VC Investing: Stepping Away from the Crowd

In my postion at OpenView, a major role I undertake is to explore every corner of the software landscape to find interesting investment opportunities for the firm. From this lens, I am witness to what a deal looks like from the first conversation to when the actual check gets written, as well as how the company performs post investment. So from that perspective, it becomes easier to see how and where to find businesses that we are most likely to invest in.

OpenView operates in a very unique and differentiated way, from the incredible work that our operational value add team in OpenView Labs offers, to the way our investment team operates and executes deals. We are different and that is distilled into how we search for interesting companies to join our portfolio. Granted, when there is a rising tide in a sector, our interest is peaked. But what really gets our blood pumping are businesses that are off the outside of the magnifying glass and that are probably not getting their door beaten down by the entire VC investing community.

To set the scene, take a look at the numbers from last year here. As you would imagine, California leads the charge with the Massachusetts and New York coming in behind them. Washington and Texas round out the top 5, and the report does a nice job to delineate between number of deals and actual dollars invested. Healthcare and Internet were the hottest sectors and ate up a big chunk of the funding.

Looking at this report, it is clear where the interest is, and we have thoroughly explored and invested in some of those geographies and sectors. But for me, I want to talk to the guys who aren’t necessarily on everyone’s radar. A lot of times, these are the companies that are a great cultural fit for us and can really use the support of our Labs team to scale their business. With that said, it is worth mentioning a couple of the commonalities I see in these types of companies.

Proximity to Talent. Whether there is a university nearby that produces strong engineering talent or a major technology company headquartered in the area, companies can pick off great talent from resources such as these. It is hard to recruit talent to places that aren’t your standard tech hubs, so when you have access to pools of experienced or promising engineers, developers, sales people, etc., you have a much better chance of building a great company.

Desire to Be Big. Many times when I’m talking to people in the Midwest, up in Canada, or other lesser penetrated locales, they often question our comfort level in investing outside of the standard markets. Although they know they have a great product and an excellent team, the incumbents in the market or competitors might be based in more sought-after cities. This fosters a competitive streak that can be great for building a large and successful business and is the recipe for a great partnership with OpenView.

Bottom Line. This can be as easily overlooked as it can be easily considered the most compelling factor. Simply put, your overall cost of doing business is drastically less. You may travel a bit more but what you save in overhead will be much greater.

The key takeaway for me is that while there are always going to be great companies coming out of the traditional hot spots, setting up shop in a less saturated geography can be very beneficial for everyone involved. Founders, employees, investors, customers, and even local economy — everyone — benefits when you step off the beaten path.