I had the opportunity to drop in on the opening ceremony for Dallas Startup Week 2015. During the first panel Michael Johnstone of the Mark Cuban Companies was asked why it was so hard to raise venture capital in Dallas and instead of agreeing with the premise of the question he argued that it wasn’t really harder to raise startup capital in Dallas versus San Francisco. I’ve been thinking about it and I’m starting to think he might be onto something.
Case in point, the other day I met a couple of founders at my StartupMuse office hours and listened to them talk about their mobile application. They’ve been working on it for two years and they’re struggling to raise outside capital. After asking the pair about their personal lives and determining they could easily pick up and move to the Bay Area I immediately told them they should move – that was the ticket to startup funding. The next week one of the founders dropped in on my office hours for a second time and we started playing with the actually mobile application – it was horrible. It was then that I realized moving to San Francisco would be a HUGE mistake for this company. Ironically, I imagine it would be EASIER to raise money in Dallas for this particular team – their deficiencies would be glaring in the Bay Area.
Optically, when you read TechCrunch, the startup publication of record, you’re reading about 90 Bay Area startups for every Dallas based startup so you might naturally assume it is easier for startups to raise money there. The truth might be very different.
10000 SFO Based Startups (unfunded)
1000 SFO Based Startups (funded)
10% funding rate
1000 DFW Based Startups (unfunded)
100 DFW Based Startups (funded)
10% funding rate
These numbers are simply for example, but I hope you get the idea. There are simply far fewer startups in the Dallas area seeking funding. I would imagine that for every 100 startups running around in the Valley there is just one here in Dallas. This is just conjecture, but I wonder if it is actually EASIER to get funded in Dallas? In the Bay Area EVERYONE is starting a company and very few of them are getting funded. In Dallas most everyone is NOT starting a company so those who do are the exception not the rule. Perhaps it is easier for Dallas startups to get attention because they look more like black swans than white ones.
In fact, I am the poster child for Dallas based companies raising venture capital. I have attempted to raise startup capital exactly three times. First with LayerOne (total investment $30M+), then with ShopSavvy (total investment $7M+) and finally with ViewMarket (total investment $10M+). In each case I was able to secure the initial funding as well as follow on funding – I really wonder if I would have been as successful if I was in San Francisco.
I am 100% certain that I am not certain whether or not it is harder for Dallas companies to raise venture capital, BUT I am certain raising money is hard. I do, in fact, believe that most of the companies that aren’t successful at raising capital aren’t successful BECAUSE of their product and team – NOT their location. Good products and teams WILL find investment capital regardless of location.