Consistent Capital Managed By People Who Know How to Run It

Brad Feld updated his Startup Communities book with Ian Hathaway co-authoring.  I liked Brad’s first edition of the book and haven’t read this edition yet.  I agree with a lot of what Brad has postulated in the past.

For example, if a city wants to put together a linear blueprint that copies Silicon Valley, they are almost guaranteed to fail.  Overriding bureaucratic or official organizations are not sympatico with entrepreneurial ecosystems.  In fact, they get in the way and they are a waste.  They are more driven by the egos of the people that administer them.  Entrepreneurs jump lines.  They aren’t linear.  They are square pegs in round holes and big centralized efforts by cities don’t identify and often push aside the very people that can take an ecosystem to the next level.

I disagree with one assertion that Brad makes, and made in his original book.  It’s about the role capital plays in a startup community.  Brad’s contention is that great communities are entrepreneur-led.  They don’t necessarily need capital, because capital can find great entrepreneurs.

Certainly, in Covid times, we have seen some democratization of capital.

But, in my experience building a community, Brad severely underestimates the things that consistent pools of capital bring to entrepreneur-led startup communities.   Without a large local pool of capital willing to take risk, you will have a very difficult time growing a community.

As we take a look back, NYC has really grown its startup community.  Sure, there is talent.  But, NYC has always been a place to form retail risk-taking capital.  The DNA from the investment banking community culture spills over into the startup culture.  NYC doesn’t happen without the money and the book-runners that manage it.

In my hometown of Chicago, it is enormously arduous to raise capital for a fund.  That makes VCs more risk-averse when they need to be risk loving.   How many venture only focused $100MM+ LP funds are in Chicago?

I know very capable book-runners that have trouble raising more than a few million.  I know what we went through and though it sounds like sour grapes I am not intending it to be that way. It’s just data.  67% of my angel investments have either paid a return or are still operating.  Prior to that, I was part of a group that totally revolutionized financial markets. My partner was one of the largest equity traders in the world in 2008, and one of the early employees at one of the first HFT shops in the world.   In Silicon Valley with credentials like that you have a significantly easier time raising money.

But I can make the same case for other Midwestern VCs that I know when I look at what they have done in different fields.

Chicago has done okay, but without large consistent pools of capital it is a large uphill climb to build a sustainable ecosystem.  Large pools of capital can take a lot of early pre-seed shots, and lots of at bats are what builds the sustainability.

The post Consistent Capital Managed By People Who Know How to Run It first appeared on Points and Figures.