It’s no secret that America is no longer the sole dominion of innovation and entrepreneurship. You’re just as likely to find an enthusiastic power point-wielding entrepreneur in the Starbucks of Shanghai, Mumbai or Beijing as you are in Silicon Valley.
This is no protectionist rant. I believe global investing is the next step in venture capital’s evolution from craft trade to integral component within the alternative investment landscape. It also represents reinvention—just as many in the venture business have declared its demise. For a few hundred years, Americans have excelled at adapting and thriving in an ever changing economic environment, yet venture capital remains essentially the same beast since the founding of ARD in 1946.
The great irony is that adapting to quickly-moving markets is what we as investors expect our portfolio companies to do. Yet many of these same venture backers have refused to deviate from a playbook that brought them great success in a different time and different market. Every game evolves. Even Vince Lombardi would scratch his head at Bill Belichick.
As hedge funds and private equity firms grow at astonishing speeds, mutating strategies and blurring traditional definitions, it’s key to understand what makes VC unique. Last month I participated in a Newhouse School event where Nathan Myhrvold and Google’s Marissa Mayer discussed the future of advertising.
Myhrvold traced the current decline of newspapers to a telling quote a decade ago. A head newspaper honcho had confided in Myhrvold “How will the Internet ever be able to replace our Sunday paper?”
Newspapers confused their unique value with being three pounds of pulp delivered to the doorstep and not: offering great content. Railroads made the same fumble with companies losing their ways when they thought they were in the “railroad business” instead of the transportation industry.
And so it is with VC. A perch on Sand Hill Road is valuable—because the density of doers (and Doerrs) is high. Doers need money to do. And VCs need doers in whom to invest. But venture investors that forget what business they’re in risk the fate of the railroads and newspapers.
What makes venture capital valuable isn’t just a location that’s a magnet for doers. It’s seeing opportunity where others see risk, counseling visionary entrepreneurs who see opportunity when others see nothing and working together to build great companies. It’s all about magnetism and density: first attracting the best and then building a critical mass around them.
And, like magnets, high density opportunities are attractive—wherever they are. Top funds noticed this change years ago. The mantra used to be “We won’t invest in an opportunity more than an hour away from our office.” The new mantra might be “We won’t have an office more than an hour away from opportunities.”
Sequoia Capital hung shingles in India, Israel and China. Benchmark, Accel, DCM, DFJ, KP and Redpoint have all also now gone “global.” Lux Capital recently made its first (though surely not its last) investment in China.
Counter to declarations of declining opportunity in venture capital, the scope and set of possibilities has vastly expanded—if you know where to look. And if venture capital is unable or unwilling to meet the need, I’ve got scores of eager hedge funds and private equity friends who will, wielding a cheaper cost of capital and intimate knowledge of global markets and networks.
Since my last trip to China, I’ve lost count of the number of scientists, entrepreneurs and venture capitalists, who after several decades in the U.S. have now returned home. They‘ve got few regrets. Capital—like talent—flows to where it is welcomed and well-treated. And as seems to be the case, returns follow…