Why I Still Love Silicon Valley

Every day, I read about another venture firm that won’t touch Silicon Valley. This is a mistake.

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As VC’s and angels, we have one goal: invest in the next Uber. Or Snowflake. Or Google.

Of the 100 largest tech companies on earth by market cap, 61 are in the US. Of that 61, 35 are in the San Francisco Bay Area.

That’s 57% of US tech giants.

It’s great to look at startups in many cities. But if most of what you’re looking for is found in City A, you have to look in City A as well.

This is especially true now that valuations for Silicon Valley startups have fallen. From a new report in The Wall Street Journal:

One of the biggest drivers of investing far from a venture investor’s base has always been the search for places where there was less competition for deals, said Olav Sorenson, faculty director of the Price Center for Entrepreneurship and Innovation at the UCLA Anderson School of Management.

 “The number of people writing checks right now in Silicon Valley has gone down,” Dr. Sorenson said, adding, “For those who are still investing, it makes it more attractive to stay local.”

I have 19 investments and I’m finalizing a 20th now. 8 are based in the Bay Area, or 40%.

This is below the historical representation of the Bay among megacorps. That makes sense because post-COVID, companies have spread out more.

I suspect the trend of VC’s avoiding the Valley is driven by marketing. A venture fund has to distinguish itself from others in order to raise money.

One way to do that is say “You know that place where most of the great companies are? We’re actually not going to look there.”

It may help you raise money. But I doubt it will help you get a return on that money.

This doesn’t mean founders need to be in the Bay. Show me any company in a huge market with rapidly growing revenue and a great product, and I don’t care if it’s in San Francisco or Sandersville, Mississippi.

In fact, I think the best place to build is a small town. It lowers your burn, especially critical in a down market.

You can supplement that with fundraising trips to Silicon Valley. Most investors are still there.

As for me, I’m going to keep investing nationwide. Only a big net will catch a big fish.

What do you think of Silicon Valley startups? Leave a comment and let us know!

The next blog will be on Tuesday, April 11. I’m taking off for Good Friday tomorrow, and on Monday I have an acting gig! 🙂

Have a wonderful Easter weekend everyone! 🐇

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