Fundraising for Out-of-towners in an Accelerator

I visited Techstars Cloud in San Antonio earlier this week while the companies are in the last month of the program and thinking about fundraising. I re-read Tomasz Tunguz’s post “The Importance of Hometown Investors for Startups” after having a similar conversation with multiple companies.

Startups that relocate for an accelerator program have unique advantages and disadvantages when it comes to fundraising. Making the most of the advantages greatly outweighs the disadvantages. In just a few months, the founders’ network will spike in number and value because they’ll have at least two cities with deep connections. That said, there are a few strategies to consider before going into the program. Below, I discuss approaching different scenarios. These are similar to the thought exercises we were diving into during those accelerator interviews.

 

The company knows it's returning to the original location post-program:

Being able to secure investment from the accelerator city’s investors is a huge win and vote of confidence. Initial interest in that new city is being influenced by being in that program over local companies not chosen/participating. The investors now have a company they wouldn’t otherwise see and can consider the out-of-town deal. Bringing that vote of confidence back to local investors can be huge.

If you have/get local investment from the hometown it’s more good signaling to investors in the accelerator city. That’s more security for making an out-of-town investment.

The company isn't sure:

This scenario may come down to where you can get investment. The new network is invaluable and can’t be forgotten, but stay flexible to move wherever the investment happens. Many Bay Area investors aren’t doing deals in companies that remain outside of the the area. This doesn’t mean everyone came from SF, though. Stay in the accelerator city if the lead investor comes from there, return home if the money is there, or move to the city with proximity to investors or customers.

The company is permanently moving to the accelerator's city:

Here is the easy one. You need to get investment from the new city. Network through quickly and take advantage of being the new kid on the block. I’ve seen plenty of startups have local press do stories about their moves because of an accelerator. Warm up relationships with angels and funds throughout the accelerator period with the intention of asking if they’re committing in the future.

 

Having investors from the previous hometown is, again, a very big plus. However, getting local investors in your new HQ city is plenty of reason for a return trip to where you moved from for a fundraising blitz. Your network knew you before, they were excited about you getting into an accelerator program, and, despite losing you to that city, it’s a deal that requires serious consideration. The investors that committed helped create that momentum.

There is always a healthy discussion around this subject and the multiple scenarios that come from it. The approach to fundraising doesn’t happen once the investor deck is complete. It’s a constant thought process of positioning and using momentum to improve the chances for success. Consider the move as an opportunity to start another p of that exercise. Just remember to research which investors don’t invest in companies outside of their own city to avoid wasting time.