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Accel closes on $3B across three funds as it ramps up global investing
Accel announced Tuesday the close of three new funds totaling $3.05 billion, money that it will be using to back early-stage startups, as well as growth rounds for more mature companies. Notably, the 38-year-old Silicon Valley-based venture firm is doubling down on global investing.
The announcement underscores both the robust confidence investors continue to have for backing startups in the tech sector and the amount of money available to startups these days.
Specifically, today Accel is announcing its 15th early-stage U.S. fund at $650 million; its seventh early-stage European and Israeli fund also at $650 million and its sixth global growth stage fund at $1.75 billion. The latter fund is in addition, and designed to complement, a previously unannounced $2.3 billion global “Leaders” fund that is focused on later-stage investing that Accel closed in December.
Accel expects to invest in about 20 to 30 companies per fund on average, according to Partner Rich Wong. Its average investment in its growth fund will be in the $50 million to $75 million range, and $75 million and $100 million out of its global Leaders fund.
But the firm is also still eager and “excited” to incubate companies, Wong said.
“We’ll still write $500,000 to $1 million seed checks,” he told TechCrunch. “It’s important to us to work with companies from the very beginning and support them through their entire journey.”
Indeed, as TechCrunch recently reported, Accel has a history of backing companies that were previously bootstrapped (and often profitable) -– the latest example being Lower, a Columbus, Ohio-based fintech, which just raised a $100 million Series A.
Interestingly, Accel is often referred to some of these companies by existing portfolio companies (also in the case of Lower, whose CEO was referred to Accel by Galileo Clay Wilkes). More often than not, companies that Accel backs out of its early-stage and growth funds are bootstrapped and located outside of Silicon Valley.
The venture firm has long looked outside of Silicon Valley for opportunities, and has had offices not only in the Bay Area, but in London and Bangalore for years. Part of its investment thesis is to “invest early and locally,” according to Wong. Examples of this philosophy include investments in companies based all over the world — from Mexico to Stockholm to Tel Aviv to Munich.
Since the time of its last fund closure in 2019, the firm has seen 10 portfolio companies go public, including Slack, Austin-based Bumble, Bucharest-based UiPath, CrowdStrike, PagerDuty, Deliveroo and Squarespace, among others.
It also had 40 companies experience an M&A, including Utah-based Qualtrics’s $8 billion acquisition by SAP and Segment’s $3.2 billion acquisition by Twilio. Also, just last week, Rockwell Automation announced it was buying Michigan-based Plex Systems for $2.22 billion in cash. Accel first invested in Plex, which has developed a subscription-based smart manufacturing platform, in 2012.
Recent investments include a number of fintech companies such as LatAm’s Flink, Berlin-based Trade Republic, Unit and Robinhood rival Public. Accel has also backed as existing portfolio companies such as Webflow, a software company that helps businesses build no-code websites and events startup Hopin.
Wong says Accel is “open-minded but thematic” in its investment approach.
Accel Partner Sonali de Rycker, who is based out of London, agrees.
“For example, we’ll look at automation companies, consumer businesses and security companies, but at a global scale. Our goal is to find the best entrepreneurs regardless of where they are,” she said.
That has only been intensified by the recent rise of the smartphone and cloud, Wong said.
“Before, companies were mostly selling to the consumer in their own country,” he added. “But now the size of the market is so dramatically bigger, allowing them to become even larger, which is one of the reasons why I believe we’re seeing investment pace at this speed.”
To support this, it’s notable that Accel’s global Leaders fund is “dramatically” larger than the $500 million Leaders fund the firm closed in 2019.
Also, de Rycker points out, companies are staying private longer so the opportunity to invest in them until they sell or go public is greater.
Accel is also patient. In some cases, the firm’s investors will develop “years-long” relationships with companies they are courting.
“1Password is an example of this approach,” Wong said. “Arun [Mathew] had that relationship for at least six years before that investment was made. Finally, 1Password called and said ‘We’re ready, and we want you to do it.’ ”
And so Accel led the Canadian company’s first external round of funding in its 14-year history — a $200 million Series A — in 2019.
While the firm is open-minded, there are still some industries it has not yet embraced as much as others. For example, Wong said, “We’re not announcing a $2.2 billion crypto fund, but we have done crypto investments, and see some very interesting trends there. We’ll look at where crypto takes us.”
