Building and Investing Outside of Silicon Valley

With Ann Bordetsky, Colleen Heidinger, David Hall, and Sejal Shah Gulati

According to the 2022 Carta Equity Report, venture capital (VC) funding continued to see small but steady progression in deals outside Silicon Valley. Ann Bordetsky, partner at NEA, introduced the panel of speakers who are championing tech ecosystems in new locations: Colleen Heidinger, president at 43North in Buffalo; David Hall, managing partner at Rise of the Rest in Washington, DC; and Sejal Shah Gulati, chief growth officer at NOW Corp in Atlanta.

Building new infrastructure

The COVID-19 pandemic caused the emergence of new hubs for talent and technology. Ann pointed out that capital tends to follow these hubs.

The pandemic also acted like an accelerant to policy and government funding, Colleen said. 43North’s original commitment from New York State was annual; now, they’re negotiating a multi-year agreement.

“The pandemic was an accelerant, but the infrastructure for investment organizations has been around for over a decade,” David said. He used 43North and Rise of the Rest as examples: People come to 43North to start a business, and Rise of the Rest introduces founders to investors and works with them to find product-market fit.

The public-private partnership is important for funding and growth, no matter the stage of the company, Sejal said. Universities have also been a great source of ambition in Atlanta. Historically Black colleges and universities (HBCUs) and other universities like Georgia Tech are replicating the partnership between Stanford and Google, for example. “It’s a scalable model that is very exciting. Talent and ambition is everywhere and not exclusively in Silicon Valley.”

How to decide where to build your company

Starting your business where you have a strong support network is key, said Sejal. By leaving Silicon Valley, there’s an opportunity to actually infuse change. “There’s more opportunity to be a big fish in a small pond,” Sejal said. “Anchor yourself where you feel supported and can be your best self to scale the company.”

Anchor yourself where you feel supported and can be your best self to scale the company.
Sejal Shah Gulati
Chief Growth Officer, NOW Corp

“I love the idea of anchoring yourself where the domain expertise lies,” David said. Big tech is heavily concentrated in the Bay Area, but other types of companies are not. If you’re building a consumer packaged goods (CPG) company, for example, Cincinnati might be the best place to understand supply chain and connect with experiential talent.

How to get funding in today’s investor environment

“New types of businesses will be born where the problem is right in front of them, so some businesses need to be born in the middle of the country. There are lots of reasons to be optimistic,” even in a constrained funding environment, said David. “Investors will travel and even invest via Zoom,” he added.

“For founders, every dollar will need to be accounted for,” Colleen said. It’s also key to treat investor relationships with respect, she said. “Keep those relationships alive through good and bad. That’s where investors are going to continue to go: with founders they’ve worked with and where they’ve seen results.”

David added the importance of being known to your investors. Be top of mind when people are talking, whether those people are investors or other founders. “Don’t be shy,” David said. “No one can help if you’re quiet and unknown in the ecosystem.”

“Make trips to the West Coast to cultivate in-person relationships if you can,” Ann said. “People invest in people. If someone is rooting for you, your odds go up.”

People invest in people. If someone is rooting for you, your odds go up.
Ann Bordetsky
Partner, NEA

“You have to dot your I’s and cross your T’s,” Sejal said. “Real business models will prevail. With good basics, you can weather difficult environments.”

Finding support in smaller cities

The great thing about building in smaller regions is the community, the panel agreed. 43North opened a weekly coffee club to connect people. “The grandfathers of the ecosystem want to help and share what they’ve helped build.”
You don’t have to meet everyone, but find the “super connector,” Ann explained, and get to know them really well to unlock their resources.

“If you have a karmic favor, it will typically get paid back,” David added. Figure out what an investor needs from you instead of starting with a long list of your own needs. Building a company is an iterative process, so don’t take a “no” to be a forever no. “Take the feedback from the ‘no’ to change minds.”

Can smaller cities compete in the venture world?

Being closer to customers and knowing what they need is one huge cultural competitive advantage of other cities. “I believe unicorns can’t all come from Silicon Valley anymore, and will come from lots of different places,” Sejal said. “It’s a mindset: You can grow in whichever city you choose.”

The valuations that regional startups get at Series A starts to normalize at Series C, David said. This means that Series C startups can get the same interest from top-tier funds. Valuations normalize the faster these companies grow.

Having a growing tech focus and distribution of communities in cities like Detroit, Michigan, Phoenix, Arizona, and Atlanta, Georgia, is good for America, according to David. “Local economies are the tentpoles of the local communities. We’ll see more regional startups go from early-stage to growth to acquisition or IPO.”

Create more owners
In 2018, the #ANGELS hypothesized that the equity gap was worse than the salary gap. Carta has the data to help track and analyze what they called #TheGapTable. Together, we created the first ever report on equity distribution by gender and have continued to create it every year since. Equity is the largest lever for wealth creation in Silicon Valley and beyond; we believe it should be distributed equitably.