As coronavirus keeps offices closed, wealthy venture capitalists are moving out of apartments in San Francisco and New York and decamping to other vacation-friendly zip codes. In San Francisco, a city known for high housing costs, rates for a one-bedroom apartment have dropped 9% from a year ago.
As one investor said to me the other day: Will Lake Tahoe’s seed ecosystem have a resurgence?
Bourgeois bunker jokes aside, this new redistribution of investors could create some interesting — and perhaps more inclusive — changes in the way venture-backed businesses are funded.
If the wealthy are no longer a quick drive from San Francisco, are they more open to doing remote investments? Or will the newly distributed investors put their money where their mailing address is? The permanent change is contingent on if, nor when, the world reopens, but for now let’s get into the first wave of reactions.
Matchstick Ventures’ Natty Zola said most investors fall into two buckets: A crowd that only invests in their backyard, and those who are explicitly all-in on certain geographies outside their home base. Then, the coronavirus hit and everyone went remote.
For a firm like Zola’s, which invests in Minneapolis and Denver, the remote wave could mean a rush of generalist investors who are newly considering dipping their toes in the smallish ponds that Matchstick focuses on.
Zola says he welcomes competition; Matchstick manages around $37 million in venture capital, so it needs to co-invest with larger coastal firms.
The real buzz has come from limited partners, said Zola. When Matchstick was raising its first fund, it met with more than 450 investors. The conversation with institutional investors has gotten easier since.
“When you’re on the ground in these markets, they see the energy for them,” Zola said. “For coastal LPs, or non-Rockies LPs, there was more of an education.” Zola said the LP markets are quickly catching up to the VC market with interest in growing startup hubs.
Collin Gutman, the managing partner of Maryland-based SaaS Ventures, says that VCs aren’t going remote and most firms are still taking in-person meetings, “just outdoors instead of a coffee shop.”
“Even the VCs who have moved to a more remote model are [not] investing in new geographies, and therefore not creating more second tier competition. This is because VCs are still sourcing through their own networks. If you’re an SF-based fund with SF-based founders and SF-based friends, your referral sources are all in SF. If you’re in Seattle and used to sourcing deals through four accelerators’ demo days or two coworking spaces, you’re still doing those same demo days, just over Zoom, and holding office hours over Zoom,” Gutman said.
It’s good news for Saas Ventures, which says its “sweet spot remains” in investing in secondary startup hubs like Salt Lake City, Lincoln, and Green Bay.
Menlo Park and New York weigh in
Investors in New York and the Bay Area said they agree that the out-migration of investors from traditional could impact funding trends.
Richard Kerby, a partner at New York-based Equal Ventures, isn’t yet rushing to invest in international companies due to the switch to remote. Instead, he’s sticking to startups in North America.
More broadly, Kerby says more distributed firms will invest in areas outside of San Francisco, New York, Los Angeles and Boston. The move might also trickle down to their portfolio companies, too.
“COVID has accelerated the need for investors to be okay with remote [or] distributed teams. It has forced companies that had not previously operated in a distributed fashion to learn how to do it,” he said. Kerby, who says Equal was a fan of distributed workforce before COVID-19, is convincing portfolio companies to have teams in multiple locations as an advantage and cost-saver.
Deena Shakir, a partner at Lux Capital, which has offices in New York and Menlo Park, said the traditional notion of venture staying in secret circles is set to change.
“In venture, there has been this notion of secret circles, clubs, niches and cliques,” she said. “The absence of that happening physically is an opportunity to be more inclusive, and if they aren’t, there’s no excuse.”
Shakir pointed to Clubhouse, a new buzzy app loved by investors, as a way of convening smart people across tech, Hollywood, government, nonprofit, criminal justice reform and other groups. The app is currently invite-only.
“There is something about the fact that we are all confined within the four walls of our own homes that has, in a way, enabled us to transcend the physical barriers that may have previously served to exclude us,” she wrote in an email.
Alex Rosen of Ridge Ventures said the VC exodus is more broad than most realize. In his portfolio, many founders are shifting their home bases in response to COVID-19. Two companies permanently moved their entire staff to another state, a CEO moved to another state and many companies have frozen hiring in the Bay Area and are now hiring outside of the Bay Area only.
As for the vacation home front? Both VCs and founders are working in vacation homes in Tahoe, Napa and Colorado, Rosen noted.
Comment