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In its first funding in 7 years, profitable fintech Lower raises $100M Series A led by Accel
Lower, an Ohio-based home finance platform, announced today it has raised $100 million in a Series A funding round led by Accel.
This round is notable for a number of reasons. First off, it’s a large Series A even by today’s standards. The financing also marks the previously bootstrapped Lower’s first external round of funding in its seven-year history. Lower is also something that is kind of rare these days in the startup world: profitable. Silicon Valley-based Accel has a history of backing profitable, bootstrapped companies, having also led large Series A rounds for the likes of 1Password, Atlassian, Qualtrics, Webflow, Tenable and Galileo (which went on to be acquired by SoFi).
In fact, Galileo founder Clay Wilkes introduced the VC firm to Dan Snyder, Lower’s founder and CEO. The two companies have a few things in common besides being profitable: they were both bootstrapped for years before taking institutional capital and both have headquarters outside of Silicon Valley.
“We were immediately intrigued because Ohio-based Lower echoes both of these themes,” said Accel partner John Locke, who led the firm’s investment in Lower and is taking a seat on the company’s board as part of the investment. “Like Galileo, Lower will be one of the most successful bootstrapped fintech companies globally. The combination of a company built in a nontraditional region across the globe and a bootstrapped company reminds us of [other] companies we have partnered with for a large Series A.”
There were other unnamed participants in the round, but Accel provided the “majority” of the investment, according to Lower.
Snyder co-founded Lower in 2014 with the goal of making the home-buying process simpler for consumers. The company launched with Homeside, its retail brand that Snyder describes as “a tech-leveraged retail mortgage bank” that works with realtors and builders, among others.
In 2018, the company launched the website for Lower, its direct-to-consumer digital lending brand with the mission of making its platform a one-stop shop where consumers can go online to save for a home, obtain or refinance a mortgage and get insurance through its marketplace. This year, it launched the Lower mobile app with a savings account.
Sitting (L to R): Co-founders Dan Snyder, Grayson Hanes
Standing (L to R): Co-founders Mike Baynes, Chris Miller
Not pictured: Robert Tyson; Image credit: Lower
Over the years, Lower has funded billions of dollars in loans and notched an impressive $300 million in revenue in 2020 after doubling revenue every year, according to Snyder.
“Our history is maybe a little atypical of fintech companies today,” he told TechCrunch. “We’ve had a view going back to the start of the company that we wanted to run it profitably. That’s been one of our pillars, so that’s what we’ve done. Also, we all grew up in the mortgage industry, so we saw firsthand the size of the market, but also how broken it was, so we wanted to change it.”
In launching the direct-to-consumer digital lending brand, the company was working to make the homebuying process more “digital, transparent and easier for consumers to access,” Snyder said.
At the same time, the company didn’t want to lose the human touch.
“We tried to design the app flow in a way where you can get as far along as you can in the application but if you want, at any point in time, to talk or chat with someone, we’re available,” Snyder added.
Image Credits: Lower
Lower’s typical customer is the millennial and now Gen Z who’s aspiring to own their first home, according to Snyder.
“They might be thinking, ‘OK, I might be living in an apartment now, but in the next few years I’m going to meet someone and/or have a child and I want to unlock the investment that is a home,’” he told TechCrunch. “And we’ll help them on that journey.”
Lower’s recently launched new app offers a deposit account it’s dubbed “HomeFund.” The interest-bearing, FDIC-insured deposit account offers a 0.75% Annual Percentage Yield and is designed to help consumers save for a home with a “dollar-for-dollar match in rewards” up to the first $1,000 saved, Snyder said.
Lower works with more than 35 major insurance carriers nationally, including Nationwide, Liberty Mutual and Allstate. It has more than 1,600 employees, about half of which are based in Lower’s home state. That’s up from about 650 employees in June of 2020.
Looking ahead, the company plans to add more services and has an “aggressive roadmap” for adding new features to its platform. Today, for example, Lower sells primarily to Fannie Mae and Freddie Mac. And while it services the majority of its loans, like many large lenders, it uses a subservicer. That will change, however, in early 2022, when Lower intends to launch its own native servicing platform.
And while the company intends to continue to run profitably, Snyder said he and his co-founders “think the time is now to gain share.”
“We want to become a global brand, raise money and gain market share,” he added. “We’re going to continue to double down on product and build out our capabilities. We are the best-kept secret in fintech and plan to change that with smart branding, advertising and sponsorships.”
