There are many differences between the startup scenes in the east coast and west coast. The west coast overall is a much more mature market with a lot more capital to put to work and east coast, primarily New York, has exploded in the last few years. I meet with New York investors and their surprise to west coast Silicon Valley companies is fairly consistent. Seed valuations for product stage and company progress are higher, looser deal structures are more common and due diligence expectations always seem to surprise a west coast native in an east coast environment.
These three points are all a product of the Silicon Valley market. Due diligence expectations in particular is a product of an investors’ professional history. West coast seed investors, specifically influential angels, may have experienced their success from the startup ecosystem where they had to create value over 2-3 years and had a successful exit. Their expectation of value creation is on a much shorter horizon than that of the larger population of successful east coast angels.
Operation expertise of angels on the east coast will vary but their professional history entailed decades of value creation. Understanding customers, growing a company from 500K to 2M, 2M to 20M and 20M to 100M+ in a non viral internet environment requires business savvy. West coast certainly has their share of business savvy investors, however their professional history in timeline and expectations of value creation leads them to evaluate companies differently at the seed stage. East coast investors do not easily make decisions after one meeting, unless you have the answers to all of their questions, even then they may want to do their own independent research to validate your assumptions and claims.
The Silicon Valley market is also crowded with capital and startups, which leads to the two other byproducts of their market: higher valuations and looser deal terms. They accept that the startup failure rate is high and hopefully have a network of venture capital funds that will protect them in future rounds of financing. I do not know how protected angels in Silicon Valley deals are in subsequent rounds, but this scenario can get ugly for angels. They can be denied round participation, bought out too early and miss the reward of the bigger exit in the future or any number of other rights denied for previous investors.
I explain this difference to entrepreneurs and east coast investors often. All investors want to invest in a great team that is addressing a real pain point in a large, growing market with a real solution and impressive execution. The means to evaluate these investments simply varies.
Due diligence is essential but it should be a priority for investors to get to a No quickly. Entrepreneurs should be focused on building their business and the work that goes into fundraising should always be productive. Entrepreneurs remember to know your audience, even when it comes to investors.