The Big Venture Capital Opportunity in 3 Simple Slides

Whether you're a startup or an investor, these three big images show a lot about the trajectory of top entrepreneurs.

Venture capital has the opportunity to create more transformational wealth than ever in the near future. Why? Let’s take a look at three simple sides that paint a big picture of even bigger opportunity.

  1. Historically, investing early in innovation has paid off better than most other investments. Here’s a chart from the American Investment Council that shows the historical 20 year return of lots of types of investments, including popular private equity investments like distressed, mezz debt and of course, my favorite, venture capital.

Another strong pattern in venture capital is geography. Here’s a look at the distribution of venture capital distribution per capita, from the Martin Prosperity Institute.

What you may notice is the overwhelming access to venture capital in California, Boston and New York. That’s because most VC firms are located in those geographies and prefer to invest close to home.

3. The third factor that helps truly grasp where the next wave of venture capital is coming from is the distribution of high growth companies. From 2016 research from the Kauffman Foundation, this is where the United States is creating high growth companies, the type venture capital invests in:

 

What’s fascinating is how many of the high growth companies that exist today are being built outside of the zone of ready access to venture capital. Texas, Tennessee, North Carolina, Georgia, Ohio–these are some of the real hotbeds of high growth innovation today.  While California and Boston appear on the map, by the way, a lot of the fast growth first created there didn’t start there, but rather moved for investors.

Kauffman research pointed out that “dense and diverse” environments are highly correlated with creating faster growing firms. The Southeast, with 40% of the U.S. population and some of the most diverse demographics in the country, is in a prime position. The next wave of great venture capital investments will likely be made in the heartland, not on the coasts. With such an over-concentration of venture capital access in so few geographies, investors in venture capital have to take a careful look at the underlying asset being invested in–high growth firms–and plan accordingly.

If you know a startup looking for early venture capital funding, please invite them to share their story with Valor Ventures at one of our Fundraising Friday events or online