Does Location Matter When It Comes To Raising Venture Capital Funding?

It is less than a month into 2021, but two main trends that started in 2020 look set to continue, and pose interesting questions for European entrepreneurs and investors.

First up, we have remote working. Forced upon us by the pandemic, technology has enabled those of us fortunate to be able to work with a laptop to carry on our business from anywhere in the world. As we sit in Lockdown 3.0 in the U.K., remote working continues to be the only option available for the next few months.

Secondly, we see the rising importance of tech hubs as a magnet for venture capital funding. In London, new research from Dealroom.co and London & Partners revealed that 2020 was a record year with tech firms raising $10.5bn of VC investment.

And this is far from a one-off, with London being ranked as the second fastest-growing global tech hub since 2016, seeing increasing levels of new VC funds set up, and being home to the highest concentration of unicorns and future unicorns in Europe.

Setting up a technology company before the pandemic

For founders wanting to build a technology company that plans to raise venture capital funding, the resources to do so were generally found in the same place – cities.

Setting up in London (and other tech hubs) to start a tech company before the pandemic was such a well-trodden path that it required little thought or discussion. It was a cliche, but heading to the bright lights to seek your fortune was just what people did.

The process was simple – pick an area of the city, secure a suitable office space, and move when you outgrow it. The rapid proliferation of co-working spaces created a deep inventory of high-quality offices available to companies of all sizes to meet demand.

12 months on, a simple decision has become complex

Today, founders who are contemplating whether to return to the office after the pandemic – or where to base their companies – are met with a far more nuanced decision-making process that will require a lot of thought and discussion against an ever-changing backdrop.

The right decision will be unique for each company. Some will thrive by taking advantage of continued remote working and the access to a global talent pool that enables. Others will want to introduce a hybrid approach with some physical team meetings during the week. Still more will return to the office on a schedule that is likely to be less than full-time.

Ultimately, founders should do what is best to drive operational performance and support their company culture.

If that means being back in London when it is safe, great. If it means having a team spread out across the world, that is great too.

With venture capital some things have changed, others have not

When it comes to funding, investors – like founders – have evolved their thinking on how teams can operate. They are far more open-minded about the location and composition of teams than they were 12 months ago.

Fundamentally, VCs want their companies to build the strongest possible team to deliver on the plan and are seeing the benefits that blending the best of local and global talent can deliver. Investors also see the cost benefits of distributed teams when founders are focused on building lean in the early-stages.

However, one thing that has not changed is the nature of venture capital itself. It is primarily a relationship business. Investors that thrive build strong relationships with founders, other investors, and other players in the ecosystem.

Until the pandemic hit, these relationships were built in person. When the pandemic is over, they will continue to be built in person. The majority of investors are looking forward to getting out from behind their screens and back to their offices, coffee shops, bars, restaurants, and local neighborhoods to meet people in person again.

For founders looking to raise capital, they need to put themselves into a position to build strong relationships with investors. Post-pandemic, being based in London (or another tech hub) will make it easier to have face time with investors, other founders, and ecosystem participants. It also increases serendipity, which is a surprisingly powerful source of funding (for founders) and deal flow (for investors).

The structural advantages of cities have not disappeared during the pandemic and, ultimately, location is still a factor in increasing the chances of raising money.

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