Known as “Silicon Valley,” the area was home to companies that supported U.S. Navy and NASA aeronautics research. In time, civilian technology companies set up shop there, beginning with a startup founded by Stanford University students named Hewlett and Packard. Now, the median home price in Silicon Valley has reached $1 million—an all-time record for any metro area in the country. Also, the area enjoys one of the largest vagrant populations: 6,500 homeless reported in 2016, the eighth most for any place in the country. A study released by the Auto Insurance Center ranks Silicon Valley traffic as fifth-worse in the U.S. For those that can afford to live and work in Silicon Valley, average commute times are just over 25 minutes. But for the majority that work in the Valley yet must live outside, the average commute lasts an hour—in many cases it’s 90 minutes or more, moving in bumper-to-bumper traffic at speeds approaching 5 miles an hour. To many minds, Silicon Valley now is “special” in an unwelcome way.

An alarming 12 percent of high school students surveyed in the affluent Valley community of Palo Alto in 2013-14 reported seriously contemplating suicide. Employees in that entrepreneurial ecosystem report witnessing workplace sexual harassment and discrimination on a “breathtaking” scale. Several big-name businesses in the area, including Zillow, Kleiner Perkins, Tinder, Facebook, and Twitter have contended with employee complaints. There’s reportedly an active business in multi-million-dollar divorce lawsuits…. Granted every place has its problems. Perhaps because Silicon Valley gained such prominence with the rise of the computer industry, its troubles appear magnified; however, to meet those who are decamping from the Bay area is to hear story after story of dissatisfaction. “We are spiritually unemployed,” said one couple from Silicon Valley, talking not about their well-paying jobs, but referring to those things that affect the human spirit or soul.

We hear frequently that founders building companies, their employees, and families residing in the American Heartland prefer jobs to be here where they desire to live, instead of their being forced to live someplace else because of work. Well-known venture capitalist Paul Graham published an essay in 2006 titled, “How to be Silicon Valley.” Graham argued that while a great city could be created anywhere, to recreate Silicon Valley would require just two elements in abundance: rich people and nerds. Once the catalyst provided by those two types of people caused a reaction, “everyone else will move” to join them. We’re not so sure about the “everyone else” wanting to move part; moreover, we question why other places would want to be another Silicon Valley.

Oh yes; there’s the allure of money. In fact, according to the National Venture Capital Association, the San Francisco Bay area is where a whopping 40 percent of all venture investment happens in the U.S. By comparison, nerd-rich Boston, MA, home to MIT and Harvard, garners just a 9.5 percent share of venture capital dollars. Other technology-savvy places, such as Denver, CO and Austin, TX, account for only about 1 percent of total venture investment each. Raleigh, NC scores less than one percent. Money may not buy love, but it does buy businesses, and startup companies looking to one day be acquired are usually encouraged to locate (or relocate) themselves to be in proximity with the money it will take to grow, and eventually to exit, their startups.

Angel Capital Group would not fault a startup company for taking California, or New York, or Cambridge, MA money—recognizing that they will be forced to move to those places by investors that intend on closely watching over their investment. But we’d like to offer an alternative for some companies that are satisfied to remain in the Heartland because they are close here to the source of their technology, their suppliers, and markets. Or because here is where companies can find quality employees, enjoy lower operating costs, and offer a positive work-life balance. Such an alternative, we call “the Syndicate.” Angel Capital Group has organized like-minded, qualified investors in small- and mid-sized cities across the South and Midwest into a network that allows members to co-invest in each other’s best deals and to share investing resources, including subject matter expertise and due diligence support. As well, ACG maintains for its syndicate network a centralized process for legal deal closing, tax reporting, and investor communication.

So many Angel Capital Group investors are current or former business owners and executives, accustomed to thinking strategically. We often describe our syndicate using expressions lifted from some of history’s great military strategists. We use the notion of “concentration of force” to explain how our syndicate can help to overcome the scarcity of both quality deals and investment capital that troubles angel groups in smaller market cities:

To achieve success in war, it is essential to concentrate superior force…at the decisive time and place. Concentration does not necessarily imply a massing of forces, but rather having them so disposed as to be able to unite to deliver the decisive blow when and where required…. Concentration is a matter more of time than of space.

The “enemy” for anyone attempting to start and sustain technology growth companies in places outside the major venture capital markets is lack of resources—mainly, financial and intellectual capital. We’re aware that in smaller markets, there will never be the mass of resources needed to recreate even a poor copy of Silicon Valley. What’s significant is that ACG has been able to organize and maintain a dispersed network of subject matter experts and qualified investors that can bring resources to bear from anywhere and everywhere across our geographic reach. We “concentrate forces” to fund a quality deal identified by any of our locally placed angel groups acting as “scouts.” All of our investors do not need to assemble or mass in one particular place—we facilitate rapid exchange of information and knowledge sharing using technology. Concentration for our angel syndicate is indeed more “a matter of [saving] time than of [taking up] space,” since ACG takes advantage of unique supporting tools, such as the web-based Venture360 knowledge management software; a “Virtual Roadshow” video broadcast and accompanying “Fireside Chat” webcast interview; chat-enabled investor Q&A sessions with entrepreneurs; multi-media investor education material; and of course, regular investor peer-to-peer conference calls, web posts, and coordinating email. Today’s high-tech military might call our syndicate process “distributed collaborative planning investing.” We call it working to make your community a special and more successful place by helping locally-based but regionally-connected angels be the best investors they can be.

This is published under the Appalachian Regional Commission POWER Grant, PW-1835-M.

Copyright Appalachian Investors Alliance, Inc. 2018
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