Trinity’s Fred Wang on Thinking Outside the Silicon Valley Box

When it comes to investing in technology startups, anywhere beyond Silicon Valley is considered a “secondary market.” It’s just not possible to find a comparable density of super angel investors, venture capital firms, and tech startups anywhere else. Of the nearly $31 billion that venture firms have invested nationwide through the first half of 2015, the MoneyTree Report found that over $15 billion went to Bay Area deals.

Yet as Menlo Park, CA-based Trinity Ventures invests its eleventh fund, partner Fred Wang says the firm has been seeking more geographic diversity for its tech deals than it has with previous funds. Beyond the intense competition with other venture firms for deals and talent, Wang says that such basic ingredients as affordable office space are becoming constrained with the escalating costs of doing business in Silicon Valley.

While most of Trinity’s investments remain in the Bay Area, Wang says Trinity’s 12 investment partners have been spending more time thinking outside the box that is Silicon Valley. The firm has been most active in Southern California, particularly in Orange County and San Diego, Wang says. Before this year, Trinity’s investments in San Diego include ID Analytics, Ensemble Communications, Avaak, and eAssist.

Earlier this year, Trinity led a $2.3 million seed funding round for Harvest.ai, a San Diego cybersecurity startup using artificial intelligence to prevent data losses, and an $8.3 million round for Dealstruck, a San Diego fintech making small business loans.

Trinity’s hunt for deals outside the Bay Area was a welcome message for the 600 entrepreneurs and others who gathered at the Manchester Grand Hyatt downtown to hear Wang give the keynote talk Friday at the San Diego Venture Group’s 13th annual Venture Summit.

Fred Wang

Fred Wang

Outside of the Bay Area, “There’s this envy about the amount of money and some of the valuations you see in Silicon Valley, and I think that’s a big negative,” Wang says. Startup valuations get bid up because of what Wang calls “the Silicon Valley echo chamber.” When tech companies look to go public, “they can’t get valuations in the public market that exist in Silicon Valley. There’s a big overhang. It’s kind of nice to avoid all that drama.”

In Silicon Valley, “the cost of everything is about twice as much as it is anywhere else,” Wang says. The commercial real estate market appears to be approaching the saturation point, making it nearly impossible to build, and leased office space is about three times more expensive than in other markets, he says. The competition for talented employees is such that the average tenure in many places is as low as 18 months.

In secondary markets like San Diego, Seattle, and Portland, OR, Wang says startup valuations tend to be better for Trinity because there are fewer investors, and less competition for deals. Lower valuations mean that investors also tend to get a better return on … Next Page »

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Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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