Where are all the “on ramp” venture capitalists?

The answer is: Silicon Valley and why I’ve talked to three Minnesota startups this month whose principals are either heading west to California to relocate their company or are doing so in order to obtain initial funding. There are woefully few angel investors in my state willing to take risks on ideas or concepts.

Heard of Kovio? Didn’t think so since I hadn’t either. Heard of Facebook? Thought so. Both of these companies are examples of startups led west to California to get their “gold” and their respective companies moving (from this article):

The idea underlying this (Kovio) technology was not developed at nearby Stanford or Berkeley, but at the Massachusetts Institute of Technology. But when the professor set out to commercialize it, his venture capitalist, Vinod Khosla of Kleiner Perkins Caufield Byers — whose earlier successes included Sun Microsystems, Juniper Networks and Corvis — insisted that he move the company to Silicon Valley, to tap into the deep well of chip-making talent and plug into Kleiner’s network of managers, academics and financiers.

You’re probably sick of hearing about the bazillions Mark Zuckerberg is now worth and about all the
applications that are suddenly behind the closed doors of this social networking site platform, but what you might NOT be aware of is this:

A similar story is told of Mark Zuckerberg, the precocious Harvard student who thought he could turn an informal social networking site into a money-making business. After being turned down by East Coast venture capitalists, Zuckerberg headed west and found an angel investor in Peter Thiel, a founder of PayPal. Thiel put $500,000 into Facebook for a 10 percent stake and introduced Zuckerberg to a former PayPal colleague, Steven Chen, who signed on as one of the company’s first engineers.

So it’s not just Bostonian’s wringing their hands over startups leaving but I’m hearing similar tales in my own State of Minnesota, though no bazillionaires have yet been created by the departed.

Why is this happening and how can it change?

In his Pulitzer Prize winning book Guns, Germs and Steel, author Jared Diamond builds one of the most cogent and reasoned arguments I’ve ever read on how and why some civilizations accelerated (think England, France or Germany in, say, the 1500’s and the culture that exploded) while others remained hunter/gatherer’s until present day (think of the tribes in Africa or even those in New Guinea).

Much of Diamond’s evidence and reasoning comes from geographic, climate, weight bearing animals and other confluence of circumstances which comprised so many elements that allowed some to specialize and begin to move in hundreds and even thousands of new directions.

My favorite (and admittedly simplistic) example is violin makers in Italy. No question that this musical instrument and everything it represents could not have emerged had the potential violin maker been investing his day in hunting for food. Instead, farmers and livestock cultivators provided a baseline amount of food which allowed this maker to move in new directions.

The three words in his title focus on disruptors that shifted dominance of emergent cultures, changed and shaped the course of power in the world, and in some cases caused the extinction of some people’s and civilizations.

I argue that Silicon Valley is the “Europe” to Diamond’s “Africa” in an Internet age since that region has taken care of baseline needs (money which is the “food” of company emergence) and the internet/web “violin makers” emerged some time ago and are creating whole new classes of products and services. This critical mass is only causing the Valley to accelerate since even secretaries and receptionists know what’s going on out there with new tools (e.g., Twitter) and social networks (e.g., Facebook) in ways most of the rest of the country and world do not.

Minnesota is probably Finland in this analogy compared to England, France, Germany and Italy in the Middle Ages. A nice, prosperous country bounced about by others (e.g., Sweden) and emerging in to modern times with its lone technology giant, Nokia.

HOW CAN THIS CHANGE?
Today the disruptor(s) are the Internet and the applications that ride on it (though my concern over Diamond’s germs in the title is acute with, for example, flu and specifically pandemic, avian flu).  As more and more of us drive our business models, commerce and transactions as well as our human-to-human communications toward it — and let’s not forget the accelerating machine-to-machine communication promised with the semantic web — a whole host of things will occur that may make Silicon Valley less necessary as a destination to live, work or start a company.

That potential, in my opinion, is an intellectual and knowledge “farming” that is already allowing a new class of extreme specialization to occur. A great example is Minnedemo which just occurred here in Minnesota. 300-400 people were at this event and WHAT A BREATH OF FRESH AIR to  talk with dozens of people who “get it” and are, in fact, absorbing the critical elements and are already creating and innovating in new ways. At least one VC, Michael Gorman, of Split Rock Partners, understands the importance of incubation, staying close to the community of ideas and innovation, and was a sponsor of Minnedemo.

Where are all the rest?

Luckily, these “barcamp” or “democamp’s” are happening all over the place due to the Internet and its ability to connect us all.  The challenge for Boston, Minnesota and other areas of the US right now is how to create a critical mass of “violin makers” in cities all over the US (though I’m more interested at the moment in my own state) .

I’m afraid Minnesotans are mostly a bunch of conservative farmers that are either selling other’s innovations (e.g., Target, Best Buy) or focusing on infrastructure (e.g., 3M, Cargill). More risk taking, angel investors willing to place bets on great ideas need to be here rather than requiring the truly great ideas to migrate west in search of the gold necessary to create.