Venture Capital Investors Look Beyond Your Startup


I’m a strong believer that investors invest in people before they invest in a business plan or an idea. But I continue to learn that there are a host of other factors, maybe not even related to you or your business, that could keep you from getting the funding you need. You may not have control over many of these, but it helps to know, for planning purposes, what is really happening.


Venture Capital Investors Look Beyond Your Startup

Obviously, key factors are always the state of the economy and the mood of the venture capital community. The good news is that both of these are looking up these days. According to the Silicon Valley Venture Capitalist Confidence Index® for the First Quarter 2013, the Q1 increase marks three consecutive quarters of positive sentiment among Silicon Valley venture capitalists.

On the other hand, venture capital doesn’t get smoothly spread across the geographic and demographic landscape, and the number of active venture capital firms has dropped sharply. An older study published by CB Insights, Venture Capital Human Capital Report, summarizes a variety of characteristics for private early-stage Internet ventures funded in the U.S. The significant findings include the following:

  • Founders need to live in the right place. No surprises here. California (Silicon Valley), New York, (NYC) and Massachusetts (Boston) are the places to be in the U.S. for venture capital attention. Almost 80 percent of the funding handed out in the U.S. consistently comes from these three locations.
  • Caucasians and Asians lead the race. Of the funded founders, 87 percent are Caucasian, which is not too far above the U.S. population of 77 percent Caucasian. More notably, the second largest group receiving funding was Asians, at 12 percent, despite comprising only 4 percent of the population.
  • All-Asian founding teams raise the largest rounds. Asian teams in California raised median funding rounds of $4.4 million, which is significantly higher than the $3 million raised by mixed or all-Caucasian founding teams. In other locations, the trend was more equal and even somewhat reversed in New York and Boston.
  • Wunderkinds don’t have the magic touch. The average age of founding teams getting funded is in the Gen-X 35-44 year age range. However, the highest median funding did go to those in the age range of 26-34 years old. Amazingly, no founding teams in the Gen-Y 18-25 year range received any funding in California.
  • Experience does count. Fully 39 percent of founders funded were formerly CEOs or had founded prior companies. Other common previous roles were executives in sales, marketing and product management, all suggesting that VCs back experience.
  • More founders generally means more money. Overall, the majority of companies have two or more founders, but more than 1/3 are led by one founder. More founders does not necessarily result in larger funding rounds, but the highest median funding generally goes to companies that have two or more founders.
  • Going solo works better on the East Coast. Co-founder companies are the norm in California, but 40-50 percent of the startups in New York and Massachusetts have only one founder. In New York, these solo efforts even raised more money, with a median of $4 million.

If you don’t live in these corridors, don’t assume that you can simply incorporate in the state or email your proposals there and be considered a local. At minimum, you need to get an introduction from a local player, or better yet, set up a local office and network there. Investing is all about people-to-people relationships.

If you are from outside the U.S., especially Asia, experts tell me that the focus is even more on relationships. George Wang, founder and chairman of the Beijing-based Chinese Professional Network(CPN), recommends that anyone from the West wanting to get involved in Chinese startups slow the pace down and “spend six months and get to know the place and the people.”

If you need funding, focus first on the human side of venture capital before you rush to pitch your plan. The evidence confirms that from a funding perspective, a successful startup is more about the right people being in the right place at the right time, versus the technology or solution.

Reprinted by permission.

About the author: Martin Zwilling

Martin is the CEO & Founder of Startup Professionals, Inc., a consultancy focused on assisting entrepreneurs with mentoring, business strategy and planning, and networking.

Martin for years has provided entrepreneurs with first-hand advice, mentoring and business plan assistance as a startup consultant. He has a unique combination of business and high-tech experience, and executive mentoring and connecting startups with potential investors, board members, and service providers.

You are seconds away from signing up for the hottest list in New York Tech!

Join the millions and keep up with the stories shaping entrepreneurship. Sign up today.