Mark Suster knows what it’s like to have to prove a startup can thrive outside Silicon Valley.
Despite all the assets of Los Angeles, his adopted hometown, venture capitalists overlooked the city until it started churning out unicorns like Snapchat, The Honest Company, Hulu and SpaceX.
“The venture markets discounted us for 20 to 30 years,” the venture capitalist and popular blogger told a group of American Underground entrepreneurs via video chat Wednesday. “There are thousands of invisible jobs that should be in LA but aren’t.”
While the Triangle isn’t the second largest region in America and it doesn’t have ports that handle 43 percent of all goods that enter our country, it does have some similarities, Suster said. And its startups can also offer some lessons to ours.
Suster made his first trip to North Carolina in April at the request of the Wake Forest University. The Winston-Salem university invested for the first time in Suster’s Upfront Ventures, which closed its sixth fund in June at $400 million.
Suster admits his perceptions of North Carolina were entirely based on the political environment—in fact, he admits he forced himself to come visit.
But he’s glad he did. He says he was “blown away” by the vitality of startup communities across the state, and the quality of research institutions. It also helped that he got to hold UNC’s National Championship Trophy on the court at Dean Smith.
“A visit can change your outlook,” he says. “I got this sense of people in Chapel Hill, Durham, Charlotte and what different regions are like, what the strengths are.”
But Suster admits it’s not always easy to lure an investor outside his or her typical travel agenda. So he offered the entrepreneurs some advice if they’re seeking investment outside the region.
Seek out local capital first. This might seem like a “duh” point, but Suster reiterated that the best early money comes from the people willing to meet you for coffee in your neighborhood and help overcome early hurdles. A local investor can help you assemble a team, validate your idea and identify early customers, making startups more appealing to later stage or out of town investors.
Identify “superconnectors”. These are folks who are well known in and outside of a region, who can help outside investors discern who to meet in a community and help local entrepreneurs identify the best outside investors. Suster gave an example of an Israeli entrepreneur who assembled a lineup of the best companies for Suster to meet during a visit.
CED has positioned itself as a superconnector through its Connections to Capital program helping several startups land deals in recent years. Another couple examples: Anthony Pompliano of Full Tilt Capital and George Deeb, a serial entrepreneur new to the Triangle and promising connections to the Chicago investment community.
Eliminate barriers for a VC to invest. Investors are most often traveling between New York City, San Francisco, Los Angeles, and increasingly London or another international destination. Because of the sheer quality and quantity of companies in those markets, a deal in North Carolina has to be “exceptional”, Suster says.
There’s a couple ways around that though—entrepreneurs should be willing to do board meetings in an investor’s typical destinations instead of requiring a trip to NC every quarter.
Companies should also be open to a distributed workforce. A good example from Suster’s portfolio is Gainsight, which started in St. Louis and keeps its product and engineering teams there. But the executive suite is located in the Bay Area, where there’s experienced sales and marketing talent. “It works well for both markets and investors,” Suster says.
Another option is to find investors with a local connection—a Duke University alum, an investor with a kid attending college here, a Triangle native who moved away. These are folks more likely to make trips here for personal reasons.
“Do the work to find out who is from your geography—they’re more likely to have a propensity to invest,” Suster says.
And finally, once an investor sits on one local North Carolina board, he or she is likely more open to future local investments. Suster’s example here comes from Cincinnati, where a fund of funds invested in Upfront Ventures. During his visits, the group now lines up meetings with startups and major corporations like Procter & Gamble. Similar stories have led to Upfront partners tracking the Seattle, Boston, Washington D.C., Austin and French markets.
“Figure out which VCs or investors have made investments in the broader region already,” Suster says. “You have a competitive advantage because they are trying to amortize time spent there.”
Show off assets to sweeten the deal. The broad point here is to show off all the North Carolina has to offer—like Championship trophys and legendary basketball teams.
But a key Suster suggestion for the entire region is to build a world class conference, like the invite-only Upfront Summit. Upfront’s take is to celebrate all things Los Angeles during the summit, which means inviting celebrities and sports figures and making the event exclusive.
Reps from CED and Moogfest happened to be in the room, and both are building signature events for the regional tech community. Emily McLoughlin, communications manager at CED, told me Suster’s insights on what personally attracts him to a region provided a fresh perspective as her organization preps for this year’s CED Tech Venture Conference.
Naturally, there were questions from the crowd at the likelihood Suster or the five other members of his team would spend more time here. He left that on us—make an invite and they’ll try to make it happen.
But there’s another way to build a stronger connection too. Someone local could invest in his next fund.
