Why Fundraising Is Different In Silicon Valley - Michael Seibel

Neither day I did office hours with the YC company, and they were very concerned about fundraising because they had tried really hard to fundraise in their local community. They grew up in North Carolina, and it was impossible for them to raise any money.

So, they said to me, “Michael, how do I make sure that we can actually raise money out here in Silicon Valley?” They were so concerned to the point that they were overcorrecting based on the feedback they got from their angel investors in the local community.

The feedback that I gave him is that, unfortunately, investors are not spread evenly around the country or around the world. There’s something interesting about investors in the Bay Area that’s different from investors in other locations. Typically, in the Bay Area, if you’re an early-stage investor for long enough, you will have said no to a number of companies who've gone on to be very successful.

That gives you pause every time you meet with a new company. That lets you think, “Hmm, this company might be a good one. I should pay extra special attention. I should really dig in. I should really learn a lot before I make a decision.”

Unfortunately, in many other parts of the country and the world, if you’re an angel investor, you don’t see as many deals, and you don’t see as many good deals. So, it might be the case that almost every time you’ve said no, you’ve been right.

So think about this dichotomy: If you’re in the Bay Area for long enough as an investor, you’ve said no a bunch of times, and you’ve been wrong. If you’re outside of the Bay Area, it’s much more likely that every time you’ve said no, you’ve been correct.

So, the mentality of the investor is completely different. The result is that the investor in the Bay Area, or any really active startup community, is much more likely to not dismiss an idea out of hand. They’re much more likely to give you the benefit of the doubt on your idea and dig into how you plan to execute, how you plan to monetize, and how big the idea can get.

Whereas I notice it’s far more common outside of strong startup communities for the investor to try to determine whether or not the idea is a good idea. You know what I’ve noticed looking at literally hundreds and hundreds of thousands of YC applications? My ability to figure out what ideas are good or not is much less sharp than my ability to figure out if this team is executing.

So, I much rather use the “Is this team executing?” bar to choose companies than the idea bar. So, this is a long way of saying: If you have been discouraged fundraising in your local startup community, that doesn’t necessarily mean you’ve got a bad idea. That doesn’t necessarily mean you should quit. Maybe you should consider trying to do that same fundraise in the Bay Area or in a larger sort of community with investors. You might be a little bit more afraid to say no without digging deep into what you’re working on.