Which Cities Are Best Serving Venture Capital Investors?

These numbers show the smart money should increasingly focus more on the size of the fight in the fund, rather than the size of the fund in the fight. Learn how money invested in Atlanta venture capital returns compare to other metros.

One of my favorite quotes is from Mark Twain– “It’s not the size of the dog in the fight; it’s the size of the fight in the dog.” It’s especially true applied to Atlanta venture capital and other VC metros not in the “mainstream.”

There’s a number called “multiple on invested capital” (MOIC) that shows returns from venture capital through the lens of different cities. It’s a way of judging ecosystems and can give an investor some directional guidance on which cities are fighting over scraps versus which are more deserving of more venture capital attention.

  • San Jose/Silicon Valley metro’s average MOIC: 4.2X
  • Atlanta metro’s average MOIC: 4.4X.

Atlanta’s venture capital MOIC of 4.4 outperforms San Jose, Austin, Raliegh

The data is clear: median venture capital investors in the Atlanta area are getting the same or better returns as venture capital investors in the heart of the Valley–the famous Sand Hill Road included.

Best gains go to the scrappy and underfunded over the sleek and over-capitalized.

That’s not how polished Silicon Valley funds sell the story, is it? Let’s take a look at other metros. Perhaps the hyperconnectivity of the capital, or so you’ve heard about the Valley, is functionally a negative when it comes to creating outperforming returns. The median Atlanta venture capital return of 4.4X is better than:

  • San Jose/Santa Clara: 4.2X
  • Austin: 3.4X
  • Boulder 3.3X
  • Raleigh 3.2X
  • DC 2.9X

Does this mean stop investing in other metros? No–please don’t take that away from this post. VC is a global sport. Metro is just one of many factors. It’s a highly volatile industry and “past returns” can’t predict future ones. However,¬† do take the opportunities in the Southeast seriously–perhaps more seriously than before you had these facts. (The numbers are all from Pitchbook June 2018 by the way.)

To beat Atlanta’s 4.4X MOIC, you have to haul your money to San Francisco, where the value of your dollar is eroded by much bigger lifestyle costs. The SFO MOIC is 4.6. Are those two points behind the decimal worth the hike?

Maybe, but options like Chicago (8.5X MOIC), Seattle (5.9x) or New York/New Jersey (4.8X) will do more for your bottom line. The most evident take-away for a sophisticated investor is, if you want your venture capital investment to work hard, put it in a place with a hardworking culture of scrappiness and squeezing value. Atlanta, Chicago, Los Angeles and Philly all boast median multiples on invested capital “better than the Valley.”

As more prominent West Coast VC funds fight rising costs, this return disparity will only get more pronounced. With 50% of venture capital coming out of California, the smart money should increasingly focus more on the size of the fight in the fund, rather than the size of the fund in the fight.