The financial ecosystem involves constant change, which ushers out the old guard while ushering in the new. For entrepreneurs, the greatest change -- and the greatest impact -- occurs when a regional VC player falls. Regional VCs play a crucial role in the community -- and that is where people will feel the firm’s departure most acutely.
One reason why is that, at its core, venture investing is about relationships. So, if a major fund disappears in your city, relationships will be what you have to rebuild first.
The value of face time
Most venture firms aren’t like the big banks that live on for half a century. Regional venture investors know entrepreneurs and startups by name. That's why the entrepreneurial community feels a fund’s absence not just as a representation of money but as a connector in the ecosystem.
This is particularly apparent in smaller tech centers like Austin and Salt Lake City. When venture investors connect entrepreneurs with talent, guidance and community, the entire ecosystem benefits. Here in Salt Lake City, people know they can call us if they need advice or a resource.
I can’t overstate the significance of sitting down face-to-face with entrepreneurs and tackling challenges as they happen. Our impromptu breakfast meetings and office visits help us solve problems and uncover opportunities more quickly than we could via a phone call. These meetings also deepen our personal connections within the community, making our investment more than a transactional one.
Small world, big players
It might be easy to take the ecosystem in Silicon Valley for granted, but in smaller tech centers, every player matters. "People decisions" are the hardest ones that entrepreneurs and investors have to make. But local investors can quickly step in to help. They know the environment well enough to make necessary introductions within the region. Most also know where to recruit outside talent, such as the executives they’ve worked with in the past.
A firm that intimately knows its community galvanizes the entire ecosystem. Outside funds invariably step into innovative regions and help entrepreneurs, but their expertise is outside of the community. Firms from elsewhere have the effect of bringing new knowledge into an ecosystem rather than binding it together.
Austin Ventures acted as a community resource and strongly contributed to the broader spectrum of economic activity within Texas' capital city, so its presence will be missed. The good news, however, is that Austin is a thriving ecosystem. Other resources will eventually emerge to help connect the local environment. Until then, entrepreneurs would be well-served to assess what they have lost with AV, and determine how to bridge the gap.
There are action items for entrepreneurs to consider. If a local VC goes under, they might be tempted to wait and see what else evolves. And, yes, eventually, a new fund may open its doors. But, depending on your company’s own funding situation, that might not happen soon enough or not be the kind of fund your company needs. Here are three things to consider if you find yourself in a void because a fund has been eliminated:
1. Assess what is now missing.
Austin Ventures was the only fund in Texas that specialized in taking startups all the way to a big exit. Now that it is gone, local startups no longer have a natural go-to for that role. Austin remains rich in seed funding, but later-stage companies will have to either start exploring out-of-state options for their bigger rounds, or look at the particular niches in which remaining Texas VCs operate, to determine if there’s a match. Similarly, if one of your region's VCs has to close, re-examine your local ecosystem and see where there might be gaps.
2. Adapt your funding strategy.
Your deck and growth strategy might be geared toward a reality that is no longer tenable. So, adapt your deck to address the firms that are now your top priority. Do your due diligence and explore how to best present yourself to these firms. Whom do you need to meet? Where do you need to be? Start the process now.
3. Bridge the gap in your network.
Even if your next round is far away, start networking now in order to build the relationships that will serve you in the future. You want yours to be a familiar name, and if your target fund is two states away, it may be worth spending some time and resources figuring out how to best make yourself known.
In the end, be proactive. It might be tempting to react to the closure of a VC by remaining silent, but that approach is a lot like treading water and waiting until you’re exhausted before you look for a buoy. Take the reins and find new solutions -- this is how you'll win, over the short and long term, as an entrepreneur.