And last but not least, Lower is eyeing the public markets as part of its longer-term roadmap.
“Ultimately, we know we can build a great public company,” Snyder told TechCrunch. “We’re of the scale to be a public company right now, but we’re going to keep our heads down and we’re going to keep building for the next few years and then I think we can be in a spot to be a strong public business.”
Accel’s Locke points out that in the U.S., mortgage and home finance are among the largest financial service markets, and they have primarily been handled by large banks.
“For most consumers, getting a mortgage through these banks continues to be an overly complex, slow-moving process,” Locke told TechCrunch. “We believe by providing consumers a great mobile experience, Lower will gain share from incumbent banks, in the same way that companies like Monzo have in banking or Venmo in payments or Trade Republic and Robinhood in stock trading.”
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Rewarding civic pride and boosting the local economy? Akron, Ohio is trying out a startup for that
Akron, Ohio, the hometown of LeBron James; the seat of the U.S. tire industry; the 127 largest city in the U.S.; and the home of America’s first toy company, is now the latest site of a global experiment in whether cities can use behavioral economics to help foster good citizenship.
Thanks to the work of the city’s deputy mayor for integrated development, James Hardy, Akron is the first city to roll out services from an Israeli-based company called Colu. A startup backed by just over $20 million in financing from American and Israeli investors, the company has developed an app-based rewards service that cities can roll out to provide perks to users.
In Akron’s case, the initiative rewards points for shopping at local businesses that can be redeemed for discounts at those stores. The initial effort, which includes a platform for businesses to market directly to the app’s users, focuses on businesses owned by women and minorities (a response to the movement for racial justice that has sprung up in the wake of the murder of George Floyd in Minneapolis).
Akron is the first city of what Colu founder Amos Meiri expects to be a nationwide rollout throughout the U.S. The company already has managed to ink another agreement with the city of Chula Vista, Calif.
Colu, which has raised its capital from investors associated with blockchain technologies like Barry Silbert’s Digital Currency Group; the Boston-based venture capital firm, Spark Capital; New York’s Box Group and the Israeli corporate conglomerate, IDB Group, has deep ties to the cryptocurrency world of alternative financial instruments through Meiri.
One of the original architects of the Color coin blockchain experiment, Meiri’s work with Colu is in some ways an extension of that effort to create new kinds of economies powered by alternative financial mechanisms.
Meiri said cities typically pay for Colu out of their marketing budgets as a new way to communicate and attempt to influence civic behavior.
For Akron’s government officials, the company’s services are a way to boost locally owned businesses that have been hit hard by the state’s attempts to contain the COVID-19 outbreak.
“Our locally owned small businesses are facing enormous challenges and we need out-of-the-box ideas that safely connect them to consumers and turn local spending into a source of pride for residents,” said Akron Mayor Dan Horrigan, in a statement. “Our partnership with Colu will enable the city to reward customers for shopping local, improving revenues for our small businesses while helping folks stretch their dollars.”
Earlier work with the municipal government in Tel Aviv promoted sustainable business practice and encouraged businesses to do more to manage their waste and carbon footprint by introducing a “green label.” Businesses that followed the city’s guidelines were given the label and shoppers were encouraged to frequent those merchants.
Colu envisions itself as more than just a marketing and rewards platform for businesses. The company hopes it can draw users into a kind of social networking platform for civic engagement where users can share their own stories about city-life and their interactions with local business owners and the community.
In some ways, it’s a kinder, gentler version of China’s social credit scoring system, which is also designed to influence civic behavior. In this formulation, there’s a rewards system, but no mechanisms to punish citizens for bad behavior.
“Akron has a long history of innovation within our economy — this initiative draws on that legacy,” said Deputy Mayor Hardy, in a statement. “By putting the future of Akron’s locally owned small businesses in the palm of our citizens’ hands, we hope to make it easy for consumers to keep their money local and continue to strengthen our incredible community.”
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GM, LG Chem to invest $2.3 billion in EV battery joint venture
GM chairman and CEO Mary Barra said Thursday morning that the automaker is forming a joint venture with LG Chem to mass produce battery cells for its electric vehicles, a portfolio that will include a new battery-electric truck coming in the fall of 2021.
The two companies said they will invest up to a total of $2.3 billion into the new joint venture and will establish a battery cell assembly plant on a greenfield manufacturing site in the Lordstown area of Northeast Ohio that will create more than 1,100 new jobs. Groundbreaking is expected to take place in mid-2020.
