investment money flowing east from San Francisco

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" 4 South by Southwest predictions about the future of dealmaking March 16, 2022 Happy Wednesday, Term Sheeters! I’m back in Bentonville and reflecting on some of the conversations, panels, and events from the weekend at South by Southwest. Here are some of my predictions about the future of funding: 1. Money will continue to flow beyond Silicon Valley, especially in the early stages. Your startup doesn’t have to be in California anymore to get a check. In 2021—the strongest year in dealmaking ever—the states that experienced the biggest uptick in funding may surprise you: Vermont, Montana, Iowa, and Idaho. Specific cities like Minneapolis, Miami, Houston, and Raleigh all had approximately 150% more deals signed in 2021 than they did the year prior, per Pitchbook. Investors aren’t bored with Silicon Valley, as VC activity is at record levels there, too, but investors have never been as willing to look outside of that region as they are now—particularly in the early stages. “The capital is still going to be in the Bay Area and New York—that will probably never change,” Kyle Stanford, a senior analyst at Pitchbook, told me on the sidelines of the conference. “But the ability to easily meet with a company in the Midwest or in the Southeast, where it might have been a four or five-hour flight is making it much easier.” 2. Every startup that implodes will land its own Hulu or Netflix series It seems like every startup-gone-wrong is getting its own T.V. show. WeWork’s debacle got a day in the spotlight at South by Southwest with the premier of the new Apple TV series WeCrashed, which stars Anne Hathaway and Jared Leto. The first episode spotlights an Adam Neumann who doesn’t take the word “no” to heart, is really bad at yoga, and frequently stretches the truth to get his way. 3. Federal agencies will further codify programs to work with seed-stage companies. The federal government sets aside $4 billion in annual taxpayer dollars to invest in startups via what it calls America’s Seed Fund. Those funding dollars are competitive, but pretty attractive: It’s a non-dilutive investment, where founders keep equity themselves. The funding is aimed at supporting innovation and potentially developing commercial relationships. Representatives from three of the most active agencies in the program—NASA, the National Science Foundation, and the U.S. Army—were trying to raise awareness for the program at a panel at South by Southwest and spoke about how they’re building out their own programs. The agencies focus on high risk, but high impact technologies. 4. More startup founders will question the incentives of the VC model. Venture capital isn’t the way to go for everyone—perhaps especially for a company that is on the path to profitability early on. Riana Lynn, founder of food tech company Journey Foods, said on a panel Sunday that investors were concerned that her company’s numbers were trending towards a profit by the end of this year. “People are scared of you breaking even or becoming profitable—we are having that problem now,” she said, adding later: “If you don’t need them and funds raised in subsequent rounds, then it doesn’t make sense for their ownership in the long-term.” “So you’re being penalized for being good at your job?” investor Arlan Hamilton of Backstage Capital quickly retorted. With the public markets souring, it may be interesting to watch whether a divergence in incentives will surface more frequently. “You start to wonder if venture is always the right model for you, anyway,” Lynn said. See you tomorrow, Jessica Mathews Twitter: @jessicakmathews Email: jessica.mathews [ ] fortune [ ] com https://hbr.org/1998/11/how-venture-capital-works#:~:text=%20How%20Venture%20Capital%20Works%20%201%20Venture,two%20years%20of%20a%20company%E2%80%99s%20start-up%2C...%20More%20