Innovation truly does transcend boundaries and there are thousands of examples of innovating founders or companies that confirm this. These include founders moving across geographies to set up successful tech companies and tech companies expanding from their original homegrown market to provide their solutions across multiple geographies.
However, the answer to the question above is perhaps not...
While you may back a foreign founder, it will generally be in your immediate vicinity. Yes, most early stage investors (pre-series A viz. formation to Series A) typically invest in their local eco-systems. This can perhaps be zoned in a 30 miles/kilometre radius.
Well some reasons for this are apparent…
So the above two are the major reasons for not venturing (pun intended) far and beyond. This opens up the venture investor to get affected (and even impacted) by availability bias. As an investor, your choices for investments are limited to what is shown to you or rather comes your way. As a result, the success of the investment gets constrained.
Now venture is the only asset class that allows for a 1000x (not %) and over return on investment. As is visible by the Airbnb valuation chart (ultimately the stock traded on opening day at valuation of USD 100 bn), the earliest stage investors can make whopping returns over later round investors.
However, the odds of success in venture is known to be low (it’s a known fact that 60% of start-ups never return any money to their investors at any time/ stage of their life). Even those that do, they may not compensate you enough to cover the initial investment or the opportunity cost of this asset class (illiquidity and a longer investment period). The odds of finding an Airbnb or a Coinbase or a Doordash are now known…it’s a 1 in 10,000 bet.
Institutional investor and INSEAD business school have further gone on to state that if you are looking for meaningful predictable returns from venture, the minimum number of such investments needs to be at least 100, and with 500 investments, the investor is certain to get high quality returns. Yes, you could get lucky in a particular investment that is indeed a Coinbase/ Airbnb/ Doordash/ Paypal/Facebook etc….but as mentioned earlier, that’s a 1 in 10,000 probability.
This is one more reason for early stage investors to expand beyond their own 30 mile/km investment zone…clearly, you can’t capture all 500 or even 100 (to maintain a certain quality threshold) start-ups in your area.
The reason venture investors are seeking regular oversight can be analysed from two angles; greed and fear. Greed wise, they think their oversight can add value to the portfolio companies. Fear wise, because they instinctively know that they cannot adequately diversify the portfolio risks they would like to have oversight and take "necessary steps".
If technology can allow investors to efficiently expand their investable universe and invest in a large number of startups (an indexed like approach), it would liberate the investors from their availability bias, reduce portfolio risk and potentially enjoy a higher return. For investors who seek satisfaction from close engagement with the start-ups, the same technology will allow them to handpick the start-ups that they can add most value, globally. Thanks to the pandemic, we all now know that video conferencing goes a long way so we are no longer rooted in the 30 mile/km vicinity.
As an institutional investor, corporate venture capital company, family office or as an accredited investor investing in this asset class or looking to, do reach out to us at Hatcher+ to know more about how we are innovating to break from the geographical and physical constraints that tied us to the 30 miles/km vicinity. Our Venture as a service Technology (VAAST) platform and our global network to accelerators and pre-seed VCs will allow you to freely express your investment views that was never been able before.
Amit is a business leader with over 19 years of experience in start up environments in banking and asset management across multiple geographies. He has cross-functional expertise with a proven ability to build businesses and has been successful in bringing life to strategies with strong execution capabilities. Amit has successfully created partnership programs with leading institutional investors by helping them deploy over USD 2 billion across multiple asset classes.
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