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Illustration: Aïda Amer/Axios

Venture capitalists have been historically reluctant to invest in startups based too far from home, thus making it it easier for "good ideas" to get funded in the Bay Area or the Acela corridor than anywhere else. 2020 may have finally changed that dynamic.

Why it matters: This could create a virtuous cycle of economic opportunity in cities and regions that have been largely left out of America's tech boom.

The history: Many venture capitalists used to abide by the so-called "20 minute rule," whereby they wouldn't invest in a company located more than a 20-minute drive away from their home or office.

One Boston-area investor had his own subway spin on it, saying he wouldn't even meet with companies located past a certain subway stop on the MBTA's Red Line.

  • In many ways, these guidelines made sense. Investing in a startup is often viewed as a hands-on endeavor, particularly if the venture capitalist is going to take a board seat. If a problem arose, they wanted to be present.
  • Plus there could be major personal life complications from having to attend quarterly board meetings for portfolio companies in eight different cities, plus conducting due diligence for many more potential investments, while also trying to make those dance recitals or Little League games.
  • This isn't to say that VCs never invested far from home, but such deals often needed to pass a higher threshold.

The new normal: The pandemic forced venture capitalists to attend board meetings via Zoom, and often conduct due diligence that way too. And they learned that, while often missing the intimacy of in-person interaction, their work didn't suffer.

  • What this means is that a San Francisco-based VC now feels more comfortable investing in a Midwestern or Southeastern U.S. startup, because they aren't also committing to years of road trips.
  • It also means those non-coastal startups have improved chances of getting audience with a wide group of prospective investors.
  • Buttressing both of these developments have been several large IPOs in 2020 for VC-backed companies based in areas like Columbus, Ohio (Root Insurance) and coastal North Carolina (nCino).

The bottom line: Almost every U.S. city and state has tried capture some of Silicon Valley's magic, hoping that local talent will create a successful tech company that then births a flywheel for more. It's rarely worked, in part because the entrepreneurs have struggled to raise money.

  • Going forward, things should be different.

Go deeper

Dan Primack, author of Pro Rata
Jan 14, 2021 - Economy & Business

Venture capital's record-smashing year

Illustration: Rebecca Zisser/Axios

Just weeks into the pandemic, we reported that venture capitalists were still doing deals, even though their offices were closed and their flights were canceled. But we didn't quite foresee the WFH gusto.

Driving the news: U.S.-based venture capital hit an all-time record in 2020.

27 mins ago - Politics & Policy

Biden's latest executive order: Buy American

President Joe R. Biden speaks about the economy before signing executive orders in the State Dining Room at the White House on Friday, Jan 22, 2021 in Washington, DC. (Photo by Jabin Botsford/The Washington Post via Getty Images)

President Joe Biden will continue his flurry of executive orders on Monday, signing a new directive to require the federal government to “buy American” for products and services.

Why it matters: The executive action is yet another attempt by Biden to accomplish goals administratively without waiting for the backing of Congress. The new order echoes Biden's $400 billion campaign pledge to increase government purchases of American goods.

Tech digs in for long domestic terror fight

Illustration: Sarah Grillo/Axios

With domestic extremist networks scrambling to regroup online, experts fear the next attack could come from a radicalized individual — much harder than coordinated mass events for law enforcement and platforms to detect or deter.

The big picture: Companies like Facebook and Twitter stepped up enforcement and their conversations with law enforcement ahead of Inauguration Day. But they'll be tested as the threat rises that impatient lone-wolf attackers will lash out.