Saturday, July 04, 2009
A study about the geography of American Venture Capital by Henry Chen and altri posted in the SSRN network finds both expected and unexpected results.
The expected ones portray that american VC prefer to invest in States and in the traditional zones that have a proven record (SF, San Jose, Boston and NY.
However, they also find that the most successful investments are the ones made outside their one zone.
The explanation is probably very simple, the screening is tougher for the ones that are outside the area where they can control regularly.
That boils down to what my Finance teacher told me in NY more than 25 years ago: if you are a foreigner here, the rules are simple, just work twice as hard and expect half. He was from Iran, flew to NY trying to escape the Ayatollah revolution. I must say that most of my life I followed this advice, sometimes it worked, others didn't but recognizing that you are at a disadvantage is the first step to cover for it.
This is probably what the startups outside these regions do, and this is why it works. Somehow again this transmission between personal and organizational behavior seems to be not only an explanatory mechanism but one that works.