Photo by Mackenzie Weber on Unsplash
Many venture funds believe they can predict what is going to happen next and where. They invest based on that certainty, focusing in specific regions, or on specific types of tech, or, commonly, both.
At our funds, we know it’s impossible to predict exactly what is going to happen next or where. Instead, we study the world intensely—science and tech trends, human behavior shifts, geo patterns, economic activity—and respond to what the data tells us. We invest based on our researched, vetted uncertainty.
Our unique approach to early-stage investing works; our funds have produced dramatic returns (well over 10X on our 10-year investments; three unicorns where we invested at their inception; and nearly 10% of our portfolio over $100M in valuation, where we got in on single digits). But it can also surprise us in ways more traditional funds don’t see. Our data-responsive approach will occasionally reveal patterns beyond those we were actually studying.
One example is female founders. We don’t specifically seek out female founders - we seek the best teams with the best tech in the best segments. However, in this meritocratic quest, we wind up backing a lot of women, who then proceed to produce some of our most successful startups. Data shows that most funds have only single-digit support for women-led companies. Nearly 30% of our companies have women in core roles. What does that say to us? It says: If you keep your eyes clear of preconceptions and simply look for greatness, you’ll find quite a few phenomenal women worth backing.
Recently, we experienced another surprise of this sort. Our funds don’t target any particular region. Our team is arrayed worldwide so we can react to patterns and be close to strong new companies anywhere they pop up. So, we were surprised—and delighted—to learn from Crunchbase’s America’s Mighty Middle Report that we are the second most active early-stage fund in the US between the coasts that isn’t actually based somewhere in that middle.
Our strong presence in the Mighty Middle is a perfect example of our fund’s approach. We aren’t looking specifically at the Midwest. We are looking at science and talent. And science and talent are rising outside of the traditional tech centers located on the US coasts. The report shows that a number of factors are driving this rise: Greater and more sophisticated startup support from states, cities, and universities; an expanding set of accelerators and incubators who help entrepreneurs frame their ideas and move forward; and a growing base of local and regional funds who can advise and support young companies (and who can flag them for external funds like ours).
Perhaps the greatest driver for startup growth in the Mighty Middle is the willingness of world-class entrepreneurs to go there or stay where they grew up and went to school. The broader local support base is part of what holds them, but also, the far greater ability to operate remote teams that can be virtually “present” and work together in real-time, regardless of their location.
What won’t surprise us is if these trends escalate even further coming out of the current enforced work-at-home period. After COVID, traditional coastal tech hub cities may be even less attractive to Midwestern entrepreneurs.
But again - we can’t predict what’s going to happen next. We will study the world, watch the numbers, and then respond accordingly.
By Managing Partner Mike Edelhart
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