Raising VC funds outside of greater Bay Area is not only harder, but generally per equity traded, you get less in return. Generally, these cluster investors cluster around an asset-type, industry, jurisdiction, and proximity.
Bay Area startups raised roughly $46 billion in 2019, compared to Europe in sum raising $36 billion; if you’re raising more than $10 million, not attempting to raise funds in the Bay Area is likely poor choice.
I've always imagined it was because the VCs bought the buildings they rent out to the startups, and probably the apartments as well. That makes the bay area a big money laundering machine where cash is guaranteed to flow from the investors through the VCs to the startups and back to the VCs again. Cha-ching!
> Where are the VCs getting all their money? Are mainstream banks exposed? Hedge funds? Corporations? Retirement funds?
VCs raise money from Limited Partners (LPs). Who are they? The regulars of course (fund of funds, foundations, endowments, large family trusts, pension funds, etc), but it seems pretty common for VC firms to also take on money from other wealthy individuals who made a lot of money from the machine, i.e., founders who got big exits and even other VCs or ex-VCs who likewise previously made bank.
In other words, there's a surprising amount of circulation or recycling of funds in the bay area tech scene. And that's awesome, win or lose.
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