It’s crazy to think that this past year I’ve gone from loosely being able to define what venture capital (VC) is, to entering a rollercoaster of experiential learning and expanding my understanding of the fast-paced world of VC. That being said, my perception of what VC is has significantly changed.
Product vs. Founder
At first, it felt seemingly obvious to me that one should value the product or the service above all else. While the actual product or service is a crucial piece, more importantly are the people building it. The team behind the startup is weighed heavily when evaluating a company at the earliest stages. I heard once that almost every idea you can think of has been thought of before - ultimately it has to be the right person and team to execute the concept to its fullest potential.
Beyond the Bay
I initially perceived Silicon Valley and Bay Area to be the epicenter for all top-tier startups. While a study conducted by Ernst & Young shows San Francisco still takes the lead with the most VC activity ($27.7 B investments in Q2 of 2021), other U.S. regions are booming as well. According to the same study, Greater New York ($10.9 B), Greater Boston ($8.6 B), and Los Angeles ($4.6 B) all saw significant VC investment. Other U.S. cities have been highlighted as potential future hubs too, such as Chicago, Austin, Seattle, and Denver.
Minnesota has also seen growth in startup and VC activity. A June 2022 article by The Minneapolis / St. Paul Business Journal reported, Minneapolis is the fourth-ranked emerging startup ecosystem in the world and second in the United States. The city jumped 18 places from last year in the ranking weighing performance, funding, market reach and talent. These statistics compliment much of what I’ve seen in the MN startup ecosystem. The quality of startups here in Minnesota are well poised for success.
More than Money
I initially was under the impression that once a VC invests in a startup, they essentially fulfill their obligation and simply wait for a return on their investment. Capital needs is a large reason a founder will look for VC financing; however, an investment offers far more than just money. Investors can add value to a startup beyond their capital in 3 main ways: time, talent, and ties:
- Time: investors set aside time to support founders and startups in their portfolio. Whether it be through mentoring and coaching, or a formal board seat, investors add value to startups by being generous with their time.
- Talent: an investor most likely has plenty of skills they could share with a founder. Whether it be with writing, web design, organizational development, or sharing their personal experiences, there are many pathways for investors to act as an additional resource to their startups.
- Ties: if an investor doesn’t have a specific talent that meets a startups needs, chances are someone in their personal network does. Providing introductions, connections, or amplifying a founder's message to their network is a great way for investors to add value to their portfolio companies.
It’s also important to note that sometimes the best thing an investor can do is know when to step back. Oftentimes, it’s best if an investor routinely checks in with their portfolio and proceeds to step in if a request fits their scope of assistance.
Diversity in VC
The VC industry has gotten a bad wrap for its lack of diversity and women investors, rightfully so. An article written by Forbes details that 58% of venture capitalists are white males while only 11% are reported to be white women, 2% as being Black men, and 1% as being Black women. However, recent trends are starting to show more women and minorities are entering venture capital ushering in new priorities, investment opportunities, and a new era for VC. A Fortune article details that in 2021, the number of U.S. VC firms that are majority-owned by women and/or minorities is at an all time high, increasing by 25% from the previous year.
In addition to gender and racial diversity, investors are getting exposed to VC at a much younger age. Student run funds like; Atland Ventures, which invests in companies solving problems felt by the Gen-Z demographic; the Dorm Room Fund and Rough Draft Ventures supporting student-run ventures; or the Peach Tree Fund which exclusively invests in underrepresented entrepreneurs provide a great launching point for younger folx to get exposed to venture. The impact of this shows in the numbers. Fortune cites that younger generations are investing at a higher rate than previous generations. The article found that 31% of Millennials invested before the age of 21, when compared to their Baby Boomer and Gen X counterparts who saw only 9% and 14%, respectively, invest before age 21.
In Summary
Venture capitalists want to invest in companies that will be the next big thing. They aim to do so by investing not only in the right product, but more importantly the right team—and it is happening all across the U.S. VC firms support their portfolios any way they can, and oftentimes that is more than just money. Lastly, we are seeing more diversity in gender, age, and race making it an exciting time to be in venture.
