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Geographic diversity builds better startups and entrepreneurs

Background reading:

A noticeable theme over the past 2-3 years is the “cross pollination” of startup ecosystems. By that I mean that the traditional zero-sum “us v. them” mindset between cities has given way to increased collaboration and communication between quality founders, investors, accelerators, etc. across geographies. For entrepreneurs, this is unequivocally a good thing. For other ecosystem players, it’s more complicated, and it can result in lots of whining. I’ll explain why below.

Politics v. Merit

One of the first things I advise founders to be careful of as they engage their startup community is political “referral circles.” By that I mean people who will always refer you to X (advisor, investor, accelerator, lawyer) for no real reason other than that person refers people back.

Referrals from trusted connections can be an extremely efficient way to cut through noise and find good people, but that’s not the case when referrals are based more on politics than merit. And the fact is that the more closed an ecosystem is, the more likely politics is dominating.

This “localism” is a huge reason that inexperienced entrepreneurs end up burning lots of time and money dealing with bad advisors, investors, and other people, instead of connecting with outsiders who are a much better fit but aren’t as “politically” connected on a local level.

This “localism” is a huge reason that inexperienced entrepreneurs end up burning lots of time and money dealing with bad advisors, investors, and other people, instead of connecting with outsiders who are a much better fit but aren’t as “politically” connected on a local level.

Reputation and meritocracy punish bad actors

One of the most powerful benefits of cross-geography connections is how it penalizes bad actor investors. As I wrote in Local v. Out-of-State VCs and How Angels & Seed Funds compete with VCs, the behavior of investors toward entrepreneurs is directly correlated to the degree of competition felt by those investors. When VC investing was all local, a handful of funds could effectively do what they wanted with the local startups “captive” to their interests.

But with cross-geography capital flows, in addition to more transparent “reputation markets,” good investors magnify their reach, while local bad actors (the assholes) get stuck with only the weaker companies that lacked better options.  

Game connects with game, across geographies

Cross-geography collaboration is ultimately a flight to quality and “fit.” The needs of entrepreneurs are extremely diverse and virtually impossible to serve within an X-mile radius.  If you’re competing for national and international scale, you need to let go of the values of a “farmers market,” and fast.

Local pride is a beautiful thing, but it becomes a crutch when it excuses mediocrity, and lets politics override merit.  By expanding their geographic reach, entrepreneurs are able to find better talent in order to build better companies. Nothing builds strong local startup ecosystems like competitive, successful companies.

Sponsored Post. Contributor: Jose Ancer, Technology & Venture Capital Partner, Egan Nelson LLP