GM has used LG Chem as a lithium-ion and electronics supplier for at least a decade. The companies began working together in 2009. The relationship deepened as GM developed and then launched the Chevy Bolt EV.
However, the joint venture marks a shift that Barra said in a call with reporters Thursday morning would accelerate the automaker’s ability to win in the electric vehicle space.
“The joint venture signing today is more than just a collaboration, it’s the beginning of a great journey,” LG Chem CEO and vice chairman Hak-Cheol Shin said during a Thursday morning call with reporters.
The venture is significant for both companies. The new plant will supply GM’s next generation of electric vehicles. Barra said the company is still on track to introduce 20 electric vehicles globally by 2023.
If GM expects to build a profitable EV business it will have to do more than just bring these vehicles to market. The next generation of vehicles will have a new battery electric vehicle architecture, will be desirable, profitable with the right range and affordable, Barra noted during the call. “It’s got to be affordable to drive the volume and really drive EVs in the marketplace, and customers are looking for affordability. And so that is the journey we are on and we think working with LG is will accelerate that path.”
Meanwhile, the deal gives a boost to LG’s battery business, which Shin said is expected to grow to $25 billion by 2024.
The battery plant will have an annual capacity of more than 30 gigawatt hours with flexibility for expansion, according to GM. If successful, the annual capacity at the plant would be close to the same output of Tesla’s massive factory near Reno, Nev. Tesla and Panasonic are partners in the massive factory that produces electric motors and battery packs. Panasonic makes the cells, which Tesla then uses to make battery packs for its electric vehicles. Tesla hasn’t shared capacity numbers recently, but previously stated plans for it to have a 35 gigawatt-hour capacity.
The location of the battery venture could build goodwill in Lordstown, a town that suffered from sweeping layoffs after GM decided to stop producing the Chevrolet Cruze at its assembly plant there. GM “unallocated” its Lordstown plant, a designation that meant the automaker would shutter the plant. The decision resulted in the elimination of some 1,200 jobs.
Lordstown Motors Corp., a battery-electric transportation technology company, acquired the old GM plant last month.
The investment comes in addition to GM’s $28 million investment in its Warren, Mich. battery lab announced late last year.
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How to go to market in middle America
Deborah Eisenberg is the founder of TechStarts PR, where she helps technology companies both big and small hone their message and reach their audience.
There comes a time for many startup companies where they either realize they need to do a nationwide rollout, or they need to actively target buyers in the middle of the country. If you are a startup on either the East or the West Coasts, it’s worth thinking about how this market might present its own set of unique challenges, and how you plan to overcome them.
There are a lot of misconceptions about what some people call “flyover country,” and as a San Francisco native who spent two decades in New York, Washington DC, and Boston before moving to Pittsburgh, I can assure you they are almost all wrong. Without getting into specifics, the reality of “middle America” is that it’s the same as anywhere else.
Income, education, world view, and waistlines are all varied. It’s pretty accurate that San Francisco possesses a culture obsessed with fitness and entrepreneurship, but California isn’t necessarily all like that, and if you think it is, I encourage you to go to Bakersfield, the Central Valley, or Eureka sometime.
In addition, just because the stereotypes are wrong doesn’t mean there’s nothing different about doing business here. As you think about how to conduct your rollout, here are some things you should consider:
Table of Contents
Research
As with any market, research is key since it informs every other aspect of the rollout. Start by looking into who your competition is.
Since there are fewer VC-backed startups in middle America, and smaller companies tend to get less press, the research may be harder. However, there are some major universities that are actively putting money into their own Entrepreneurship programs and those spinoffs often do very well.
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Economic development organizations: good or bad for entrepreneurial activity?
Bill Baumel
Contributor
Contributor
Bill Baumel is Managing Director at the Ohio Innovation Fund. After twenty years in Silicon Valley – 4 public companies and 10 major acquisitions – Bill came home to the Midwest creating OIF, whose 14 companies have attracted partners such as Microsoft, Facebook, SAP, and Sanofi, providing SaaS, cyber, AI/ML and med tech solutions to a majority of the Fortune 500.
In developing VC markets such as the Midwest, some may think that funding from the government or economic development organizations are a godsend for local entrepreneurs. Startups are often looking for all the help they can get, and a boost in funds or an attractive set of economic incentives can be perceived as the fuel they need to take the next step in their growth journey.
