Why VC’s should pay attention to secondary geographies

Why VC’s should pay attention to secondary geographies

October 6, 2010

U.S. VC’s are almost all located in very specific locations. Silicon Valley, San Francisco, Seattle, Boston, New York, RTP, etc. I call these VC primary geographies. They do almost all their investing inside those primary geographies.

Sequoia Capital is famous for explicitly preferring to invest in companies that were within a 20 minute radius of its office. Of course, Sequoia is located on Sand Hill Road. That pretty much limits their investing to Silicon Valley and San Francisco.

But…does that make sense?

Did you know that the biggest M&A event of a privately held VC-backed company happened to a pre-revenue startup in a secondary geography?

Were you aware that arguably the two biggest financial successes of the 20th century started in what investors at the time would consider tertiary and 4^th or 5^th rate geographies?

Of course, I am talking about Cerent, Microsoft, and WalMart.

Cerent was acquired by Cisco for $7.2 billion. Cerent was located in my hometown of Petaluma in Sonoma County, CA. Well outside Sequoia’s 20 minute radius.

Microsoft was started in Albuquerque. Definitely at least a tertiary geography at the time. It soon moved to Seattle…which at that time would have been considered a secondary geography.

WalMart began (and remains) in Bentonville, Arkansas. ARKANSAS. Can you imagine Sequoia going to Arkansas?

So…clearly, VCs ignore companies outside their primary geographies at their risk.

J. Roy Martinez

http://www.linkedin.com/in/jroymartinez