Is early stage investing in Southern California broken?
September 18th, 2008 by Benjamin KuoMatt Ridenour has a problem. He thinks that there is a venture capital crisis in Southern California — namely, that there are not enough local, early stage investors helping fund early (Series A) companies, those that need more than $500K but less than $10M in funding.
Talking with Matt and Andy Wilson, his partner from Momentum Ventures, an early stage accelerator here in Los Angeles last night at a dinner, it’s a huge problem for the firm, which is finding that those companies looking for just a few million dollars in investment are having to go to Sand Hill Road for capital, or just not finding it at all. Matt held an entrepreneur’s only event last night to help out early stage companies–I was invited as a speaker, along with Tom McGovern of Snap.com and Jake Winebaum, formerly of Business.com–and mentioned it multiple times during the evening.
Matt writes in his blog:
The short story is that the number of funds who are willing (or able) to profitably invest in “Series A” is shrinking. This is happening despite the fact that historically, early stage funds are the best performing funds.
This comes in spite of what has been a very healthy funding environment for startups, in general, here in the region. But, as Matt described to me last night, the problem is that a lot of those rounds are for bigger companies, and that the early stage, Series A fundings are often being done by out-of-the-area VCs — who would sooner move a company to Silicon Valley or wherever they are, than keep the companies here.
I don’t know if I entirely agree with Matt, but it’s an interesting perspective from a firm which is fairly active pitching companies to VCs, both here and on Sand Hill road.
September 19th, 2008 at 10:36 am
[...] the VC market blog from the other day. I addition, Ben Quo posted a note about the topic on his blog today. Below is a link to a .pdf with excerpts from our study on the [...]
September 19th, 2008 at 10:45 am
Hey Ben, thanks for stopping by our event.
I want to clarify one point Ben. If you take a look at the VC market trends they all indicate that fewer early deals are happening, fewer focused early funds are around, if VCs actually raise money – they raise larger funds for later deals, etc. A lot of dollars flow into Southern California from the big guys because it makes sense to travel to make a $10mm investment. BUT – early dollars come from local investors. This is true everywhere. So, with early dollars drying up in Southern California, the question is whether or not we’ll have the sexy B and C rounds from these big out of town funds in a few years.
I’ve gotten a number of questions and emails about all this so I’ve posted additional thoughts and a link to our study on VC trends on our site (www.mvpartners.com/blog).
Thanks!