Investing Outside Of Silicon Valley: Now More Than Ever (Where “Ever” = 2013)
Homebrew is making more investments outside of Silicon Valley than we have in our history! That statement might be more dramatic if our firm was founded in 1983 instead of 2013, but speaks to a handful of changes in seed investing. Some of these are generalizable and our friend Semil Shah does a nice job covering several in his post “Investing Outside the Bay Area.”
What I want to emphasize though, is we don’t think about this as “value shopping” (trying to get cheaper valuations elsewhere) or “competitive pressure” (we believe our product is preferred by a subset of great entrepreneurs and there’s more than enough opportunities to deploy our funds solely in the Bay Area if we chose to do so). No, instead we are simply looking for minimally the right team to solve a big problem and even more opportunistically, companies that might actually be advantaged by a non-NorCal homebase.
Satya and I tend to approach strategy in a framework and here’s how we’ve managed the question “where will Homebrew invest?”
Phase 1 Bay Area + NYC (2013–14)
Starting out we really wanted to ensure we got our offering correct — could we effectively deploy capital + sweat + reputation to work with great seed stage founders for the first 3–5 years of their company. Could we ensure to support them as people, not just as executives. And could we increase the velocity and probability of their success.
Homebrew is basically built to make these goals our priority and it comes with a set of tradeoffs, for example, our fund size probably has a ceiling. Early on we also self-imposed a geographic constraint because we didn’t want to spread ourselves too thin and risk disappointing the founders we backed. So we said, outside of very special circumstances [hi amazing SaaS company Weave in Salt Lake City], let’s only invest in the Bay Area and NYC (here’s a 2013 post which answers ‘why NYC’).
Did we miss some great companies in places like Seattle, Los Angeles, Denver and so on? Yes we did! But we were optimizing for building a foundation for Homebrew, not chasing every deal everywhere.
Phase 2 California + NYC (2015–2017)
As we started investing out of our second fund in the middle of 2015 we felt like we had our sea legs under us operationally. And at the same time, came upon a handful of amazing opportunities in Southern California (two in LA, one in San Diego). Pull and push simultaneously caused us to expand our “target geos” to SoCal (defined as we hold ourselves accountable to be proactive there from a dealflow perspective). It also gave us reasons to be in Los Angeles more frequently. Which is nice. [sidenote: I had teams in LA for the entirety of my 9+ years at Google and spent a summer internship earlier in my career so I’ve always been #LongLA].
But even with creeping the Homebrew business down LA-way we still routinely said “No” to companies elsewhere, even when they looked interesting, because we wanted to get to “capacity” in terms of our commitments and Board Seats before judging whether we could properly go beyond these two states and still meet our goals for Homebrew.
Phase 3 US and Canada (2017+)
Where are we now? Literally a broader mindset. Two LA, one San Diego, one Salt Lake City, two Boston, seven New York City. And our next two investments look likely to be in two cities new to Homebrew. We’re more confidently investing in the best companies no matter where they’re located in the US or Canada. We feel like we have a non-local playbook in place — not just for opportunity sourcing but more importantly, startup-servicing ongoing. Our success isn’t dependent upon being geographically diverse but we don’t see a reason now to artificially constrain ourselves. How will this play out? Will we ever invest internationally? Is the Bay Area still the absolutely best place to start a company of potential significance? I’ll let you know in a few years :)