Mark Cuban on Silicon Valley Venture Capital Investment
Mark Cuban is an entrepreneur with a net worth of $2.6 billion and owns NBA's Dallas Mavericks. He has appeared in several movies and numerous TV programs.
One of the latter is Shark Tank, where he appeared as a guest shark investor in Series 2 and has been a regular on the series ever since. This is a program where the goal is to persuade investors to go with an idea and a management team, with the ultimate aim to get seed investment to help expand the company. He therefore knows a few things about investing! He also knows a thing or two about Silicon Valley.
He has commented that a major difference between San Francisco's Silicon Valley, Silicon Alley (NYC) and Los Angeles is that in Silicon Valley "people are willing to buy companies" while in the others they simply want to invest in them. This results in different forms of exit which in turn leads to the Silicon Valley community being unique.
This is not a unique view of course, but coming from Mark it possesses a degree of authority. He compares the valuations of new starts between the different areas, saying that a Stanford MBA or Grad will get an $8 million valuation, in comparison with $4 million for a New Yorker with the same idea and $1 or $2 million for anywhere else. This gives a Silicon Valley startup an immediate advantage over similar starts elsewhere. Investors will tend to sink their funds in the highest valued of similar potential businesses.
He stated that venture capitalists in Silicon Valley were afraid of missing out on the next 'big thing' and so directed their funds to that area in preference to anywhere else in the country. This is not 100% correct, since a great deal of venture capital is distributed to the eastern areas of the USA and others outside of Silicon Valley. However, it may have a degree of accuracy if an investor is given the choice of two entrepreneurs with similar ideas – the Silicon Valley option will win most times.
Fundamentally, what Mark Cuban appears to be saying, is that if you have a good idea and base yourself in Silicon Valley you are practically sure to get start up cash, while those with the same idea in New York are not so sure.