One of the questions I am most often asked is how to raise capital in North Carolina (or some other place that does not have many venture capitalists [VCs]) or whether the company should just give up and move. Until recently, the only advice I could give was “Keep plugging away and once you get traction you will be more attractive to non-local investors.” But given the success—some would say dominance—of game companies outside the San Francisco area, I have a more positive outlook. A recent blog post by Mark Suster also does a great job of providing tactical advice on how to raise money if you are not located in a major VC area.
Suster, a serial entrepreneur who is now a partner at GRP Partners, provides a lot of practical suggestions that improve your chances of raising capital. Suster points out that yes, it is easier to raise money if you are in a major VC center (San Francisco, New York, LA or Boston), and if you do not have a strong tie to the local area it would be easier to raise capital if you relocate. That said, he pointed out that some great companies have raised large sums outside these regions and provided some very useful tips for doing so.
- Try to raise money locally. Although easier said than done, a local investor (either angel or VC), gives you credibility when reaching out to non-regional investors. They also are likely to have connections outside the area. To improve your odds of raising money locally, do not define “local” too narrowly. By local, I mean investors who are a short trip away (defined broadly, it could be a 30 minute drive or a 90 minute plane ride). If you are in Cleveland, an investor in Cincinnati is local. If you are in Helsinki, an investor in Stockholm is local. Also, you are at a disadvantage if you do not reach out to local investors. VCs are a very tight-knit community, and if you elicit interest in a San Francisco VC, the first thing they will probably do is contact their friends who are near you. If the company has never heard of you, that will raise red flags. Thus, it is important to have a good relationship with your local investors, even if your target is a more national fund.
- Find VCs who grew up (or attended a university) near you. These investors are already probably coming back to the area on a regular basis, either for family gatherings or to meet up with college friends. They are thus much more likely to be open to an investment in your region (and most VCs want to visit their portfolio companies 4–8 times a year) because they are coming back anyway. They may even look the investment as an excuse to visit friends (though most would never admit that). Again, do not define locally too narrowly; if you live in Louisville, reach out to investors who attended the University of Kentucky in Lexington. This tactic from Suster is the one I wish I’d used the last time I was raising capital.
- Commit to visiting your board members. Travel is the biggest obstacle to acquiring non-local investors (whether they admit it or not), so turn the tables and offer to bring the travel to them. Suster suggests you say something like: “I live and work in Kansas City. I have the tremendous advantage of access to a hard-working, loyal and technical talent pool. So I want to stay here and build my business. That said, I want the best VCs in the industry and for that I know I need to be in a major VC hub. So here’s the deal. I will commit to traveling to New York City seven times per year for board meetings. I’ll make your life easier because I know you travel all the time anyway and Kansas City isn’t exactly on your normal path. Heck, I need to be in New York a lot as well. All I would ask is that you hold 1–2 board meetings / year in Kansas City, which you’ll want to do so you can kick the tires of the local team. Plus, we have some rocking barbecue to make it worth your time.”
Do not use distance as an excuse
Yes, it is challenging to raise money whether you’re in Raleigh or Peoria. But guess what? It is also difficult to raise money in San Francisco, New York and Berlin. There are hundreds of companies for every potential investment; VCs and angels have many opportunities. They are always going to put their money where they see the best possible return, so you must have a great team, be in a space with a lot of upside, and have a unique value proposition and traction if you are going to appeal to investors. It may be more difficult from Milwaukee than Mountain View, but if you have the right story and team you will find good investors (and if you don’t, it does not matter where you are located).
Great companies do not only come from a few cities
Just as you can raise money anywhere, you can build a great company anywhere and it may even be easier outside the VC centers. If you look at the games industry, despite all the investment that has gone to companies in the Bay Area, virtually all the success is coming from elsewhere. In mobile gaming, the companies seeing the most success are based in Finland (Supercell and Rovio); Boulder (Backflip); Oxford (Natural Motion); Raleigh (Imangi) and Sweden/UK (King.com). In the hot social casino world, the top developers are based in Seattle (DoubleDown), Israel (Playtika) and Seattle/San Diego (Big Fish). Even with Facebook gaming, the previously mentioned King.com (with the bulk of its operations in Sweden and London) has just moved into the top spot and Berlin’s Wooga is another top-three company. Zynga, based in San Francisco, is the exception to the rule.
What I want to stress is that success is dependent upon being in a region with easier access to capital. It is due to creating a great team that creates great products. In many ways, it may help not to have easy access to capital, as it forces you to focus on building something truly special. Do not get discouraged if you are having trouble raising capital. If you are creating a great business use some of the tips above and you will succeed.