VC Paper Help
I'm beginning an extensive paper on VC thats due in May, with my proposed thesis being that the regional VC model (that is, VC funds that invest primarily in one geographic area, due to constraints created by the LP's) doesn't really work. The argument is more or less that there are not enough good deals in any one geographical area, and that a fund needs to explore all of the opportunites in the country in order to find good enough deals to make a decent return.
The opposing argument is that without LP's overlooking the fund managers, constraining them to a certain geographic area, information asymmetry is created and unnecessary risk or other malicous activity may take place. Atleast this was the argument my advisor countered me with.
Does anyone think this is a reasonable(or worthwhile) thesis, and has anyone read any literature on the regional vs. national debate?
Thank you kindly
would follow VIllage ventures as they partner/invest in a network of regionals that typically raise indep LP money on top of it...also would comb through some state pension fund data in terms of their investment programs...several have 'in-state' investing programs which constrain them to one particular geography..would be interesting to comp their returns vs a broader vc group
I believe Sequoia is known for having their portfolio companies move within a 50 mi radius from their office.
But in all honesty, you can't make a blanket statement like that. VC investments range from seed funding / actually starting the company to large growth equity deals. For example, if the company is seeded by the VC fund, yeah it is important that they stay close by so they can help out. But tightly managing a growth equity deal, where the management has been running the business for years and probably knows more than any VC, is not a good idea.
Also you should consider why the regional VC fund model doesn't work -- it's because there's been too much money thrown into the industry. In terms of management fees, the VCs are happy to have more AUM but the startup space is only so small, so they have to make investments in growth equity or invest in less qualified deals to invest all their money.
Personally I don't find this topic that interesting because a small VC could be very successful (in % return) doing only local deals. I'd be more interested in how much value a VC fund brings to a company considering they mostly just sit on the board and check up every quarter.
would also evaluate the DFJ affiliate funds...
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