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Startup Report

This VC's Tips For Startup Fundraising Outside Silicon Valley

There can be real advantages to pursuing investors outside the Bay Area, if only you know where and how to look.

This VC's Tips For Startup Fundraising Outside Silicon Valley

[Photo: irene-kos/iStock]

Building a successful startup outside Silicon Valley has its challenges, but people do it all the time. One of the biggest hurdles is raising early-stage VC money. Since so many investors are clustered in and around the Bay Area, companies that aren't can find themselves struggling to draw their attention.

But the good news is that, once you do, you'll get more runway out of those dollars than your Silicon Valley counterparts will. According to one recent study, the Bay Area is home to the two most expensive cities in the country in which to start a new business. While founders of early-stage startups based in the Valley are struggling to pay exorbitant rents and sky-high salaries, you'll have the relative luxury of a slower burn rate as you continue to scale.

As an investor based outside Silicon Valley, here are a few tips for entrepreneurs attracting VC funds further afield.

1. Make Shopping Local An Asset

Too often, entrepreneurs get narrowly focused on VCs in the Valley without considering the benefits of staying closer to home. That's a mistake. Deliberately seek out a firm—or at least one of the VC partners—that's based in your city or region.

Not only will local investors be more motivated to put dollars to work in their own communities, but a good VC will value the opportunity to regularly meet with you face to face. The best VCs are those who not only fund your operation but who also serve as mentors to guide you in areas like go-to-market strategy and building the right team. There's no substitute for proximity here. Having the ability to meet without hopping on a plane fuels your relationship at a time when you'll need it the most.

2. Go Where Your Competition Isn't

Taking advantage of being a fish in the proverbial smaller pond can help you make long-lasting connections. After all, raising money is as much a relationship game as it is differentiating your business to the VC. If you choose to see it this way, being outside the Bay Area is an advantage, simply because you’re competing with fewer startups for investors' attention.

In a smaller market like Seattle or Portland, where it seems like everyone knows everyone, chances are you and your prospective VC have someone in common. I get hundreds of emails every month from entrepreneurs interested in a meeting, so a recommendation from a shared contact can go a long way toward putting you on my radar and establishing a level of credibility.

Keep in mind that any experienced VC is choosy. Of the 130 or so deals a year I consider in Washington State, I only invest in one or two. And when I’m assessing deals, who you are as an individual is just as important as your company's growth potential. I want to partner with entrepreneurs who have what it takes to listen, build a great team, and power through the highs and lows of building a company. To be sure, most investors will say much the same, but in a smaller market, entrepreneurs have a better chance to demonstrate that they fit that bill.

3. Set The Stage For Later Rounds

As your company matures, your geographic sphere of influence will as well. However fruitful location proves early on, you aren't bound to it forever.

Early in the fundraising process, my colleagues and I will often introduce our portfolio company founders to later-stage VCs outside the Pacific Northwest, including many in Silicon Valley and on the East Coast. It’s important that you nurture those early connections and keep them alive in order to sew the seeds for future funding rounds outside your region.

Plus, closing your initial venture round of capital in a less expensive market will get you much further on your list of milestones, making you that much more attractive to investors in subsequent rounds.

4. Be Smart About Timing

VC funding is cyclical, so plan accordingly. Investors tend to slow down during the summer months, pick up for a bit in the fall, then slacken their pace again in late November through the end of the year. This November and December is an especially rough time to raise funds, with many later-stage unicorns returning to try to raise another round. If fundraising is in your near future, the best step you can take right now is to start getting meetings planned for after the New Year.

But remember that the calendar guidelines are just that—guidelines—they're not hard and fast rules. From my perspective, I’m always networking and interested in meeting great people here in the Pacific Northwest. Consider using those slower periods to set up casual meetings over coffee. The time may not be right for penning a deal, but the time is always right for making new connections.

There are smart, experienced VCs all across the country. Some even argue that working outside Silicon Valley is the smartest move an investor can make. Regardless of who you talk to and how much you're asking for, do your homework, don’t get starry-eyed by only the big names in the game, and attack each meeting as if it's the most important one you've ever had.

Raising money is a process that continually delivers surprises, and the biggest one of all may be where your funding ultimately comes from. The first step is just staying open to that possibility.


Erik Benson is a partner at Voyager Capital. He focuses on market-changing technologies and disruptive business models, concentrating his efforts on working with seed- and early-stage startups.

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