What defines an ecosystem of venture capital?

 define ecosystem: a biological community of interacting organisms and their physical environment.

So, the ecosystem of venture capital is the people and organizations working in venture capital in a region of the world.

Notably, Silicon Valley’s Venture Capital Ecosystem would be characterized by being in the North Bay California region, south of and including San Francisco. The epicenter of that is essentially Palo Alto, CA, as many venture capital firms office around Sand Hill Road.

But, can we elaborate on why there is such an ecosystem?

Consider this…

In everything from local culture to industry, there is a foundation upon which we build:

Philosophy.

Philosophy impacts how we do things. Our culture.

Culture impact the way we work.

The way we work impacts what we do.

What we do impacts the kinds of business there.

The kind of business results in industry, funding, economy, etc.

And this is regional because shared beliefs and cultures are localized, dependent on people working together.

Where there is a largely held shared philosophy of people investing their time in the kinds of ventures that require and reward venture investment, we foster a more prolific capital region.

Of course, we have “startup” communities all over the world (everywhere frankly, though some are more distinguished as such) but having startups and incubators and technology doesn’t a venture capital oriented ecosystem make, necessarily

Philosophies and culture in entrepreneurship run the gambit of Lean, bootstrap, small business, local, patent commercialization, and more. Most often, various entrepreneurial regions work in ways that don’t.

And that can be hard for many founders, cities, and others to hear but at the end of the day, venture capital is entirely about ROI and investing in startups is exceptionally risky (most money is lost).

Venture Capital (funds mind you, VCs are people who manage large funds of investors’ money – that’s not the same as Angel, crowdfunding, PE, etc.), typically focuses on the Series A – C stages of funding and seeks to participate where it’s possible that startups will deliver a 20x return.

Now, 20x is exceptional.  And the A+ stages are million dollar investments and up, AFTER startups have found traction and seed funding.

Places where the philosophies of the people drive those kinds of outcomes are few and far between.

There are many reasons that’s the case above and beyond philosophies and startups by the way:

  • Major tech brands draw talent to the region
  • History in technology means that the workforce is familiar with building upon
  • Cost of living (being high) causes people to overcome those costs – working more aggressively, raising more money, etc.
  • A focus on Marketing over IP means that ventures tend to scale more rather than proving things can work… out of scale comes resources to figure out things work
  • Investors there are familiar with returns from within technology whereas in other places, they may be more comfortable in real estate, energy, or other industries.

You get the idea. The characteristics of the region support Venture Capital in particular.

Thus, a Venture Capital Ecosystem.

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