While this type of funding can be helpful, a startup should ensure that funding from these sources is not a double-edged sword. The biggest positive, of course, is the money, which can help startups with product development, hiring, marketing, sales and more. But there can also be certain restrictions or limitations that are not fully understood initially—these restrictions could hinder growth at an inopportune time later on.
The inevitable question, then, is should startups consider partnering with the government or various economic development groups as they look to get off the ground? Let’s take a closer look.
What Local Economic Development Organizations Have to Offer
Today, particularly in the Midwest, it’s common for state and local governments to offer startups incentives such as tax exemptions or grants in an effort to keep local businesses around and also attract companies from other regions.
So how do these incentives work? When it comes to tax credits or exemptions, local governments are sometimes willing to provide these incentives if a startup can demonstrate how paying lower taxes will benefit the wider community.
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Venture capital investment in US companies to hit $100B in 2018
So many new unicorns valued at $1 billion-plus, countless $100 million venture financings, an explosion of giant funds — it’s no surprise 2018 is shaping up to be a banner year for venture capital investment in U.S.-based companies.
There are more than 2.5 months remaining in 2018 and already U.S. companies have raised $84.1 billion — more than all of 2017 — across 6,583 VC deals as of Sept. 30, 2018, according to data from PitchBook’s 3Q Venture Monitor.
Last year, companies raised $82 billion across more than 9,000 deals in what was similarly an impressive year for the industry. Many questioned whether the trend would — or could — continue this year, and oh, boy has it. VC investment has sprinted past decade-highs and shows no signs of slowing down.
Why the uptick? Fewer companies are raising money, but round sizes are swelling. Unicorns, for example, were responsible for about 25 percent of the capital dispersed in 2018. Those companies, which include Slack, Stripe and Lyft, have raised $19.2 billion so far this year — a record amount — up from $17.4 billion in 2017. There were 39 deals for unicorn companies valuing $7.96 billion in the third quarter of 2018 alone.
Some other interesting takeaways from PitchBook’s report on the U.S. venture ecosystem:
- Nearly $28 billion was invested into early-stage startups in 2018, with median deal size increasing 25 percent to $7 million last quarter.
- Ten funds have raised more than $500 million this year and another five, including Lightspeed Venture Partners and Index Ventures, have closed on more than $1 billion.
- Companies based on the West Coast were responsible for 54.7 percent of deal value in 3Q but other regions are catching up: New England (12 percent), the Mid-Atlantic (20 percent) and The Great Lakes (5 percent).
- Investment in U.S. pharma and biotech has reached a new high of $14 billion already in 2018.
- Corporate venture capital activity is heating up. This year, CVCs invested $39.3 billion in U.S. startups, more than double the $15.2 billion invested in 2013.
- VC-backed companies are exiting via buyouts more than ever.
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Deliverr raises $7M to help e-commerce businesses compete with Amazon Prime
When Amazon rolled out its membership-based two-day shipping service in 2005, e-commerce and customer expectations around fulfillment speed changed forever.
Today, more than 100 million people use Amazon Prime. That means, 100 million people are fully accustomed to two-day shipping and if they can’t have it, they shop elsewhere. As The Wall Street Journal’s Christopher Mims recently put it: “Alongside life, liberty and the pursuit of happiness, you can now add another inalienable right: two-day shipping on practically everything.”
Only recently have Amazon’s competitors begun to offer similar fast delivery options. About two years ago, Walmart launched its own free two-day delivery service for its owned-inventory; eBay followed suit, establishing a three-day or less delivery guaranteed option for shoppers in March 2017.
To power these Prime-like delivery options, Walmart, eBay and the Canadian e-commerce business Shopify are relying on a little upstart.
One-year-old Deliverr helps businesses offer rapid delivery experiences to their customers. Today, the company is announcing a $7.1 million Series A led by Joe Lonsdale’s 8VC, with participation from Zola founder Shan-Lyn Ma, Flexport chief executive officer Ryan Peterson and others.
The San Francisco-based startup uses machine learning and predictive intelligence to determine which of its warehouses to store its client’s goods.
Currently, Deliverr operates out of more than 10 warehouses in Texas, Missouri, Pennsylvania, Ohio and New Jersey, among other states, though co-founder Michael Krakaris says that number is growing every week. Its customers typically store inventory in three to five different locations based on Deliverr’s predictive algorithms.
