Why Geography Matters in Venture Capital

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My colleague Scott Lenet writes that sector, stage and geography are the three “pillars” of venture capital strategy. When entrepreneurs or other VCs ask, “what’s your investment strategy?” they most often are referring to these three decisions.

In our experience, most of these discussions focus on what industries to fund (i.e., sectors) and the maturity of the startups (i.e., stage), but geography seems to be the least discussed of the strategy pillars. However, geography plays an integral role in shaping a venture capital fund’s strategy and warrants focused examination.

Geography defines where startups you fund can be located. The main question regarding geographic focus is whether your portfolio companies need to be located nearby, or whether it is okay to fund startups globally. As Scott notes in 14 Points “some funds have a prohibition against international investments, for example, while others prefer to invest in companies that are located within a one-hour plane flight, to ensure a close relationship.” While it’s common for VCs to say that they invest in best-of-breed companies, no matter where they are located, is this a realistic approach for all funds?

Here are four considerations for local versus global investing: 1) sector, 2) stage, 3) monitoring & managing, and 4) community relations.

1. Geographic dependencies by sector

2. Geographic dependencies by stage

3. Geographic dependencies related to managing investments

4. Geographic dependencies on community relations

While geography seems basic, it’s a key part of any venture capital strategy and warrants a deliberate and thoughtful approach.

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Dean Drizin is a Senior Associate at Touchdown Ventures, a Registered Investment Adviser that provides “Venture Capital as a Service” to help corporations launch and manage their investment programs.

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