The West Coast Deal

April 16, 2011

9:30 am

Editor’s Note: This article was contributed by Washington, D.C. based Glen Helman, an angel investor and serial entrepreneur, who works for venture capitalists as a turn-around specialist. Glen is regular contributor to Tech Cocktail.

There is no denying it that when it comes to fashion and investing, DC is a conservative town.  We’re not fashion trendsetters, and we’re not the big idea, swing-for-the-fences capital of the entrepreneurial-world-shakers. Let’s face it, we may have put a man on the moon, but we didn’t get your grandma to use Facebook.  So that’s probably why we’re seeing many local companies like PointAbout and HitFix raise money, and immediately decamp to the West Coast.

I brought this up in a meeting of investors the other day using PointAbout as an example, and one local angel investor berated me for saying our investment ecosystem is not up to par with the other coast’s.  Unfortunately for this investor, his argument effectively made my point.  He complained that he made an offer for PointAbout and was rebuffed because PointAbout management didn’t like his valuation and terms.

Well guess what DC, when your choices are either being low-balled by a small fish in a small pond, or getting a significantly better valuation from a big fish like Mitch Kapor (@mkapor) who invested in PointAbout in the big pond of Silicon Valley, which would you take?

Now let me see.  Mitch Kapur has a successful investing track record of substantial exits…you don’t.  Mitch Kapur is a startup entrepreneur who built a category-defining, mega software company Lotus…you have no operating experience.  Mitch Kapur is well respected and can open almost any door with a phone call…you have a phone. That’s like a self-selecting test.  If in this case the CEO took the DC deal instead of the West Coast deal, would you really want to invest in a founder who showed such bad judgment?  The point is that the DC angel investor’s made an East Coast offer for a West Coast deal.

So far this year, I’ve seen 4 deals struggling to raise sufficient capital in DC that would be golden if they went out west.  Unfortunately for them, and fortunately for our region, many of these entrepreneurs have roots here and aren’t willing to just pull them up and move.

I’m not suggesting that we don’t have a small cadre of big startups that get funded and stay right here. Many would argue about the LivingSocials and OPOWERs (operating here yet funded by West Coast VCs). Some will point to past glories like AOL and UUNet.  I would suggest that these are the exceptions that prove the rule.

Perhaps as the money from limited partners starts flowing more freely back to DC investors, as it did before the turn of the century, competition for local deals will drive the market to become one that is more willing to take risks on the kind of big-idea companies that are getting funded out west. Perhaps if the debt ceiling is not raised, T-bill investors will find VC investments the “New Flight-to-Safety,” as T-bills go high risk.  All I know is that if you are a startup entrepreneur with a great company (not just the thought that you have a great company) and you’re pitching to investors and getting no traction in DC, you might want to follow the advice of old Horace Greeley.

Go west, young man (or woman).

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Glen Hellman (@glehel), is an angel investor, serial entrepreneur, and works for venture capitalists as a turn-around specialist. He is the Chief Entrepreneureator at Driven Forward LLC, frequently muses on his blog, Forward Thinking, and works with entrepreneurs to help them figure out what to do and get them to do it.

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