Mailbag: Silicon Valley Isn’t the Only Place to Find Startup Investments

Q: Are all the good investments in Silicon Valley?

A: No, not at all. Great startups can come from anywhere. But Silicon Valley produces more of them than anywhere else. And it’s no accident that the majority (20 out of 35) of the newest American unicorns (companies worth at least $1 billion) are based in the San Francisco Bay Area. It’s where most of the most successful venture capital (VC) firms operate, from Andreessen Horowitz to Kleiner Perkins to Benchmark to Sequoia. They’re part of Silicon Valley’s uniquely incredible startup infrastructure made up of talented coders, software engineers, and current and former billionaire and multimillionaire entrepreneurs.

A startup that scores an investment from one of these VC firms can access the firm’s network of technologists, marketers, financiers, supply chain experts and growth hackers.

A VC investment doesn’t guarantee success. (The majority of the startups these uber-successful firms invest in fail… or fall short of spectacular unicorn-like success – which is almost as bad.) But the Silicon Valley ecosystem does give startups a nice leg up on startups outside of the Bay Area.

Now, having said that…

I believe Silicon Valley is overrated. It puts too much emphasis on hypergrowth as opposed to smart growth that’s less dependent on huge dollar spends. Its advice and expertise comes with an obligation to listen and obey. And that’s increasingly becoming a point of contention. The consulting and technology firm Accordion surveyed 200 private-equity executives and portfolio company finance chiefs. Among the private-equity professionals surveyed by Accordion, 92% said they believe they are living up to the expectations of their portfolio company CFOs. But just 29% of the 100 CFOs in the survey agree. That’s one heck of a disconnect between the helpers and the helped.

Tobias Lütke, the CEO of Shopify, is not impressed with Silicon Valley either. Lütke says the costly fight for talent and property there is “one of the most pure examples of groupthink gone wrong.” He has a point. I’ve visited startups there that operate out of offices the size of broom closets. They simply can’t afford anything bigger.

Silicon Valley is in danger of losing its allure. Other tech hubs are expanding their startup ecosystems in impressive ways. Boston, Seattle, San Diego, New York City, Los Angeles and other urban centers offer a scaled-down version of what Silicon Valley does, but at half to a tenth of the cost.

And some of the biggest and most profitable startups are emerging in far-off countries like China and India. Both countries have huge populations of young people who are natural early adopters and love their smartphones and mobile apps.

So when I’m evaluating a startup, I really don’t pay much attention to its location. A great startup is a great startup. Traction, viral growth, a vibrant pipeline of customers… these things play wherever they’re located. The startups in our First Stage Investor portfolio come from all four corners of the country (plus a couple from Europe). I’d estimate about a quarter or so come from Silicon Valley.

Silicon Valley still offers unique advantages. It’s a long way from falling to the back of the pack. But it’s not the promised land either (if it ever was).

+ Early Investing Co-Founder Andy Gordon

Q: I’m new to startup investing. Where can I look for deals?

A: Since startup investing was opened up to everyone in the U.S. back in May 2016, the number and quality of deals have increased steadily.

Today there are more than 50 unique equity crowdfunding deals open for investment at any given time.

Here are some of the equity crowdfunding portals we look at on a regular basis.

When you’re starting out, I recommend simply looking at deals for a while. Look at how much “traction” (progress) a company has made and take note of the company’s “valuation” (the price you’re paying for equity). Be sure to check out the Q&A section and see how the founders interact with potential investors. You can learn a lot there.

When you’re ready to start funding some startups, invest small amounts at first. Minimums typically go as low as $50, with the most common number being $100. These low minimum investments allow you to diversify into a larger number of opportunities. Take advantage of it. The more quality deals you invest in, the better your chances at hitting a big winner.

+ Adam Sharp, Co-Founder, Early Investing