Technology

Successful Venture Capital Is Now Found Outside Silicon Valley

December 7, 2016

Venture Capitalists are finding new centers of innovation emerging around the U.S. With new startups understanding the cultural landscape that make up these cities a great place for their businesses, VCs are making investments outside SiliconValley. One of those cities is Columbus, Ohio, most recently named as the fastest growing city with startup activity, Columbus now has over 40 venture capital firms investing in the new businesses being born there.

One firm stands out –– Loud Capital, a small avant-garde venture capital firm that has a unique perspective on how to fund innovation. To better understand how funding is succeeding outside Silicon Valley, I sat down with Navin Goyal, co-founder of Loud Capital, to discover what every entrepreneur wants –– funding. Here’s how the conversation went:

Why has there been a shift in funding from Texas, New York and the West Coast to the Midwest?

I believe there has been a shift in focus from the traditional startup hubs like San Francisco or NYC to the Midwest.  The primary reason is value – VC’s invest to get a good return and since the quality of startups and opportunities are high in the Midwest (I will argue there is quality all across this country but the other parts get plenty of attention 🙂 it would be silly to not see how returns could be very generous by investing here.  When I say value I mean really great companies that have reasonable valuations that are based on their current traction and of course, potential.

What are the cultural and economic factors that make the Midwest so viable in terms of funding?

I believe most cities are tired of being passed over when it comes to opportunities for business growth, funding, and of course using the great resources that the particular city has. This has brought about marketing campaigns, partnerships with local government, universities and large companies, and highlighting the Midwestern culture of helping others succeed.

What do you feel the Midwest offers young entrepreneurs?

It is interesting that a high point of focus when describing the Midwest is “it is a lower cost of living”, but to Loud Capital, it is the opportunity for entrepreneurs to work in a very exciting and growth-oriented environment.  Another advantage the Midwest is the friendly people and I can tell you it definitely carries over when doing business, especially in Columbus. We have Startup Weekend, daily meetup groups, we even have a Slack Channel for our startup community filled with hundreds of members, all willing to offer feedback on product, pricing, messaging and more for startups. It is the most active Slack group that we have joined. There is this cultural feeling of wanting to help each other out, and to celebrate the success of others as a point of pride in our community, and this attitude makes doing business a lot easier to get sh*t done.

What are some of the factors they should consider when they should think about when starting their company here?

Sure, there are lower costs to doing business (hiring/office space/developers). There are also fewer obstacles to get in front of meaningful contacts, and of course the culture of helping each other out in lieu of a saturated, cut throat environment.  The founders, the team you choose to work with, the partners who provide funding…it is all done by people. If I can stress one thing, it is to surround yourself with good people. There are good people everywhere, however, when mixing them with some Midwestern values…you have a damn good shot of success! All my ventures have been with a team and my co-founder of Loud Capital, Darshan Vyas, is the epitome of a badass from the Midwest.

How have the larger companies in the Columbus area supported the startups found here?

We are lucky to have a number of large companies headquartered here in Columbus. JPMorgan Chase, The Limited, Victoria’s Secret, Abercrombie & Fitch, Wendy’s, and Nationwide Insurance are just a few of the many corporate headquarters based here in Columbus. Most of them invest in our startup community through state-funded startup accelerators. I think it is a great precedent to start since it brings attention to our entrepreneurial community and how there is always opportunity to improve it. It also allows other large companies to see how impactful one company can be to a city and in return, impact their own company culture.

One unique department that the City of Columbus created is the Small Business Concierge. It happens to be a one-man team filled by Ryan Schick, a person I now call a friend. Ryan’s job is to listen, learn, and find a way to help any small business startup in Columbus. Whether your startup needs help with permits or if you need connections Ryan will come to your office to check out the environment and give the time to listen and learn. It is a huge example of the city’s intention and a significant step to bridge communication between the city and the startup community.

Have you helped broker any of those partnerships? If so, what are they keys to partnership success?

We are still fairly new and are focused on helping entrepreneurs on a very personal level.  We are proud to be where we are and hopeful to make a bigger impact soon! We do believe by focusing our energy at a grassroots level, we are contributing to create this entrepreneurial community that Columbus has come to embrace. We have developed a partnership with a group out in LA and NYC who has validated a lot of the things we are talking about today. This partnership will bring our portfolio companies access to large companies out on the coasts to be customers, develop a network in these established cities, and give broader access to investors and different sources of funding. In turn, our partners will receive access to cutting edge startups, a team of entrepreneurs that thrive on working with others, and company valuations that are based on real company numbers and the potential for that company to be impactful. So our value proposition to our companies and investors is that LOUD Capital will help grow your business and connect you to national customers and partners, emphasizing the advantages of what we have here in Columbus and taking advantage of our connections to larger cities.

What are Loud Capital’s criteria for funding a Midwest startup?

Broadly speaking we look at the entrepreneur – ambitious, hardworking, resilient, and adaptable (are they able to receive help and potentially make decisions outside of their original intention).  We look at the vision- does this company want to have a large impact and are we at LOUD Capital able to help them develop their business with our team and personal network. We look at the value of the company- does this investment have a real chance of getting a great return for our investors and will the company be using our money for true growth of the business.

How do people (as local residents) factor into a city becoming viable for tech innovation? What are the cultural factors to look for?

Columbus is lucky to have the talent locally which stem from The Ohio State University, the workforce that comes from around the country to work for the many Fortune 500 companies present here, and the collaboration of the city with the private sector to ensure the talent is retained. Most importantly we are at a point of accelerated technology advancement and with the mobile capabilities of many jobs along with the factors above, Columbus is a perfect city that fosters innovation.

What are some of the investment areas that you think are coming up that might allow more broadly distributed centers of entrepreneurship to emerge beyond Silicon Valley?

Entrepreneurship has become a more accessible, more plausible and more desirable goal for many people compared to previous generations. With the lower cost to start a business, current technology providing access to most business functions via the cloud, and of course a generation that seems to place autonomy very high for their career, I believe every industry will provide investment potential as we dissect them and reinvent them. It is the main reason LOUD Capital doesn’t choose a few industries to invest in. There is opportunity everywhere you look and many of these sectors cross paths more frequently than people realize. We are opportunistic and that is why in our first year we have invested many sectors including education, tech, aviation, AI, health care, and the automotive industries.

What are some of the thing people/entrepreneurs should look for in their cities and location to see how they may leverage businesses based there to launch successfully?

We started Loud Capital to help solve this exact problem – talented people with great ideas/early stage companies that needed help with funding/business development/roadmap to success – if you do not have those things in a community then the natural tendency is to look to the coasts for help. In the last several years we have seen a lot more collaboration in Columbus with the public and private sector working together to put a real effort in retaining the talent and supporting new companies.

Talent has been a great resource that Columbus has had with The Ohio State University and with multiple Fortune 500 companies.  We end up with a huge pool of talent and now can entice them to succeed in our entrepreneurial community. With technology advances, an existing talented and ambitious community, and with infrastructure support from a city and state level, we believe startups can successfully start as well as thrive In the environments outside of the coasts – lower costs to do business, less layers of obstacles to get in front of meaningful contacts, and of course the culture of helping each other out in lieu of a saturated, cut throat environment.

This is how we do business currently in Columbus and it is why Loud Capital has helped support 15 unique portfolio companies in the past year. We are just getting started and our entrepreneurial team is growing faster than we could imagine.

As many would be entrepreneurs look to start their companies in new epicenters of innovation, it is clear that the capital needed to be successful will follow. The second city phenomena may indeed be the success to the Third Wave of the Internet.