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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.

Updated 6 mins ago - Politics & Policy

Coronavirus dashboard

Illustration: Annelise Capossela/Axios

  1. Health: CDC director defends agency's response to pandemic — CDC warns highly transmissible coronavirus variant could become dominant in U.S. in March.
  2. Politics: Biden readies massive shifts in policy for his first days in office.
  3. Vaccine: Fauci: 100 million doses in 100 days is "absolutely" doable.
  4. Economy: Unemployment filings explode again.
  5. Tech: Kids' screen time sees a big increase.
  6. World: WHO team arrives in China to investigate pandemic origins.
Dave Lawler, author of World
40 mins ago - World

Alexey Navalny detained after landing back in Moscow

Navalny during a march last February. Photo: Kirill Kudryavtsev/AFP via Getty

Russian opposition leader Alexey Navalny returned to Moscow on Sunday, five months after being poisoned with the nerve agent Novichok and despite being warned that he faced arrest upon his return.

The latest: Navalny was stopped at a customs checkpoint and led away alone by officers. He appeared to hug his wife goodbye, and his spokesman reports that his lawyer was not allowed to accompany him.