Location, Location, Location
Over the last few months I’ve gotten to know someone who is in the process of creating a holding company to build a portfolio of businesses. At one point in our conversations the question of location came up, where should they establish HQ of their capital vehicle? This friend had a few requirements: Pacific Northwest, relatively small city, close to the coast and the mountains, airport with commercial service, and a nice quaint, college-town feel. As a native Oregonian, I immediately thought of Bend, OR but it failed to satisfy the coastal requirement and isn’t necessarily a “college-town.” Bellingham, WA was another suitable city and one we found satisfied most requirements compared to other options. It has an airport, is close to Mt. Baker for skiing, is home to Western Washington University, and is right on the water.
This went back and forth for a few minutes and, after our conversation, the concept of location stayed in my mind. How do you choose a good location for your new capital vehicle?
You might consider a lot of the same factors my friend and I discussed: airport with commercial service, city or region populated enough to have transact-able businesses, favorable cost of living and tax policy, and a place you would enjoy living, after all if you’re hanging your own shingle you might as well be able to choose a place you’d love.
Perhaps the biggest factor to consider when making this decision is what your investment strategy will be. If you are going to be running a 2/20 private equity fund structure, then placing yourself in a larger city could give you more opportunities at larger companies and credibility as a financial buyer. However, if your focus is on smaller companies with owners who founded them and are weary of financial buyers, then perhaps a smaller city would help distinguish your firm from private equity buyers. (I’m assuming most readers would fall into this category) There are several small companies investors I’ve gotten to know who actively try to distance themselves away from private equity and placing your firm in a smaller city is one way to reinforce that distinction.
There are a number of firms who distinguish themselves from private equity and use small towns to their advantage, some of whom have been on the podcast: Chenmark Capital (Portland, ME), Little Engine Ventures (Lafayette, IN), Adventur.es (Columbia, MO), Traction Capital Partners (Tacoma, WA), Tiny Capital (Victoria, BC). What these locations all have in common though are the relative close proximity to major cities: Portland > Boston, Lafayette > Indianapolis, Columbia > Kansas City & St. Louis, Tacoma > Seattle, Victoria > Vancouver & Seattle. This gives each firm the benefits (both real and perceived by business owners) and the increased investment opportunities that come in larger cities.
When choosing a location to start your own capital vehicle, it’s important to find a balance between investment strategy, opportunities, and quality of life however you define it. Family, familiarity, and strength of personal network will also be factors to consider, and finding a location that blends these all together can be hard. But if you’re going your own way, putting your capital and career at risk for greater rewards, think carefully and find a place you’ll love for decades.
Ryan Caldbeck of CircleUp wrote a fantastic Twitter thread about quant funds moving into private equity and why they’re struggling to do so.
There was an anonymous Twitter account SuperMugatu who just revealed himself on Friday and published a fascinating paper on the dating market and how online dating has affected it. I loved reading this paper way more than I thought I would and I highly recommend it.
Little Engine Ventures wrote about how piloting a permanent capital vehicle is like being a ship captain.
While this site is focused on starting a micro VC firm, it has a lot of applications to micro PE as well.
If you found an interesting article, podcast, or interview that I missed, please let me know, I’m always looking for interesting stuff!