ADANMA RAYMOND


How defying conventional wisdom might lead to unconventional success.

Founders have been told for years that to raise capital, they must be based in a major VC market like Silicon Valley, New York City, or Boston. A 2013 Harvard Business Review article blares, “Don’t Build Your Startup Outside of Silicon Valley,” for just one example. 

This advice went double for women and minority founders. The rationale: it’s slim pickings out there as it is if you’re from an under-represented group, so it makes sense to better your odds by focusing on the biggest markets. 

But with each year, the statistics around capital going to under-represented founders remain grim. The traditional markets aren’t supporting “non-traditional” founders, so perhaps, it’s time for these more diverse founders to shift their thinking – because smaller VC hubs can offer many advantages. 

Inequity Persists

The reality is that clustering in major markets hasn’t generated a gusher of VC money for diverse founders. Just 0.48% percent of all the VC funding in 2023 went to Black founders, data from Crunchbase shows. 

Women hardly fare any better, with around 2 percent of VC money raised in 2022. With 31 percent of startups having at least one woman founder, female founders’ VC support remains disproportionately low. In terms of deal counts, just under 6 percent of VC deals involved all-female founder teams, Harvard’s Kennedy School Women and Public Policy program found

When under-represented founders are given less capital to grow with – if any at all – they are set up for a steeper climb. A smaller early-stage round gives a startup less runway to aim high and impress funders the next time they seek to raise. 

It’s clear that to date, the “top markets” aren’t doing enough to support diverse entrepreneurs. The major hubs aren’t inherently designed to consider different types of founders, and a reliance on pattern matching ignores who’s excluded from old-school patterns.

For founders left feeling overlooked and under-supported in Silicon Valley, there may be value in exploring elsewhere to find a home for your startup.

Why can choosing a second-tier or smaller VC hub work better for nontraditional founders? Let me count the ways: 

1. Lower cost of living

Let’s face it: none of the leading VC hubs are known for their affordability. Setting up shop in a market like Chicago or Atlanta may free up valuable resources to channel towards growth and top-notch talent.

Lower overhead also gives founders more breathing room while fundraising. If you’re in San Francisco, depending on raising your next round within a few months, you could lose it all if there’s a dip in venture activity. In a more affordable city, it’s easier to stretch your dollars if fundraising takes longer than you expect.

2. More Open-Minded Investors

Data from Revolution finds that the proportion of venture dollars going to the Bay Area is on the decline. Some of this can be attributed to investors willing to buck trends in order to find their next big bet. The rest stems from the rise of new funders popping up across the country. In both cases, under-represented founders will find relief in the maverick mindsets of those ready to break stereotypes of what success should look like.

By the nature of their deal flow, funders in nontraditional hubs may be better primed to consider nontraditional founders, business models, or indicators of success. 

“We’re seeing a growing number of Black, Latinx, and women leaders launching or growing their own funds with an equity focus — Cleveland Avenue, Lightship Capital, Chingona Ventures, to name just a few. We’re also noting traditional venture funds like Invest Detroit Ventures, building teams that are more representative of our communities and initiatives at organizations like Chicago:Blend  and P33’s TechRise emphasizing  DEI. While we have a ways to go, the Midwest venture world’s commitment to be more equitable is starting to pay off. Local investors and supporters are showing that the Midwest can lead by example and are walking the talk.”

Yes, there may be fewer funders to meet, but better quality interactions with funders who understand your market and respect your validity as a founder may be far more fruitful in your fundraising journey.

3. Swimming In a Smaller Pool

There tend to be fewer hot startups in a smaller city. Growing your company in an environment where you stand out means higher visibility, not only locally, but to anyone paying attention to your city.   

The better your visibility and connection with key players in your ecosystem, the higher your likelihood of warm introductions to investors. Warm intros are 13 times more likely both to be presented to a fund’s investment committee and to get funded, a 2018 British Venture Capital Association study found. When Endeavor opens new offices in smaller markets, it’s easy to find the founders who have risen to the top, and the entire community points us in their direction. 

This may not have meant much even a few years ago, but we’re at a moment where there is an uptick in interest from seed funders in startups across the nation–Steve Case’s recent book The Rise of the Rest describes this movement, and his Rise of the Rest Seed Funds and Revolution Ventures are part of it. Other examples of secondary-market-focused VCs include Village Capital and funders such as Urban Catalyst that focus on startups sited in Opportunity Zones

As attention shifts to new markets, there’s real opportunity in being a secondary city star.

4. Closer-Knit Communities

As an entrepreneur, it’s easy to feel lost in a big city. This is compounded for under-represented founders in major hubs, where tech bro monocultures can dominate the scene, leaving anyone who doesn’t fit the mold dispirited and disconnected. 

Outside the major hubs, these archetypes have looser grips, and many have come to entrepreneurship via diverse paths. Engaging in the startup community doesn’t come at the expense of your own identity. 

Endeavor Entrepreneur Liz Giorgi and her co-founder built their content creation platform Soona in Denver, Colorado. Giorgi says, “The founders in this community are all incredibly community minded. Folks who have IPO’d their companies are just as likely to get lunch with you as the founding partner of a fund. It makes it easy to break in and feel like your company has a chance of succeeding. It also means that founders of all stripes can find their place here. The female founders I know here are thriving just as much as the male founders and that speaks volumes about how much people show up for each other.” 

Cities in smaller hubs tend to harbor founders with a strong personal relationship to the place. This can be a meaningful bedrock for the community. Additionally, everyone involved in the local ecosystem benefits from greater attention from funders, so there is higher incentive for collaboration and mutual support across startups. If you’re based in a smaller entrepreneurial ecosystem, you also get a community that’s rooting for you. 

5. Post-Pandemic, Smaller Markets Make Sense

Secondary markets were looking good before 2020, but they’re even more alluring now. The pandemic gave more knowledge workers a chance to work from home, and the office has become far less important.

In a 2021 January Ventures survey of 450 founders, only 21 percent said it’s important to be in a top-three market. More than 90% of founders with remote teams said they planned to continue with distributed staff. We’ve seen that trend hold true in the years since.

Under-represented founders are in the best position yet to take advantage of the affordability, closer community, burgeoning tech talent, and growing funding opportunities offered by secondary markets. Tech startup teams are increasingly remote, and access to capital is no longer bound by city lines. The time is now to consider whether your business is growing in a city that best serves your needs.

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