I’m Not In Silicon Valley. How Do I Raise Money?

By Tim Houghten

Photo credit: http://blog.sli.do/

Photo credit: http://blog.sli.do/

Startup funding appears plentiful but how accessible is it for those not living in Silicon Valley?

This a question that we get all the time at 1000 Angels, the private investor network that connects startups with investors. Do startup founders need to consider taking the leap and moving to the Valley, or has technology made San Francisco irrelevant for the majority of investors and entrepreneurs today? If so what key factors can help level the playing field, and increase odds of obtaining funding?

‘Venture Valley’ in 2015

It’s no secret that Silicon Valley dishes out and receives the bulk of VC money. Bloomberg Business and the National Venture Capital Association reports that 2014 saw investment dollars soaring 61% year-over-year, with more deals being funded too. Totals for 2014 hit $105B, and 4,356 deals.

Forbes reveals a growing number of Silicon Valley accelerators offering spots to incoming overseas entrepreneurs including Y Combinator, 500 Startups, Techstars, Founders Space, and Wearable World.

However, take a look at deals funded via 1000 Angels, or freelance job openings on major outsourcing platforms like oDesk, and it is obvious that many Silicon Valley startups are increasingly finding their funding and talent outside.

Silicon Valley is not a cheap place to live for startup founders, it doesn’t have a very affordable talent pool, and the pursuit of the VC money that is there is very competitive.

5 Alternatives for Startup Fundraising

1.     Online Crowdfunding

2.     Joining Accelerators and Incubators in Secondary Markets

3.     Traveling to Investor Pitching Opportunities like Shark Tank

4.     Entering Startup Competitions (i.e. Startup Weekend and Startup Battlefield)

5.     Virtually Pitching Investors via Email, Phone, and with Pitch Decks

In fact; a recent infographic from Entrepreneur.com reveals that less than 1% of startup funding came from venture capital firms last year. Self-funding, loans, and friends and family were responsible for funding far more startups. The data even shows that crowdfunding has been responsible for funding more than 3 times more startups than ‘Venture Capital’. And California only placed number 5 out of the top 10 states considered the ‘Best Places in the U.S. for Crowdfunding’.

Tips for Improving Your Pitch

Online and distance fundraising is a viable strategy, but startups can dramatically increase their odds of success if they consider the following…

·       Use the press and digital media to gain attention and get noticed

·       If you are a foreign startup consider organizing as a Delaware C Corp

·       VC Mark Suster suggests promoting your willingness to travel for board meetings

·       Be alert to any potential negative perceptions of your location

·       Highlight the advantages in profitability and securing talent in your location

·       Ariel Poler says to remember that most Silicon Valley VCs aren’t really from the Valley – find your point of affinity

·       Do your homework on investors and seek meetings with those that are a good fit, and are already interested in your type of startup

·       Compensate for proximity with passion, realistic planning, and establishing credibility

Summary

In conclusion; venture capital is readily available for serious startups in 2015. While Silicon Valley may still be the source of a significant amount of this funding, more capital is being invested at a distance, and most notably through crowdfunding.

While there can be advantages of being positioned in the valley, those startups that aren’t can find fundraising goes further thanks to lower operational costs elsewhere, and this can be a great pitch point. Some will even find they benefit from less competition for dollars elsewhere, and can raise capital for efficiently and cost effectively from where they are now, providing they use channels which help build their credibility and trust level.


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