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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.

Facebook to lift political ad ban imposed after November election

Photo Illustration by Omar Marques/SOPA Images/LightRocket via Getty Images

Facebook will finally allow advertisers to resume running political and social issue ads in the U.S. on Thursday, according to a company update.

The big picture: Facebook and rival Google instituted political ad bans to slow the spread of misinformation and curb confusion around the presidential election and its aftermath.

Bryan Walsh, author of Future
31 mins ago - Technology

AI is industrializing

Illustration: Sarah Grillo/Axios

Artificial intelligence is becoming a true industry, with all the pluses and minuses that entails, according to a sweeping new report.

Why it matters: AI is now in nearly every area of business, with the pandemic pushing even more investment in drug design and medicine. But as the technology matures, challenges around ethics and diversity grow.