Why I’m Committed to Investing Beyond Silicon Valley

The United States is no longer the only focal point for technology. As startups leave the Bay Area behind, the future of VC is in cross-market investment.
Headshot of author Laura González-Estéfani
Laura González-Estéfani
Expert Contributor
February 2, 2021
Updated: February 3, 2021
Headshot of author Laura González-Estéfani
Laura González-Estéfani
Expert Contributor
February 2, 2021
Updated: February 3, 2021

Back in the 1980s, the motto of famed VC firm Sequoia Capital was, “If we can’t ride a bicycle to it, we won’t invest.” Yet last month, Sequoia finally opened its first European headquarters in London, the latest in a string of offices it has launched far from its home base.

Startup markets in Europe, Asia, and Latin America are growing year over year. In fact, Startup Genome indicates that around 60 percent of the world’s top startup ecosystems are outside of North America. These regions are leaning into the huge potential of bolstering the tech industry, where every job created can lead to the generation of three more jobs in other sectors. But these emerging startup hubs only get a fraction of the VC dollars invested in the United States.

Yet it’s because of these adverse conditions that the COVID-19 squeeze will generate more than a few diamonds in these younger markets. Crunchbase reports that agile startups in these regions have pivoted hard to produce thoughtful and creative solutions to pandemic-related problems. They have the potential to create some of the most defining solutions of this era.

So perhaps it’s to be expected that U.S. investors are taking a more global approach in finding their next startup. Having worked in Silicon Valley for many years, I know all too well that the best opportunities will never be as simple as a stone’s throw away.

The bottom line for investors is to connect with the best founders building the most disruptive companies and to guarantee the best returns. That means we need to catch up to the reality of today’s situation: The biggest untapped markets, the biggest bursts of innovation, the most informed solutions — these all happen in regions with the greatest need, the greatest exchange of ideas and space to grow. So much of that is happening in countries outside our mental map, in languages we don’t understand. But the space and resources these startups need to thrive are where investors, accelerators and hubs can take on a crucial role.

Here is what I’ve learned about how that plays out.

 

Envisioning a Tech World Outside Silicon Valley

I first moved from Spain to Silicon Valley as an international growth executive for Facebook. Despite the fact that many people see Silicon Valley as an open ecosystem brimming with opportunities, I quickly saw that there was an even bigger opportunity outside. You need background to stand out against the competition, something linking you to that space and the people who move within it. I saw founders from across the globe with sensational ideas fade into the background. They weren’t from there. I was fascinated by the opportunity outside.

Years before I left Facebook, I started to build my dream company in my mind. It would boast a team from all the corners of the world. We would bring our brain power together to solve basic and outlandish problems for founders wherever they might be. We didn’t need to be in the same room for that to happen, we could have an international company from day one.

The fuel to this fire was my belief that success happens through diversity, and diversity is not something that’s handed to us. It’s not a government grant or a bill signed into law. Diversity starts in each one of us, which is something that founders and investors still fail to understand. My mother was part of the first generation of Spanish women to work outside the home, and with working parents as strong role models, my sister and I were encouraged to ignore glass ceilings and build the exact kind of future we imagined for ourselves — independently.

So my vision came to life the way that I had imagined. By TheVentureCity’s third year, we had a team of more than 30 employees from 17 different nationalities. We had built a fund making investments in Latin America, the U.S. and EMEA and a product-led growth program accepting founders from all over the globe. We were leading by example to drive diversity and internationalization in the startup industry.

It would be a lot easier if we were located in just one place, focusing on one industry. But would it give the biggest return to investors? No. Would we be able to give the best advice to founders? No. I believe that our diversity of experience helps founders. What we learn from one sector, in one region, is applicable to other sectors, in other regions. They all have a lot more similarities than differences.

 

Creating a More Diverse Entrepreneurial World Requires Collective Action

Investing across markets is more than a natural next step for firms, it’s the main way the industry is going to survive over the next few years. Global firms and organizations based in mature markets have the financial power and clout to partner with these hubs of innovation. We have the foundation of knowledge to help foreign startups thrive — or we get left behind.

Sure, the context is different from San Francisco to São Paulo, but the core of the business is not. At the end of the day, entrepreneurs and consumers from all regions care about the same thing: a valuable product that is solving a need. To succeed, companies need to go through the same motions. Build a product, find customers to validate, measure and iterate.

Here’s a message for investors: Emerging market entrepreneurs need more than our money. More than financial strategy, burn-rate control and revenue projections. They need the expertise to guide them with a friendly hand as they build a sturdy and resilient company. They need to focus on perfecting the technology, design and engineering that will be their foundation.

This is the approach we take, that’s what we make our founders focus on, and that is why we are globally recognized after just three years on the job.

Wherever the startup, VC firms and organizations are more than patrons; they’re role models. A truly diverse global ecosystem will mean diverse machinery — i.e. talent. When you as an organization are hiring and investing in people from all over the world, you infuse that change into the entrepreneurs in your portfolio. We don’t need to conduct workshops or negative reviews with our founders for them to be more D&I conscious. We prove to them that it works day in and day out because they just breathe it.

 

Cross-Market Investing Will Save the VC Industry

VC firms as we know them are going to disappear. We’re seeing an increasing decentralization and fragmentation of capital, with the rise of blockchain, cryptocurrencies and a myriad of fintech services. Crowdfunding and angel lists are increasing access for ordinary people to invest without an office at a VC firm. Basically, this means that more people will be able to invest smaller amounts in founders everywhere.

VCs that only support entrepreneurs with their capital and have high demands — for equity, reporting requirements and unhealthy hypergrowth — won’t be chosen by the best value startups. Research shows that emerging market founders prioritize knowledge and product development over meeting investors.

The investors that will remain in the industry will be those who add a lot of value to their founder partners: experience, crisis management and, in this case, agile problem solving for different markets. That kind of brain power comes from having teams and advisors who have solved problems across contexts.

One of the main reasons cross-market investment will be a cornerstone of the VC industry is simply capital efficiency. VC investors often feel under pressure to generate returns, and if their fund is in dollars, they see less risk in funneling that money closer to home. But ultimately, LPs and investors will judge you based on where you do best.

The U.S. is no longer the only focal point for technology. Where there’s a lot of investment, there’s also the most risk from competition. The valuation of a startup isn’t based on its address. It’s based on the size of the market. And guess what? Someone building a unicorn in Brazil will be spending a tenth of the money as someone doing so in the U.S. Those are the future leaders of the world.

History tells us that, 20 years ago, building a company in tech and internationalizing it would take you five years. Today, you can be international from day one. That means that capital is being destroyed the longer we continue to maintain our old habits of moving employees to a specific location or catering to a single audience.

I have no doubt that this global startup ecosystem we’re moving in is going to be the industry of the future. I live it every day, and I’ve never seen as much promise turn into success as when we connect founders, investors and advisors — not within borders, but across ideas, visions and the belief that it’s all within our reach.

Read More About Global InvestmentTo Compete With U.S. Tech Giants, European VCs Must Take a Different Path

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