Why do VCs require companies to be in the city they are in? Can someone please explain this? We are talking about an industry whose product is supposed to transcend physical space, but we have to be located in an ultra expensive city to get funded? Where is the logic?
Everything we do as human beings (pretty much) is all about people. So think in people terms, not purely resource or financial terms.
People like proximity, they like being able to pop in and see other people. Distance is friction from a business point of view. Just as we see friction in applications as bad, so do business people see friction in business as bad. Distance is friction.
I'm bootstrapping in the UK, I love SF and would love to be there (at least part of the year!), there are a lot of advantages to having that much contact with other startups.
However, interestingly I notice that people who do what suits them best often seem to overcome geographic and financial obstacles. So I certainly wouldn't want to recommend or even suggest one way as better than the other.
You've got to balance what's right for you with what is right for others.
On a completely different note it would be great if we could swap the word 'funded' with debt everywhere it's used :-) The two words have very different connotations but mean the same thing (unless someone is just willing to GIVE you money :)) I think the word debt helps people to make more sober judgements.
Disliking travel is the obvious reason (and to be fair, if you're on the board of 10+ companies, that can quickly become a lot of travel). And it's not just for board meetings; it's travel for the board member or for the ceo in order to use the board member's contacts, etc.
I've actually been thinking about it from the other perspective. Why exactly do companies want Bay Area VCs? I get it when you have exceedingly expensive up front costs like R & D, but in the current age of ultra cheap internet infrastructure and what appears to be zero stigma about asking your employees to work at lower than market rate, VC money seems like an overvalued property, especially when how paltry that money is compared to other industries.
So the obvious answer is that VCs are not there to provide money. They are there to provide a process/leadership to acquisition. So if you are a founder who is more interested in building something than an equity event, maybe there is a better way to do it than the VC funding route.
It's the same logic in requiring employees to work in the office. It isn't necessary valid, and likewise it's probably slowly eroding over time (probably due the high costs referenced in the article).
There is such an advantage to being in a startup-dense area, why would you fund companies without this overwhelming advantage? You have a choice, and the valley startups come out on top.
Maybe face time is important after all. Which makes the SV pumping of MooCs and other "disrupt education" pitches hilariously ironic and bleakly dishonest.
