The Myth of the Magical Money Fairies
There are a lot of myths and misconceptions that exist around the world when it comes to Silicon Valley. In my experience, no topic is more misunderstood (and, frankly, misrepresented) than fundraising.
It makes sense. Silicon Valley is by far the largest source of capital for tech startups. Combine that with the fact that most folks in other ecosystems learn about its dynamics through click-bait funding announcements loosely wrapped as “journalism” and its easy to understand how perceptions can be skewed.
There’s one myth in particular that I’ve seen do more damage to startups around the world than any other: it’s the myth of the magical money fairies.
The myth of Silicon Valley’s magical money fairies is deeply entrenched in many ecosystems around the world. And it really is a myth in the truest sense. For millennia, human folklore has contained popular stories about treasures and fortunes that have some grain of truth, but are vastly overstated in terms of likely outcome. For example, most children learn the old Irish myth about leprechauns with pots of gold at the end of a rainbow. All you need to do is catch one and, voila!
Replace “leprechaun” with “Silicon Valley VC” and you’ll see where I’m going with this one.
(As an aside, the leprechaun myth had its origins back when vikings invaded Ireland, buried looted treasure around the island and eventually left while leaving some of their stolen gold behind to eventually be discovered by locals…).
So what exactly is the myth of the magical money fairies?
Simply put, there is a pervasive belief around the world that it is easier to raise money in Silicon Valley, because VCs there are more risk-taking / willing to invest / willing to “take a chance”. Like magical money fairies, they will obviously be willing to invest. You just need to get to them.
Like any myth, there are grains of truth at its core. For example, VCs in Silicon Valley are more willing to invest in pre-prototype companies than VCs in other ecosystems. But it’s not because they’re more risk-taking, it’s because more of them have the technical background needed to “invest in napkins”.
Similarly, it is broadly true that founders can raise a round of funding quicker in Silicon Valley than in other ecosystems (which can feel like the investors are more risk-taking / willing to invest / willing to “take a chance”). In reality, there are two key dynamics at play:
There are generally more VCs in Silicon Valley that invest in a given industry than in other ecosystems (which makes it possible to have more credible pitches in a shorter period of time).
Silicon Valley VCs have learned to perform deep diligence much faster than VCs in other ecosystems (and often in ways that are imperceptible to founders). That can feel like they’re doing less diligence, though I promise that’s not the case.
What makes this myth particularly dangerous is the unrealistic expectations that many founders (and ecosystem proponents) have when it comes to Silicon Valley VCs as a result of it. Here’s a dynamic I’ve seen play out hundreds of times:
A founder tries to fundraise locally, but struggles.
They receive consistent, repeated feedback from multiple local investors. Rather than paying attention to the feedback and addressing it, they attribute it to “risk aversion” and keep going.
Emboldened by fundraising books, blogs and well-meaning supporters who loudly cheer “you just need one yes”, they keep going. They limp along from investor to investor, often for months.
As they approach the end of their runway, having lost 6+ months of time fundraising (and having not addressed the core challenges of the business or made further progress), they spend their last bit of money on a “Hail Mary” trip to San Francisco.
Landing in the Bay Area, they finally meet Silicon Valley VCs. All of whom see the exact same weaknesses in the business that their local investors saw, plus a company with no runway and a founder who wasn’t willing to listen to feedback.
The fundraising trip fails and the founder returns home, closing the business shortly thereafter.
Unfortunately, those stories rarely make it back into the ecosystem. Many founders who travel this path eventually realize their folly, but are too embarrassed to share their experiences publicly in ecosystems that are more likely to punish failure than celebrate the attempt.
Absent these important stories, the myth of the magical money fairies perseveres — in part because the handful of outlier founders who do end up raising in the Valley typically make a lot of noise about it.
It is, of course, true that Silicon Valley VCs often see things differently than investors in other ecosystems. But that goes both ways.
Silicon Valley VCs might see an opportunity that local investors don’t. They might be willing to take a chance on a founder that local investors aren’t convinced about (Jesse Rodgers refers to this as small-town bias).
But they’re just as likely to be skeptical about a business that local investors are tripping over themselves to back. I’ve seen plenty of startups over the years fail to raise in Silicon Valley, despite their hometown investors being incredibly bullish (a different perspective on revenue and growth is often the culprit).
Despite what many founders and ecosystem supporters continue to believe, it isn’t easier to convince a given VC in Silicon Valley to invest in a company — it’s much, much harder. But there are far more VCs in Silicon Valley than in other ecosystems and, generally speaking, they make faster decisions.
So what is a founder to do with this information?
Simple. If you are trying to raise a fundraising round, you should absolutely include Silicon Valley VCs in the mix. But don’t do it at the end of your process, do it in parallel. Understand that the vast majority of early-stage funding rounds happen locally — the mythical U.S. lead investor does not, in fact, exist. But fundraising is a numbers game and the more potential investors you have in the mix, the more likely you are to succeed.
Just don’t expect Silicon Valley VCs to gloss over legitimate concerns that local investors have raised. VCs in different ecosystems do see the world differently. But none of them are charities. Their job is not to “give you a chance”, it’s to generate a return on investment.
In that sense, they are actually magical money fairies…for their LPs.