Why Are Silicon Valley VCs Looking International?

It wasn’t long ago that the response from almost every Silicon Valley VC to international founders was some form of “we don’t invest outside of the U.S.” or “we’ll invest in you, but only if you move here.”  Never mind the thought of a VC ever leaving the comforts of Sand Hill Road to source deals elsewhere.  But over the last 18 months, there’s been a noticeable change.  Early-stage Silicon Valley investors are increasingly looking outside of California for deal flow, investing in foreign companies without the pretext of moving to the U.S., and even marketing themselves and their firms to foreign founders.  What’s going on?

To be fair, a handful of early-stage investors have had a global outlook for some time (most notably 500 Startups, which has invested in startups in more than 60 countries), but with the exception of individual expat investors dutifully keeping an eye on their home countries, the vast majority of early-stage Silicon Valley investors have remained firmly focused on the 101.  Semil Shah captured this conventional thinking in a 2016 post describing Venture Capital as a Hyperlocal Game.

Fast-forward to today and the conventional wisdom is going the same way as many of the Bay Area’s residents.  Semil’s own thinking has evolved and he now actively invests outside of the Bay Area (although still mostly in the U.S.).  Elizabeth Yin, co-founder of Hustle Fund and a former 500 Startups Partner, recently noted that the cost-of-living in the Bay Area has reached a level that both prevents new founders from moving to the Silicon Valley and forces many prospective founders here to take their startup ideas to more affordable cities.  When combined with the continuing maturation of second tier startup ecosystems, the result is more, higher-quality companies being founded outside of the Silicon Valley than ever before.

 The standing room only audience at June’s “Super Session” of Canada’s Creative Destruction Lab in Toronto included investors from True Ventures, Gradient Ventures, Lightspeed, SAP Ventures, Comcast Ventures, Hustle Fund and more.

The standing room only audience at June’s “Super Session” of Canada’s Creative Destruction Lab in Toronto included investors from True Ventures, Gradient Ventures, Lightspeed, SAP Ventures, Comcast Ventures, Hustle Fund and more.

Echoing the growing acceptance of distributed teams, early-stage investors are finally starting to shed their discomfort around remote investments.  The fact that rising costs in the Bay Area are accompanied by skyrocketing valuations for startups is undoubtedly helping to accelerate this shift.  Silicon Valley investors who previously saw only risk in international investments now see the opportunity to invest in high quality startups at a lower valuation, while still being able to engage with the founders and help them succeed.

For international founders, particularly those in leading international ecosystems like Toronto, Montreal, London, Paris and Singapore, there's never been a better time to fundraise from Silicon Valley VCs.

Time to get that plane ticket.