What can secondary cities do to overcome VC’s caution? Carlson and Chakrabarti’s interviews suggest five main policies. First, cities and their corresponding state governments should invest in upgrading their local universities, in order to produce a pool of talented engineers and managers. In addition, they should encourage local investors to become angels, creating the nucleus of a local investor community. They should improve access for VCs, with good airports and quality hotels. They should boost quality of life with appealing downtowns, while investing in the arts. And perhaps most importantly, they should focus on narrow clusters -- such as biotechnology, robotics or agricultural software -- instead of trying to become the next Silicon Valley. This latter approach, which has been used by cities like Pittsburgh, not only harnesses clustering effects, but probably helps with marketing as well.
As for VCs themselves, they should try to overcome their own biases against striking out on their own and trying out new locations. This could be good not just for the nation, but for their own returns as well. Research finds that the benefit of startups locating in Silicon Valley has faded since 2001. And while top VC firms tend to outperform the public markets, the rest don’t do so well. Staking out virgin territory in the Midwest or the South might be exactly the thing many smaller VCs need to strike gold.
This article provided by Bloomberg View.