Market Overview
Mayberry, LLC: Private equity from the Heartland
You might believe that venture capital is a game for the coastal elites. We’re here to tell you: You’re right. We didn’t keep an accurate count, but clearly 95% of the firms that fund early-stage businesses are in the Bay Area, Greater New York, or elsewhere along Interstates 5 or 95.
But we’ve been wondering: What about those VCs who decided they didn’t need opera tickets, and who expect to walk away from a $40-a-plate meal with a full belly?
We did find some. The next question, then, is how does being a three-hour flight away from Menlo Park or Greenwich affect their investment decisions? What country smarts are they bringing to the game?
The venture capitalist next door
None of these rival Andreessen Horowitz, the $35 billion fund that sits atop the Silicon Valley pyramid but, in VC, there’s plenty of opportunity for everyone. When Andreessen says no, a founder can just go down to the next name on the list. The very, very long list. So don’t consider these examples to be the only early-stage investors between the Rockies and the Appalachians.
- TechStars, established in Boulder, Colo., in 2006, has around $110 million invested more than 4,000 companies. It runs incubators across the nation – in New York and California of course, but also in Chicago; Denver; Atlanta; Minneapolis; Austin, Texas; Lehi, Utah; Sarasota, Fla.; Ann Arbor, Mich., and other places you wouldn’t expect mentors to parachute into. Their middle-American portfolio includes baby monitor maker Owlet and wind farm manager Skyspecs.
- Foundry Group splintered off from TechStars and is also based in Boulder. Foundry has a piece of at least 65 companies, about one-third of which are based well away from the coasts – from Quiq in Bozeman, Mont., to GigPro in Charleston, S.C., they’ve managed to find investment opportunities without paying bridge tolls. Quiqmakes AI-assisted customer service chatbots, and GigPro is basically TaskRabbit for hospitality workers.
- Austin Ventures was founded in 1979, when VC was new and Austin was still part of Texas. It has raised around $4 billion and invested it back in the Lone Star State, mainly in companies focused on health care, logistics and non-bank financials.
- Cottonwood Technologies of Santa Fe, N.M., focuses on “patent-based hard science,” by which they mean photonics, nanotech and robotics, not fintech, AI and crypto. It has around 30 portfolio companies, including eco-friendly fabric maker Green Theme Technologies, electric motor designer Infinitum and diagnostic wearables creator Reyedar.
- Lightbank, of Chicago, holds a portfolio of almost 90 companies and has almost $300 million in the bank to buy more. It supports such Midwestern businesses as medical AI firm Tempus and health payment account platform Paytient.
Capital intro
You’d think that being closer geographically to the industries than to the money would give these firms a different perspective, allow them to spot winners early. We weren’t able to find data to consistently support that, though. When non-coastal VCs do spot something early, it’s usually because they’re close to such smaller but still relevant data hubs as Denver or Austin.
That’s not to say there are no examples of Heartland capital building Heartland businesses to be found in CrunchBase. When these firms act as lead investors, that’s when they introduce their portfolio companies to a broader range of funding options.
MacroFab, a precision manufacturing company in Houston, was midwifed by TechStars, and Foundry led later rounds.
Austin Ventures brought along an array of smaller Central Time Zone players to fuel the expansion of Austin-based Ambiq Micro, which finds ways of making AI more energy-efficient.
Lightbank serves the Great Lakes region well as a lead investor. It introduced capital to such companies as Chicago’s Blueprint, which makes AI assistants for mental health, or Bedford, Ohio-based Aropha, which innovates test lab equipment.
Invest locally?
Investing in VC funds is risky, and not a good idea for most people. We’d all go to jail if we told you otherwise.
Still, if you are an accredited investor and you’re willing to roll the dice, it’s nice to know that you don’t have to fly into JFK or SFO to take a meeting.
Your first meeting, though, should be with an experienced financial professional who can maybe talk you out of it. Should you choose to pursue your VC dreams, the advice you get out of that session is very likely to pay off.
