Venture capitalists have been historically reluctant to invest in startups based too far from home, thus making it it easier for “good ideas” to get funded in the Bay Area or the Acela corridor than anywhere else. 2020 may have finally changed that dynamic.
Why it matters: This could create a virtuous cycle of economic opportunity in cities and regions that have been largely left out of America’s tech boom.
The history: Many venture capitalists used to abide by the so-called “20 minute rule,” whereby they wouldn’t invest in a company located more than a 20-minute drive away from their home or office.
One Boston-area investor had his own subway spin on it, saying he wouldn’t even meet with companies located past a certain subway stop on the MBTA’s Red Line.
- In many ways, these guidelines made sense. Investing in a startup is often viewed as a hands-on endeavor, particularly if the venture capitalist is going to take a board seat. If a problem arose, they wanted to be present.
- Plus there could be major personal life complications from having to attend quarterly board meetings for portfolio companies in eight different cities, plus conducting due diligence for many more potential investments, while also trying to make those dance recitals or Little League games.
- This isn’t to say that VCs never invested far from home, but such deals often needed to pass a higher threshold.
The new normal: The pandemic forced venture capitalists to attend board meetings via Zoom, and often conduct due diligence that way