When first entering into the world of VC funding entrepreneurs often overlook in the importance of understand the local “flavor” of VCs.
VCs tend to be more geographic in their investing — they tend to favor deals closer to home. It reduces their risk, as they know more of the players in their area and it is easier to keep an eye on things.
And VCs in each region or even each city will often focus on just a few industries or even a couple of segments within those industries that they know well. Again, it is a way of reducing risk, since they can understand, evaluate, value and forecast a deal better if they have experience and knowledge in a specific industry segment.
A case in point can be seen here in Nashville. Much of the wealth in this area came out of health care — and specifically health care services and management. the health care giant HCA created a lot of wealth here in Nashville and spawned many deals formed and/or funded by its former executives. Wander too far from health care services or management and the money gets harder to come by. Even medical devices are harder to fund here because the money does not have experience in that segment.
And move too far away from health care and it even gets tougher. There is a great example seen in an article from Business Tennessee magazine:
Four months ago, Tim Estes stood at a podium and lamented how much further up his company–Brentwood-based Digital Reasoning Systems — would have been on the high-tech food chain had it just been located on either of the country’s coasts. The 28-year-old entrepreneur declared that the 15 or so Midstate venture capital firms are too timid or unimaginative to risk anything beyond recycling the same old health care services model over and over again. “Why not link evidence-based medicine and informatics?” he asked. “[Health care] data is essentially the crude oil. Refining data is seven times more profitable than pushing it around. This is inexcusable. We should be leading this.”
So this entrepreneur is planning to pick up and move where the money is for his Web 3.0 business deal.
(Thanks to Jim Stefansic for passing this along).