Flyhome Sourcing
By: Victor Gutwein
Tags: Startup, Venture Capital

Flyhome Sourcing

We talk to a lot of coastal VCs and ask them where they want to invest. Yes, they want to find deals within an hour drive of their office. Yes, they want to find deals in cities with great ski resorts, golf courses, etc. Yes they require a nonstop flight to the company’s headquarters. But perhaps the most interesting response is some version of “I want to find a deal in Lexington, Kentucky.” Or Columbus, Ohio. Or Omaha, Nebraska. Or really Anywhere, USA. Why the intense interest in relatively uninteresting places? It’s very simple — they want to invest where they are from (and might eventually move home to…). This is what we call ‘Flyhome Sourcing’.

There’s already been an unstoppable trend of investing outside of the coastal hubs — this awareness is now the status quo, not some controversial statement or unknown secret. But that’s a lot of ground to cover, and it’s basically impossible to cover even the Midwest from NYC or SF. And there is no ‘winner take all’ ecosystem here — each ecosystem is rising and compelling. So where do those responsible for sourcing prioritize their time? Home.

To be clear, those most interested in traveling to ecosystems outside their metropolitan bubbles are typically not the general partners of top tier coastal VC firms — they are most commonly the ‘rising stars’. Either a junior partner, principal, VP or associate, these VCs are generally younger, have compelling but not outsized/wholly differentiated coastal networks (i.e. they didn’t back Facebook or weren’t part of the PayPal mafia), and were more likely to be first adopters when it came to seeking less competitive deals outside SF/NYC. They also have a reason to ‘go home’ — their college friends are getting married, they still have holiday meals at their parents, and as they start to have children they need to spend more time with their in-laws. While I don’t have any actual statistics, the percentage of VCs claiming Midwest roots feels like those claiming Irish heritage on St. Patrick’s Day — rather unbelievable but we’ll still take ‘em!

What exactly am I talking about? Well here are anonymized examples I’ve seen this past year:

SF-based principal wants to know what we’ve invested in Lexington, Kentucky ahead of their trip home for a summer wedding. Even asks about possibly angel investing locally as they get to know the local ecosystem.

Boston-based VP wants to check out Columbus-based opportunities in our portfolio as their in-laws are there and they go back frequently.

Palo Alto-based principal stays at their parent’s home in Chicago when they come back for the M25 Summit, or for board meetings in the Series B deal they led in town.

SF-based associate comes back to speak at a panel in Wisconsin in November and stays with their parents for Thanksgiving.

DC-based partner consistently asks us about Pittsburgh startups ahead of their semi-regular trips home, as they want to invest in their hometown.

So what does this somewhat randomly geographically dispersed ‘Flyhome Sourcing’ mean? It’s generally a good thing — instead of hot markets Chicago, Austin, Boulder or Toronto sucking up all the capital in typical VC herd mentality, VCs are exploring opportunities in their hometowns and thus deals are getting funded by high quality national VC firms in every city. Ideally this drives success and momentum in these ecosystems, perhaps ultimately creating a critical mass of homegrown VC funds. And maybe ultimately some of these rising stars go home for good — and either open up offices or launch their own VC firms in Detroit, Milwaukee, Kansas City and… Lexington?

About the Author

Victor Gutwein is the founder and managing partner of M25. A Kauffman Fellow (Class 22) and former leader in Hyde Park Angels, Victor founded M25 in 2015 and quickly grew it to become one of the most active venture firms in the region. Victor lives with his wife, daughter and son on the South Side of Chicago and loves staying active with running, biking, swimming, backpacking and any team sport you’ll let him join. If he can’t convince you to break a sweat with him though, he’ll usually succeed in getting you to try out a Euro-style board game (like Settlers of Catan) with his friends.

Twitter: @lalayak