East Coast vs. West Coast

Readers occasionally write in to accuse me of East Coast VC bias and, in particular, Boston bias. Specifically, they argue that I spend too much time focused on what’s happening in my backyard, while most of the most interesting/lucrative venture capital deals are happening about 3,000 miles to the West. And I plead no contest to such charges, and also plead no apology. After all, it’s best to focus on what you can see and feel (not that I feel VCs outside of handshakes, except for this one time…).

But bias does not equal blindness, and there are some major East Coast/West Coast character differences – again, really more Boston vs. Bay Area — that do not reflect terribly well on my side of the Mississippi. This is an issue that has been discussed before, but is back on my mind because of a lengthy Ideas piece in yesterday’s Boston Globe titled “Can the Bay State still make the big time?” It was written by Scott Kirsner, and argues that Massachusetts is suffering from its inability to produce “pillar companies” that “influence entire industries, attract talented people to Massachusetts, and help retain recent college grads.” He lists three in Boston — Boston Scientific, Fidelity and EMC – but argues that most big Boston businesses are better described as saplings than as oaks. This is particularly true in the case of consumer facing technology companies – you know, the ones that have pushed Sequoia Capital from wildly successful to wildly successful squared.

Who does Kirsner blame? Ex-Gov. Mitt Romney, in part, but mostly the area’s venture capitalists. He writes the following:

At a panel discussion at MIT’s Venture Capital Conference in December, I asked two local venture capitalists from Atlas Venture and BCE Capital whether they’d have put money into YouTube, the Silicon Valley video-sharing site that was gobbled up by Google last year for $1.65 billion. They both admitted they’d have passed on the deal, saying the company’s revenue prospects were too uncertain. Similarly, in the 1980s, a reluctance to invest in personal computer companies left Massachusetts without its own counterpart to Apple or Dell.

Massachusetts venture capitalists have racked up a successful track record investing in areas like biotech, business software, and data networking and storage equipment. But to hit home runs, rather than singles and doubles, they need to expand their scope — perhaps by adding partners with experience in other fields, like retail, consumer electronics, renewable energy, or digital media — and make riskier plays.

To a large extent, I think Kirsner is correct in his diagnosis of the symptoms. But I also think that he has underplayed the malady of local VC conservatism, and overplayed the salve of just adding a few industry-focused partners.Since I’m running late, let’s do this in notes form:

Yankee Discipline vs. Bay Area Free Love
Here’s an anecdote, with the players kept anonymous to… protect their anonymity. Last year, two prospective entrepreneurs set out to launch a startup. One was based in San Francisco, the other in Boston. They each agreed to approach angels and VCs in their local communities, and both received positive responses from most everyone they met – with one major difference. The East Coast entrepreneur was asked, without exception, to provide some basic documentation (biz plan, revenue projects, etc.). The West Coast entrepreneur was not. Boston-area VCs lead with their head, while Bay Area-VCs lead with their gut. We can debate the merits of each, but Kirsner’s analysis would imply favoritism toward the gut.

Nowhere To Network
From what I’m told, Bay Area VCs and tech entrepreneurs regularly mingle at networking socials, Buck’s and in various parking lots along Sand Hill Road. Boston-area VCs and techies just go home after work. Part of this is culture, but a larger past is distance. The Boston VC/tech community is mostly located in or around Waltham – and not the recently-revived part of Waltham known as Moody Street. Instead, the VCs are mostly tucked away into non-descript office parks alongside a reservoir, with just a Bertucci’s and Westin Hotel bar at which to congregate. As I’ve written before, I’m amazed that that some young/rich VC-types haven’t yet opened a bar near their offices in Waltham. Just a little trendy place that’s open from noon-9pm Monday through Friday. Maybe it would also serve breakfast…

Not About Staffing
Kirsner suggests that East Coast VC firms suffer from a lack of consumer tech-focused partners. But I know many folks who fit that description – and they all complain about the amount of time they have to spend in California. Why? Because that’s where they find the best opportunities.

Different Pillars
There also is the possibility that Kirsner has misidentified the Boston pillars of business. Perhaps they aren’t so much Boston Scientific and Fidelity, so much as they are Harvard, MIT and the local research hospitals. Aren’t these the places where most of the local innovation, spinouts, etc. come from? I’m not so much talking about the students – who often return home with their nifty ideas – but the faculties. It’s a slightly different model, but perhaps just as workable.

Anyway, take a read both of Kirsner’s piece and also this item from Matt Marshall (who I think is off his rocker on the biotech matter). Also consider some of the recent Web 2.0 problems. And let me know your thoughts, either via email or on the website…