Unlike Amazon, which owns more than 75 fulfillment centers, Deliverr doesn’t own its warehouses. Krakaris describes the company’s strategy as a sort of Uber for fulfillment.
“Uber didn’t change the physical infrastructure of cars. They didn’t build their own taxis. What they did was create software that could connect excess capacity drivers,” Krakaris told TechCrunch. “Most warehouses aren’t going to be full. We are going in and filling that extra space they wouldn’t otherwise fill.”
One of the startup’s tricks is to use brand-neutral packaging so any and all marketplaces could theoretically power fulfillment through Deliverr. Amazon, of course, sticks a Prime sticker on all its outgoing packages. And because Amazon’s fulfillment service is used by some eBay sellers, eBay items are known to show up at customers’ homes in Amazon-branded packaging. Not a great look for eBay.
“You need an independent fulfillment service that can handle all these different fulfillment channels and be neutral,” Krakaris said.
Deliverr plans to use the investment to scale its team and ink partnerships with additional online retailers.
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May Mobility puts autonomous shuttles on the streets of Columbus, Ohio
This December a set of autonomous vehicles will start roaming the streets of Columbus, Ohio, in an effort to turn this bustling Midwestern community into the first smart city. The project, which is part of the Smart Columbus and DriveOhio initiatives, is the first step in launching a fully autonomous shuttle route in the city.
“We’re proud to have the first self-driving shuttle in Ohio being tested on the streets of Columbus,” said Mayor Andrew J. Ginther. “This pilot will shape future uses of this emerging technology in Columbus and the nation. Residents win when we add more mobility options to our transportation ecosystem – making it easier to get to work, school or local attractions.”
Michigan-based May Mobility provided the shuttles and the team is training the autonomous vehicles to navigate Columbus streets. May Mobility already launched their vehicles in Detroit and this is the second full implementation of the tech.
The six-seater electric shuttles will follow a 3 mile route through downtown Columbus and the vehicles will start picking up passengers on December 1. Rides are free. May Mobility has already performed over 10,000 successful trips in Detroit. In Columbus the shuttles will drive the Scioto Mile loop, a scenic route through the city and by the Ohio River. A large digital display will show system information and there will be a single operator to oversee the trip and take control in case of emergency.
Founder Edwin Olson is a robotics professor at the University of Michigan and his team won the original DARPA challenge in 2007.
“Cities are seeking cost-effective transportation services that will improve congestion in urban cores, and self-driving shuttles can offer a huge relief,” he said. “As we work toward a future where people can drive less and live more, we’re thrilled to be working with partners from Columbus to provide a new transportation experience that will make traveling through Columbus safe, reliable and personal.”
Columbus won the $40 million Smart City Challenge in June 2016 to test and implement smart city tech.
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VCs say Silicon Valley isn’t the gold mine it used to be
In the days leading up to TechCrunch Disrupt SF 2018, The Economist published the cover story, ‘Why Startups Are Leaving Silicon Valley.’
The author outlined reasons why the Valley has “peaked.” Venture capital investors are deploying capital outside the Bay Area more than ever before. High-profile entrepreneurs and investors, Peter Thiel, for example, have left. Rising rents are making it impossible for new blood to make a living, let alone build businesses. And according to a recent survey, 46 percent of Bay Area residents want to get the hell out, an increase from 34 percent two years ago.
Needless to say, the future of Silicon Valley was top of mind on stage at Disrupt.
“It’s hard to make a difference in San Francisco as a single entrepreneur,” said J.D. Vance, the author of ‘Hillbilly Elegy’ and a managing partner at Revolution’s Rise of the Rest Fund, which backs seed-stage companies based outside Silicon Valley. “It’s not as a hard to make a difference as a successful entrepreneur in Columbus, Ohio.”
In conversation with Vance, Revolution CEO Steve Case said he’s noticed a “mega-trend” emerging. Founders from cities like Pittsburgh, Detroit or Portland are opting to stay in their hometowns instead of moving to U.S. innovation hubs like San Francisco.
“The sense that you have to be here or you can’t play is going to start diminishing.”
“We are seeing the beginnings of a slowing of what has been a brain drain the last 20 years,” Case said. “It’s not just watching where the capital flows, it’s watching where the talent flows. And the sense that you have to be here or you can’t play is going to start diminishing.”
