start, there are several networking events outside of Silicon Valley each year. One of the biggest is South by Southwest (SXSW), a two-week tech conference that takes place in Austin, Texas. There is also Collision Conference in New Orleans; TechCrunch Disrupt NYC; Next Gen Summit NYC; Chicago Venture Summit; FUND Conference; Venture Atlanta Conference; and CED Tech Venture Conference.

Many of these conferences will feature not only local venture capitalists, but investors from all over the country and world. Using these in-person events will often go further than cold emailing Silicon Valley firms yourself. Additionally, build relationships with local entrepreneurs, attorneys, and funds so that you can leverage their networks. Make the most of smaller networking opportunities as well as pitch competitions where you can present your idea.

Step four: Be strategic

Do your homework and understand the business models of West Coast VC firms: how do the partners make money? Research the partners of firms you are interested in and notice any trends or themes in their investments. Also, note the size of the fund. A smaller seed fund will  not be offering as big a check size as a Series A or B focused firm.

Once you have identified a firm, find out how many investments the firm has done and how many they plan to do that year. This will help you determine if and when you can expect investment. It is important to understand what you are looking for in a VC partner before you seek investments and to choose your connections strategically. Lastly, make sure you research their portfolio to ensure the firm has not already made a large investment in your industry/market.

Don’t be discouraged by your lack of proximity to Silicon Valley. There is a recent trend of Silicon Valley firms seeking to invest in companies outside of the Bay area. Look no further then a recent New York Times article called “Silicon Valley is Over, Says Silicon Valley” to see the shift in mentality. Tyson Clark, a General Partner at Google Ventures, said he is targeting the Southeast region precisely because others are not.

“Google Ventures is making an active effort to invest in places where we think most of the Silicon Valley VCs aren’t investing… We are going outside Silicon Valley, and we’ve come to the Southeast in particular, because there’s amazing engineering talent here and an amazing network of universities that provide great technical talent,” he said.

All of this to say, you can certainly get your southern startup noticed outside of the Bay area — with a little patience and lots of hard work.

Earnest Sweat serves as an Investment Manager at a corporate venture capital group. Earnest has a combined ten years of experience in the real estate and technology industries. He currently focuses on the technical and business model due diligence of investment opportunities. Earnest gained portfolio management, venture deal analysis, and financial modeling expertise in stints as an investor-in-residence at Backstage Capital. He is an alum of Columbia University and the Kellogg School of Management.

Ariana Shaffer is a JD candidate at UC Berkeley School of Law. Ariana calls Atlanta home and received her BA from Vanderbilt University.