I think every VC firm is looking to in theory increase their % of investments outside the Bay Area.

Look at Accel’s recent post on its unicorn investment in B2B startup UiPath. And Accel’s later-stage SaaS investments in Atlassian (Australia) and Qualtrics (Utah) will be some of their largest successes and multiple-fund-returners:


Accel has made a ton of money — many, many billions — employing this strategy aggressively over the past few years in its later-stage investments. And Accel is as Palo Alto / Bay Area as it gets. They had Facebook set up shop walking distance from their offices in downtown Palo Alto.

The Bay Area is so overheated for startups. Early stage valuations often have nothing to do with fundamentals, Series A and B valuations are often 3x-10x higher than outside the Bay Area, and competition for talent is insane.

The very best opportunities in venture are often bootstrapped or lightly-funded companies outside SF — if they can still scale like traditional Silicon Valley startups. That’s the winning combo for high returns. Room on the cap table, lower prices, and a lot of room for growth. Personally, I’ve invested in many very successful companies from France, Estonia, Portugal, Sweden, U.K., Armenia, etc. for this very reason (in part).

And yet, that’s harder than it sounds:

First, over the past 3–4 years, valuations outside of Silicon Valley have increased and the valuation gap has partially shrunk. Why? Funds outside of the U.S. have also raised mega-funds, and are chasing decacorns, and have evolved into similar fund math to Sand Hill/South Park VCs. Valuation arbitrage still exists outside of Silicon Valley, but it has shrunk in London, Berlin, Paris, Sydney, etc. … and doesn’t exist at all in China or in many cases India.

Second, Silicon Valley is still special. It still attracts many (not all) of the most ambitious. The best of the best. And in fact, this localized benefit has increased as other areas of the world have also grown in tech prominence. The more successful startups there are in Paris, for example … the more many of the best French founders still want to come to SF. Because it compounds. The more great startups, the more customers, the more partners (Google, Salesforce, Facebook, etc. etc.), the more talent in one area … the more the best still want to move there.

So every investor wants the benefits of Silicon Valley without the prices of Silicon Valley. That exists. Boy, I wish I’d invested early in Shopify, Atlassian, Xero, etc. etc.

But it’s more elusive than it sounds.

You can throw a frisbee from any VC office in South Park in SF and hit 50–100 or more truly great startups and entrepreneurs. And find 100 great experienced VPs of Sales, Marketing, Engineering and Product to hire to help you scale.

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