J.D. Vance says that most entrepreneurs don’t need to move to Silicon Valley.
Here’s why. #TCDisrupt pic.twitter.com/0mFPeTuHLe
— TechCrunch (@TechCrunch) September 6, 2018
Farewell, San Francisco
“It’s too expensive to live here,” said Aileen Lee, the founder of seed-stage VC firm Cowboy Ventures, amid a conversation with leading venture capitalists Spark Capital general partner Megan Quinn and Benchmark general partner Sarah Tavel .
“I know that there are a lot of people in the Bay Area that are trying to work on that problem and I hope that they are successful,” Lee added. “It’s an amazing place to live and we’ve made it really challenging for people to live here and not worry about making ends meet.”
One of Cowboy’s portfolio companies opted to relocate from Silicon Valley to Colorado when it came time to scale their business. That kind of move would’ve historically been seen as a failure. Today, it may be a sign of strong business acumen.
Quinn said that of all 28 of Spark’s growth-stage portfolio companies, Raleigh, North Carolina-based Pendo has the easiest time recruiting folks locally and from the Bay Area.
She advises her Bay Area-based late-stage companies to open a second office outside of the Valley where lower-cost talent is available.
“We often say go to [flySFO.com], draw a three-hour circle around San Francisco where they have direct flights, find a city that has a university and open up a second office as quickly as possible,” Quinn said.
Still, all three firms invest in a lot of companies based in San Francisco. Of Benchmark’s 10 most recent investments, for example, eight were based in SF, according to Crunchbase.
“I used to believe really strongly if you wanted to build a multi-billion dollar company you had to be based here,” Tavel said. “I’ve stopped giving that soap speech.”
Aileen Lee (Cowboy Ventures), Megan Quinn (Spark Capital), and Sarah Tavel (Benchmark Capital) on whether or not Silicon Valley is on the wane for investors #TCDisrupt pic.twitter.com/SOpn7p0eNQ
— TechCrunch (@TechCrunch) September 5, 2018
Underestimated talent
A lot of Bay Area VCs have been blind to the droves of tech talent located outside the region. Believe it or not, there are great engineers in America’s small- and medium-sized markets too.
At Disrupt, Backstage Capital founder Arlan Hamilton announced the firm would launch an accelerator to further amplify companies led by underestimated founders. The program will have cohorts based in four cities; San Francisco was noticeably absent from that list.
Instead, the firm, which invests in underrepresented founders and recently raised a $36 million fund, will work with companies in Philadelphia, Los Angeles, London and one more city, which will be determined by a public vote. Aniyia Williams, the founder of Tinsel and Black & Brown Founders, will spearhead the Philadelphia effort.
“For us, it’s about closing that wealth gap to address inequity in tech,” Williams said. “There needs to be more active participation from everyone.”
Hamilton added that for her, the tech talent in LA and London is undeniable.
“There is a lot of money and a lot of investors … it reminds me of three years ago in Silicon Valley,” Hamilton said.
Silicon Valley vs. China
Silicon Valley’s demise may not be just as a result of increased costs of living or investors overlooking talent in other geographies. It may be because of heightened competition abroad.
Doug Leone, an early- and growth-stage investor at Sequoia Capital, said at Disrupt that he’s noticed a very different work ethic in China.
Chinese entrepreneurs, he explained, are more ruthless than their American counterparts and they’re putting in a whole lot more hours.
Doug Leone of Sequoia Capital says founders in the US and China both want to change the world, but Chinese founders are a little more desperate (and you see it in the crazy work ethic they have).#TCDisrupt pic.twitter.com/dPxsRTbJoq
— TechCrunch (@TechCrunch) September 6, 2018
“I’ve had dinner in China until after 10 p.m. and people go to work after 10 p.m.,” Leone recalled.
“We don’t see that in the U.S. I’m not saying the U.S. founders oughta do that but those are the differences. They are similar in character. They are similar in dreams. They are similar in how they want to change the world. They are ultra-driven … The Chinese founders have a half other gear because I think they are a little more desperate.”
Much of this, however, has been said before and still, somehow, Silicon Valley remained the place to be for investors and startup entrepreneurs.
The reality is, those engaged in tech culture are always anxiously awaiting for the bubble to pop, the market to crash and for “peak Valley” to finally arrive.
Maybe, just maybe, Silicon Valley is forever.
Here’s more of our coverage of Disrupt 2018.
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