Which Boston VCs Write the Most Checks in Their Own Backyard?

7/21/14Follow @curtwoodward

When longtime Boston venture capital firm CRV recently announced it was focusing more intensely on West Coast companies for its newest fund, we took a look at the history and showed that it had been sending its money to California for quite some time.

But we also wondered how other notable VC firms in Boston would look against that measuring stick. Today, we’ve got an answer.

The analysts over at CB Insights have taken the past five years’ worth of first-investment data from seven other Boston-area VC firms based on the headquarters of companies that cashed those checks. Six of those seven firms are investing less in Boston than they used to—but some of them maintain a stronger tie to their home market.

Cambridge, MA-based Atlas Venture is the only firm among the seven analyzed that actually invested more in Boston last year than it did in 2009: 47 percent of Atlas’s first investments were based in the Boston area, compared with 44 percent five years earlier.

If the first half of this year holds out as a yearlong trend, the percentage of Boston-area companies backed by Atlas could reach a high point in 2014.

 

On the other end of the spectrum was Flybridge Capital Partners, which saw the largest percentage-point drop in its share of Boston-area first investments over the past five years, among the group analyzed by CB Insights. (The other firms were North Bridge Venture Partners, Polaris Partners, General Catalyst, Highland Capital Partners, and Spark Capital.)

In fact, the Flybridge investment pattern basically inverted—in 2009, 71 percent of its first investments were in Massachusetts, with the balance in other states (not including California). Last year, the Massachusetts-based first investments were down to 33 percent, with the rest flowing to startups based in other states.

The interesting tidbit here is that, according to CB Insights’ research, the Flybridge involvement in California has been relatively inconsistent. Quite a few checks were written to startups in the tech industry epicenter in 2012, but participation there was small to nonexistent otherwise.

The first half of 2014 looks quite different, with CB Insights’ analysis showing a big ramp-up in Flybridge investments in California companies.

 

The interesting question here is whether this matters very much.

Venture capitalists are looking for the best deals in the most promising companies, and particularly in this era of more distributed communication and broader access to technology, there’s a sense that VC should be a much less place-constrained source of money than in the past.

Of course, VCs want to be invested in the biggest winners coming out of their own backyards. But if there are big fish in other cities, venture investors will want to get a piece of those deals as well—VC investing is a business of hits, and most of the sizable returns go to a relatively small number of firms.

So, does it matter if VCs are opening their checkbooks on one coast or another? I guess it depends which side of the table you’re on—for startups who can’t get a dime from the investors in their hometown, it’s probably frustrating. For the pension funds, foundations, and other backers who actually supply the money VCs are investing, the logic of finding the best deals is clearly the winner.

The civic concern of how to make or keep one city’s startup scene vibrant may factor in there somewhere, but it seems like mostly a side concern to almost everyone with the money to spend.

Curt Woodward is a senior editor for Xconomy based in Boston. Email: cwoodward@xconomy.com Follow @curtwoodward

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