Entrepreneurs can do many things in locations other than their own. They can engaged programming expertise in California, Calcutta, or Chickasha. They can secure manufacturing capacity in-state, in the region, or across the globe.
But there’s one aspect of building a new company — sourcing risk capital — that has been, at least so far, a boots on the ground situation.
For most entrepreneurs, venture capital has been the gold ring on somebody else’s carousel. In 2010, the National Venture Capital Association (NVCA) reports that the VC industry invested $3,945 per person living in the Silicon Valley region compared to $43 per person in the rest of the U.S. That includes other entrepreneurial hothouses like Boston, Austin and New York.
The problem with this model is that there are hundreds of creative, energetic entrepreneurs living in other parts of the United States.
Many of those entrepreneurs are leading startup companies that have succeeded with a prototype and gained enough marketplace traction to reach the so-called Valley of Death, that make-or-break period when a young firm needs investment capital to manufacture a product and sign up customers to generate enough revenue to reach break-even.
The potential of that under served deal flow has undoubtedly contributed the growth and dispersion of organized angel groups. While California leads in dollars and deals, 79 percent of reported angel group deals and 70 percent of funding (Source: 2011 Halo Report) happened outside of California.
In Oklahoma, we’ve worked to create access to risk capital by building a $40 million portfolio of risk capital funds; about $17 million of which has been invested in Oklahoma companies in the last year.
We’ve also helped found the SeedStep Angels network. With locations in Tulsa, Oklahoma City and Ardmore, the group has made six investments in the last year.
Recently serial entrepreneur Rod Turner in a recent post on VentureBeat, wrote that crowdfunding, spurred by the JOBS Act signed into law in early April, has the potential to “deliver capital anywhere,” breaking the “boots on the ground” paradigm for risk capital that has held many entrepreneurs back.
That will be an interesting development to watch.