20VC: The Biggest Trend Of Our Lifetime Is The Decentralisation...

Full Title

20VC: The Biggest Trend Of Our Lifetime Is The Decentralisation of Entrepreneurship Away From The Valley, The Biggest Lessons From Learnings The Craft of VC at Sequoia & The Benchmarks Required to Attract Growth Investors with Chris Olsen, Founding Partne

Summary

This episode features Chris Olsen of Drive Capital discussing the decentralization of entrepreneurship away from Silicon Valley and the lessons learned from his VC career.

He emphasizes the Midwest as a significant opportunity for venture investment, highlighting its growing ecosystem and the potential for unique competitive advantages outside traditional tech hubs.

Key Points

• Chris Olsen's journey into VC began with a proactive approach of cold-calling firms after graduating with a political science degree, eventually leading him to roles at TCV and UBS before Sequoia Capital.
• His early fascination with VC was sparked by the story of Sequoia returning $100 million to not disclose portfolio companies, indicating a lucrative business model.
• A key learning from Sequoia was the importance of an apprenticeship model and learning by doing, as well as understanding the value of founders who are entrepreneurs and often immigrants.
• Olsen's thesis for Drive Capital is rooted in the observation that cloud computing commoditized infrastructure, shifting value to the enablement of technology across all industries, and the need for VCs to be close to their customers.
• Drive Capital was founded on the conviction that the Midwest, with its large customer base, abundant engineering talent from universities, and a significant number of Fortune 500 companies, represented a substantial, untapped investment opportunity.
• Initial LP reactions to Drive Capital's Midwest focus were largely skeptical, often preferring to invest in traditional Silicon Valley geographies, but on-the-ground visits to the region proved persuasive to some LPs.
• The firm actively showcases the Midwest's entrepreneurial talent by taking LPs to meet founders and visit promising companies, demonstrating that the raw ingredients for success are present.
• Valuations for top-tier companies in the Midwest, despite less capital competition, are competitive with Silicon Valley, indicating that A-plus companies command similar market prices.
• Drive Capital reserves more capital for early-stage investments than is typical in California, acknowledging the current lack of established follow-on investors in the region, but still allocates reserves based on company performance.
• The firm identifies a capital trough between $3 million and $40 million in fundraising rounds for Midwest companies, with external growth capital from coastal firms often entering once companies reach around $1 million in monthly revenue.
• Olsen predicts the decentralization of VC and entrepreneurship as a major trend over the next two decades, extending beyond the Midwest to other global regions, driven by deep domain expertise combined with technology.
• He believes the biggest misnomer is that smart people and opportunities are exclusive to Silicon Valley, stating that talent and innovation exist everywhere.
• The investment in Duolingo exemplifies Drive Capital's focus on world-class founders in industries ripe for technological disruption, specifically in education and language learning.

Conclusion

The decentralization of entrepreneurship and venture capital away from traditional hubs like Silicon Valley is a significant and growing trend.

The Midwest presents a compelling investment opportunity with a strong foundation of talent, customers, and industrial expertise that is often underestimated.

Future success in venture capital will increasingly depend on recognizing and capitalizing on talent and innovation wherever it exists, rather than adhering to geographical biases.

Discussion Topics

• How can aspiring entrepreneurs outside of traditional tech hubs build successful companies and attract venture capital?
• What are the biggest advantages and disadvantages of investing in regions with less established venture capital ecosystems?
• How is the increasing decentralization of entrepreneurship reshaping the global investment landscape and the role of VCs?

Key Terms

VC

Venture Capital; investment from firms that provide capital to startups and small businesses with long-term growth potential.

LPs

Limited Partners; investors who commit capital to a fund managed by a general partner.

M&A

Mergers and Acquisitions; corporate finance transactions involving the consolidation of companies or their assets.

IPO

Initial Public Offering; the first sale of stock by a private company to the public.

FOIA

Freedom of Information Act; a U.S. law that provides the public the right to request access to records from any federal agency.

Cloud Computing

The delivery of computing services—including servers, storage, databases, networking, software, analytics, and intelligence—over the Internet (“the cloud”) to offer faster innovation, flexible resources, and economies of scale.

Run Rate Revenue

A projection of a company's annualized revenue based on its current performance.

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